KT Company (NYSE:KT) Q3 2020 Earnings Convention Name November 6, 2020 1:00 AM ET
Seung-Hoon Chi – IRO
Kyung-Keun Yoon – Chief Monetary Officer
Convention Name Contributors
Hoi Jae Kim – Daishin Securities
Joonsop Kim – KB Securities
[Foreign Language] Good morning and good afternoon. To begin with, thanks all for becoming a member of this convention name. And now, we’ll start the convention of the 2020 Third Quarter Earnings Outcomes by KT. We want to have welcoming remarks from Mr. Seung-Hoon Chi, KT IRO. After which, Kyung-Keun Yoon, CFO will current earnings outcomes and entertain your questions. This convention will begin with a presentation adopted by a Q&A session. [Operator Instructions]
Now, we want to flip the convention over to Mr. Seung-Hoon Chi, KT IRO.
[Foreign Language] Good afternoon. I’m Seung-Hoon Chi, Kt’s IRO. This earnings launch name is being webcasted through our web site and you may comply with the slide as you eavesdrop on the decision. Allow us to now being KT’s Q3 2020 earnings presentation.
[Foreign Language] Earlier than we start, please word that as we speak’s presentation contains monetary estimates and working outcomes underneath the IFRS customary, and has not but been reviewed by an out of doors auditor. As we can’t guarantee accuracy and completeness of economic and enterprise knowledge, apart from historic performances, please be reminded that these figures are topic to modifications.
[Foreign Language] Now, I’d invite our CFO, Kyung-Keun Yoon, for his welcoming remarks and presentation on Q3 2020 earnings.
[Foreign Language] Good afternoon. I’m Kyung-Keun Yoon, KT’s CFO. Though mired with uncertainties each at house and overseas because of the extended COVID-19 pandemic rising from the present disaster, KT was in a position to carry steady topline development and uncover hidden alternatives for development.
[Foreign Language] Within the post-COVID world the place untouched tradition turned the brand new regular, we sustained subscriber development from the telecom enterprise whereas laying a foothold for brand spanking new development as a digital innovation associate to different industries underpinned by KT B2B capabilities in IDC, cloud, AI amongst others.
[Foreign Language] Final Could, after we communicated our mid-term monetary steerage as a part of the shareholder return coverage, we additionally communicated that our dividend payout ratio can be 50%. As well as, to additional improve company worth, VOD selected 300 billion received of share buybacks on November 5. We’ll proceed to exert greatest efforts to carry sustainable development to drive shareholder worth enhancements.
[Foreign Language] Now, transferring on to Q3 2020, financials, whole Q3 income declined 3.4% year-on-year to KRW6,001.2 billion.
[Foreign Language] On the COVID-19 influence, Handset income was muted, however there have been income declines from monetary, actual property, and different subsidiaries. Nevertheless, supported by regular development from Wi-fi, Media and B2B enterprise, service income elevated 0.8% on yr.
[Foreign Language] Regardless of efforts in direction of environment friendly spending, COVID-19 constrained subsidiary revenue, and because of this, working revenue fell 6.4% year-on-year to KRW292.Four billion.
[Foreign Language] However owing to steady efforts and operational innovation, which improved the non-operating earnings, internet earnings was up 7.9% year-on-year to KRW230.1 billion. EBITDA was down 1.1% year-on-year coming in at [KRW1,197.1 billion]. Subsequent web page is on working bills.
[Foreign Language] Our working expense, regardless of the wage increment being retroactively paid out this quarter, following the 2020 collective bargaining, due to value controls and effectivity measures working expense was down 3.3% year-on-year to [KRW 5,708.8 billion]. Subsequent is on the monetary place.
[Foreign Language] Debt-to-equity ratio as of Q3-end was 129%, up Eight share factors year-on-year. Internet debt ratio was up 2.9 share factors year-on-year to 31%. Subsequent is on CapEx.
[Foreign Language] CapEx spend as much as the third quarter was in whole [KRW1,784.1 billion]. Within the remaining yr, we plan to develop 5G protection centering round shadow zones and underground subways to the extent that customers can really really feel the distinction. Subsequent, I’ll elaborate on particular person enterprise segments by way of their efficiency and future outlook.
[Foreign Language] Wi-fi service income was up 0.9% year-on-year to [KRW1,742.1 billion]. With extended COVID-19 influence, roaming income fell by a big margin, however in a sturdy development of 5G high quality subscribers, wi-fi service income was up 0.6% year-on-year to [KRW1,636.2 billion]. For those who took out the roaming influence and accounting modifications on the membership level, wi-fi service income improve was 3% versus final yr.
[Foreign Language] Complete wi-fi subscribers in Q3 elevated to 200,000 reaching [22.333 million]. As of Q3, there was [2.810 million] 5G subscribers accounting for 20% of the handset subscribers.
