SK Telecom Posts Higher Earnings - Analyst Blog

Ace South Korean telecom firm SK Telecom Corp. ( SKM ) reported second quarter 2013 results. Quarterly consolidated net income shot up to KRW 468.0 billion (approximately $421.2 million) from KRW 120.6 billion (approximately $108.5 million) in the year ago quarter aided by strong contributions from SK Hynix.

Consolidated operating revenue grew 3.9% to KRW 4,164.2 billion ($3.7 billion) in the second quarter driven by higher numbers of LTE subscribers and growth in new business that includes B2B services.

Segment Revenues

Mobile service revenues increased 4.5% year over year to KRW 2,787.0 billion (approximately $2.5 billion). Interconnection revenues declined 17.9% to KRW 217.0 billion (approximately $195 million), while new business and other revenues were up 48.1% year over year at KRW 205.0 billion (approximately $157.5 million).

Operating Income & Expenses

Consolidated operating income grew 33.2% to KRW 553.4 billion (approximately $498.1 million) in the second quarter as a result of lower marketing expenses. Operating margin was 13.3%, up 290 basis points.

Operating expenses crept up 0.5% year over year to KRW 3,610.8 billion (approximately $3.2 billion). Marketing expenses decreased 11.2% year over year to KRW 853 billion ($767.7 million) as the company is focused on promoting its services through advertising rather than subsidy-based marketing strategies.

Subscriber, ARPU & Churn

During the quarter, subscribers increased 1.8% year over year to 27.1 million with net addition of 110,000 customers.

Average revenue per user (ARPU) went up 4.9% year over year to KRW 41,892 (approximately $37.7) on increased LTE subscribers. Churn rate decreased to 2.3% from 2.4% a year ago as the company is seeking customer retention through its marketing initiatives.


As of Jun 30, 2013, SK Telecom had KRW 1,693.0 billion (approximately $1.5 billion) of cash and marketable securities on its balance sheet compared with KRW 1,698.6 billion (approximately $1.5 billion) in the comparable quarter last year. Debt-to-equity ratio was 51.5% compared with 61.5% in the prior-year quarter. Capital expenditure decreased to KRW 293.0 billion (approximately $263.7 million) from KRW 616.0 billion (approximately $554.4 million) in second quarter 2012.

Our Analysis

Looking further into 2013, SK Telecom's focus on developing LTE-Advanced technologies as well as deploying 5G Wi-Fi hotspot routers is encouraging. Further, the introduction of new services, investment in high-speed Wi-Fi and data femtocell, foray into mobile software businesses and various collaborations are expected to boost the company's long-term results.

However, the company's investment in advanced wireless networks along with mobile tariff cuts will likely hamper profitability in the coming quarters. Additionally, stiff competition and regulatory issues will continue to act as headwinds.

SK Telecom currently retains a Zacks Rank #3 (Hold).

Other Stocks

Stocks worth considering in this sector are NTT DOCOMO, Inc. ( DCM ), Turkcell Iletisim Hizmetleri AS ( TKC ) and Fairpoint Communications, Inc. ( FRP ). While NTT DOCOMO has a Zacks Rank #1 (Strong Buy), Turkcell and Fairpoint retain a Zacks Ranks #2 (Buy).

NTT DOCOMO -ADR (DCM): Get Free Report

FAIRPOINT COMM (FRP): Free Stock Analysis Report

SK TELECOM CO (SKM): Free Stock Analysis Report

TURKCELL IL-ADR (TKC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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