The leading provider of wireless communication services in South
SK Telecom Corp.
) has reported second quarter 2012 results. Quarterly consolidated
net income plunged a massive 74% year over year to KRW 121 billion
(approximately $109 million). Increased investments in advanced
wireless networks, marketing expenses and tariff cuts were largely
responsible for the decline in the quarter.
Despite higher smartphone penetration and rising LTE subscriber
base, consolidated operating revenue fell 0.6% to KRW 4,015 billion
Mobile service revenue dropped 2.1% year over year to KRW 2,666
billion (approximately $2.4 billion). Interconnection revenue
declined 11.7% to KRW 264 billion ($229 million) while new business
and other revenue was down 18.6% at KRW 140 billion ($126 million)
from the year-ago quarter.
Operating Income & Expenses
Operating income fell 42.8% to KRW 385 billion (approximately
$347 million) in the second quarter, resulting in operating margin
of 9.6%, down 710 basis points. The decline was mainly due to the
reduction in mobile tariffs.
Operating expenses rose 7.9% year over year to KRW 3,631 billion
(approximately $3.3 billion). Marketing expenses rose 17.2% year
over year to KRW 960 billion ($864 million). Marketing to sales
ratio increased to 31.3% from 25.6% in the year-ago quarter.
Subscriber, ARPU & Churn
During the second quarter, subscribers increased 1.5% year over
year to 26.66 million with a net addition of 103 customers.
Average revenue per user (ARPU) fell 2.5% year over year to KRW
39,729 (approximately $35.21) owing to cuts in monthly mobile
service rates while the churn rate improved to 2.4% from 2.7% in
the year-ago quarter.
SK Telecom exited the second quarter with KRW 1,699 billion of
cash and marketable securities on its balance sheet compared with
KRW 1,785 billion in the year-ago quarter. Debt-to-equity ratio was
61.5% compared with 41.4% a year ago. Capital expenditure increased
to KRW 616 billion from KRW 559 billion in the prior-year
SK Telecom continues to lead the domestic wireless market
through successful smartphone offerings as well as the expansion of
its 4G LTE service. Moreover, 3G network expansion,
) iPhone offerings, cloud computing and mobile software businesses
should boost the company's long-term prospects. However, increased
promotional expenses and heavy handset subsidies may hurt the
company's earnings in the near future. SK Telecom is continuously
investing to improve its network visibility that would also
restrict its future earnings. Further, we remain cautious on tariff
reductions, intense competition from its biggest rival
) and heavy regulation by the Korean ministry.
We are currently maintaining our long-term Neutral
recommendation on SK Telecom. For the short term (1-3 months), the
stock retains a Zacks #4 Rank (Sell).
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