[Foreign Language] Following the [Super Power] plan, we launched mid-to-low finish tariff plan in October. And for 5G clients who worth the media expertise, we launched a Netflix [bundle] plan, giving extra option to our clients.
[Foreign Language] KT, with its lengthy observe file of [NoHo] as the primary to introduce iPhone within the home market drove 5G growth via iPhone 12, which was launched again in October, 30. And by solidifying core competitiveness, we’ll proceed to drive development going ahead. Subsequent is on Fastened Line and IPTV enterprise.
[Foreign Language] Fastened Line telephony income was down 7% year-on-year to [KRW369.2 billion] on decreased subscribers. Broadband web income was down 0.3% on yr to [KRW498.7 billion] on stronger retention actions, i.e., concentrating on of GiGA Web subscribers with nearing expiry of contracts.
[Foreign Language] Within the post-COVID age, in-home Web atmosphere has change into ever extra vital. And in June, we launched a brand new WiFi idea service known as GiGA WiFi, rising market responses and increasing our subscriber base. By offering a whole set of Web companies from Fastened Line Web to WiFi inside folks’s houses, KT can additional solidify its management within the broadband Web market.
[Foreign Language] Pushed by double-digit development of subscriber internet addition and income, IPTV income was up 11.9% year-on-year to [KRW459.3 billion]. Supported by Netflix partnership, unique exhibiting of well-liked [indiscernible] efficiency and thru trendsetting content material, OLED TV, which was the most important – which has the most important content material pool in Korea, with 250 stay channels and 210,000 VOD titles, had an extra increase in competitiveness, which drove improve in on-boarding of high-quality subscribers.
[Foreign Language] KT will reply nimbly to quick remodeling media market in order that it could proceed to strengthen its place as a No 1 pay TV supplier. Subsequent is on the B2B enterprise.
[Foreign Language] B2B income was up 0.8% on yr to [KRW690.3 billion], particularly the AI/DX enterprise, which we used as a foothold for increasing digital transformation demand, recorded a development of 8.1% year-over-year.
[Foreign Language] As a number one firm in DX, particularly digital transformation, we plan to ramp up development within the B2B market. On October 28, we launched KT Enterprise, which is a B2B unique model and likewise opened [indiscernible] IDC on November 4, which is our 13th IDC, which all additional built-up our place as a No 1 IDC and cloud service supplier.
[Foreign Language] We’re additionally actively introducing [untouched] options of KT to be utilized in lots of areas together with schooling, leisure, name facilities and distant working. We additionally efficiently received authorities initiatives on digital new deal initiatives, and as such, we anticipate B2B enterprise development will come underneath full power.
[Foreign Language] Resulting from distinct DX platform underpinned by the so known as ABC, which stands for AI Huge Information and Cloud and KT’s community infrastructure [promise], we will likely be a digital innovation associate to corporations serving to them develop and speed up digital transformation for Korea as a nation. Subsequent is on performances of group subsidiaries.
[Foreign Language] Because of the prolonged influence from COVID-19, revenue contribution from associates declined 25.4% year-on-year to [KRW85.6 billion]. BC card income was down 0.6% on yr to [KRW863.4 billion] on decrease buying quantity following the pandemic outbreak.
[Foreign Language] Ok-Financial institution, which resumed operations from July, noticed its new product and companies like the web residence mortgage loans drive robust efficiency, resulting in a six-fold improve in every day new clients, but once more, confirming market potential.
[Foreign Language] As Korea’s first Web-only financial institution, we plan to develop the contact record, monetary companies in not solely B2C, but in addition in B2B section. And underneath the target of turning revenue in 2022 and going IPO in 2023, we’ll search synergies with KT, BC card and different shareholder corporations and holding occasions that create the thrill, we’ll go full power at buying new clients.
[Foreign Language] Skylife income was down 3.1% year-on-year to [KRW176.6 billion] and declined in subscribers for satellite tv for pc product.
[Foreign Language] Skylife has determined to amass Hyundai HCN price [KRW490 billion]. And by finishing the acquisition course of, we’ll make this a chance to additional improve our media capabilities.
[Foreign Language] Revenues from content material subsidiaries, which embody KTH, Genie Music, Nasmedia, on robust efficiency from content material and advert enterprise was up 8.6% year-on-year reporting [KRW194 billion].
[Foreign Language] This has been KT Group’s Q3 2020 earnings outcomes. With solely two months left, if we glance again at 2020, all of us felt the modifications introduced on by the COVID-19 pandemic. And for us at KT, it was a yr after we raced ahead to indicate a brand new facet of KT, totally different from the previous.
[Foreign Language] We had been steadfast at producing steady enterprise efficiency and being geared up with a brand new development engine of B2B enterprise and constructing out a sturdy governance construction and likewise notched up our efforts to reinforce shareholder worth from establishing the dividend coverage to share buybacks.
[Foreign Language] Final however not least, we anticipate 2020 financials will likely be an enchancment from final yr and can exert our greatest effort to carry higher performances for subsequent yr. We ask on your assist and curiosity and want solely one of the best to buyers and analysts. Thanks.
[Foreign Language] For extra info, please confer with the [IR] doc that we circulated and we’ll now entertain your questions.
[Foreign Language] Now, Q&A session will start. [Operator Instructions]
[Foreign Language] The primary query will likely be supplied by Hoi Jae Kim from Daishin Securities. Mr. Hoi Jae Kim, please go forward along with your query.
Hoi Jae Kim
[Foreign Language] I want to put up your questions. You could have introduced plan to purchase again your shares. Wish to perceive what the aim of that share buyback? Is it for translation? Or would you be utilizing that for M&A functions going ahead? And is it okay for us to think about share buyback as separate to your dividend payout? Second query is on a standalone foundation, we see that your cumulative internet revenue has gone up by 29% year-on-year and likewise that determine had really outperformed 2019 internet revenue determine. Wish to know if there are any modifications that truly came about in your working facet? And likewise since This autumn normally, usually, the expense degree is just not that prime, so can we anticipate greater degree of internet earnings on the finish of the yr? And has there been any, you recognize, sure modifications that came about in your non-operating enterprise facet?
[Foreign Language] Let me first reply to your query about share buyback. The evaluation of the administration is that the present share worth in comparison with the intrinsic worth of KT is considerably undervalued. As we have now communicated in Could, we even at a really conservative forecast, we expect that we can obtain [KRW1 trillion] of standalone working revenue [come year 2022]. We’re assured the additional enhancing our fundamentals and we anticipate our fairness costs, share costs to truly present an uptrend going ahead.
[Foreign Language] And so, we determined that the significant dimension of capital allocation is critical and that’s the reason we’ve determined [300 billion] of share buyback. In mild of a really quick altering operational backdrop, we felt that we would have liked to have an choice almost about capital allocation. And by way of the potential for canceling the shares which might be purchased again in mild of the longer term enterprise earnings, in addition to modifications within the enterprise backdrop, we really feel that that’s one among potential choices.
[Foreign Language] Responding to your subsequent query on dividends, we have now made an announcement within the earlier Company Day occasion that we are going to be paying out 50% of our standalone foundation adjusted internet revenue for the approaching three years. This coverage – dividend coverage nonetheless is legitimate. And by way of the precise quantity of the dividend, we’ll talk with the market as soon as our BOD is satisfied for This autumn.
[Foreign Language] Our resolution to do a share buyback was as soon as once more based mostly on the evaluation of the administration that the in comparison with the intrinsic worth of the corporate that present share costs are considerably undervalued. That was the idea for the choice to do a share buyback and it’s separate from our resolution on dividends.
[Foreign Language] When it comes to your query on our internet revenue and any modifications that we are able to establish on the non-operating facet, mainly, by way of the worker welfare fund, which was underneath the non-op merchandise, had been modified to an working expense. Because of this, the scale of that influence is about [KRW60 billion to KRW70 billion] each year foundation. And likewise, we’ve seen a fairly regular pattern for each disposition of losses for each the tangible and intangible property and people features contributed to the online revenue on the non-op facet.
[Foreign Language] As ending This autumn, we do anticipate some seasonality. However in comparison with earlier years, we anticipate extra enhancements as we go ahead.
[Foreign Language] We’ll take the following query, please.
[Foreign Language] The subsequent query will likely be introduced by [indiscernible] from [NH Investment Securities]. And the next query will likely be introduced by Joonsop Kim from KB Securities. Mr. [indiscernible], please go forward along with your query.
[Foreign Language] I’m [NH Securities] [indiscernible] want to ask you two questions. First is in your B2B enterprise. I see that your B2B income on an year-on-year development side appears to be a bit weaker. Are you able to clarify as to the explanation why? You have shared with [indiscernible] your imaginative and prescient and introduced KT Enterprise as a model and it looks like you are going to be fairly aggressive in offering companies based mostly off of your new IDC heart at [indiscernible]. If potential, are you able to give us what your development projection is on your B2V AI and DX enterprise after subsequent yr? If that is tough, no less than are you able to present some colour on the technique going ahead? And if there are any updates along with your collaboration with Microsoft and Cloud, may you additionally share that with us as properly?
[Foreign Language] The explanation why you’ve got seen a little bit of a weaker efficiency is as a result of a number of the giant scale initiatives that had been initially scheduled, the velocity had gotten a bit gradual. And you’re proper, we’re going to push and provides a really robust development momentum behind B2B enterprise. However whereas we’re doing that, we’re nonetheless going to be very conscious of development potential in addition to profitability. And if we see want for any rationalization, we’ll, in fact, positively take that route. However the mainstream pattern will likely be positively an upward pattern.
[Foreign Language] Concerning, KT’s B2B enterprise, we have now quite a few – on quite a few communicated that we are going to change into a platform supplier underpinned by our telecom infrastructure. As a No 1 B2B telecom service supplier, we have now been engaged not solely within the primary community provision, but in addition we’re engaged in nationwide catastrophe security and community, maritime and railway community.
We now have expertise of taking part in such giant scale nationwide infrastructure build-out venture. And we have now additionally been engaged in IDC companies as properly. For the reason that launch of 5G companies, we had been in a position to achieve about 170 B2B used circumstances. By such efforts, we would like to have the ability to create a enterprise and be capable to create a brand new market section for us.
[Foreign Language] And likewise, Katie is dedicated to increasing the B2B market via its DX companies. On prime of the 5G service and community functionality that we have now, we even have a aggressive edge by way of AI huge knowledge and cloud. Within the AI section we began off by offering Giga Genie set prime packing containers. And we very efficiently expanded into different AI companies, together with lodges and flats, in addition to a name heart. So we have now an expertise of bringing to success new B2B enterprise fashions.
For those who have a look at a name heart, we’re at the moment engaged on this enterprise along with our subsidiary Katie is and we have now been in a position to win 12 clients as of as we speak. For those who have a look at huge knowledge, Katie has its experience by way of telecom location based mostly and finance and fee knowledge, and it’s underpinned by these components that we want to additional develop on these companies.
[Foreign Language] And likewise KT is dedicated to increasing the B2B market via its DX companies. On prime of the 5G service and community functionality that we have now, we even have a aggressive edge by way of AI Huge Information and Cloud. Within the AI section, we began off by offering GiGA Genie set-top packing containers and we very efficiently expanded into different AI companies together with lodges and residence in addition to AI name facilities. So we have now an expertise of brining to success new B2B enterprise fashions.
For those who have a look at AI name heart, we’re at the moment engaged on this enterprise along with our subsidiary [KTIS] and we have now been in a position to win 12 clients as of as we speak. For those who have a look at Huge Information, KT has its experience by way of telecom, location base and finance and fee knowledge. And it’s underpinned by these components that we want to additional develop on these companies.
[Foreign Language] And likewise, KT as Korea’s No 1 cloud and IDC enterprise supplier, we had been very actively responding to a quick rising demand within the section. We now have really opened [indiscernible] IDC solely a pair days in the past really on the fourth of November. And now, we have now a complete of 13 IDCs in Korea, which actually helped us additional bolster our No 1 place within the home IDC area.
Particularly in relation to cloud, we’re offering very specialised and [indiscernible] companies to public and monetary trade. And in November, with the launch of KT DX platform, we anticipate our cloud enterprise capabilities will additional strengthen our clients and truly we had been in a position to really win 7,000 purchasers at this time limit. And mainly by — our B2B purchasers can get pleasure from KT’s very robust community and the most important scale IDC and cloud infrastructure and we will even be capable to present them with the answer. So our buyer base will be capable to get pleasure from built-in companies going ahead.
[Foreign Language] And as I beforehand talked about, we additionally launched our B2B model, KT Enterprise. By this effort, we wish to actually solidify our picture as a B2B specialised firm. And on prime of that, we have now a really robust aggressive edge in nation-wide gross sales channel. So pushed by all of those components, we anticipate that for subsequent yr, similar to we have performed for this yr, we can maintain a double-digit development.
[Foreign Language] Concerning your query notably about Microsoft as a result of it includes one other service supplier, please perceive that there are some confidentiality features to that. With regards to the cloud enterprise, fairly than our association with particular corporations, I feel what’s vital is that we are going to constantly be capable to cooperate with corporations each house and overseas by way of IDC and cloud and we can develop on that collaboration sooner or later.
[Foreign Language] We’ll take the following query, please.
[Foreign Language] The subsequent query will likely be introduced by Joonsop Kim from KB Securities. Mr. Joonsop Kim, please go forward along with your query.
[Foreign Language] Thanks. I am from KB Safety. I’m Kim Joonsop, want to ask you two questions. The primary would really like – may you present some extra elaboration on this 5G mid-to-low finish tariff plan? Would there be any cannibalization along with your present 5G plans? And what influence would this have in your subscriber development? And might you additionally share with us your monetary influence from iPhone launch?
[Foreign Language] To ensure that us to additional improve on the penetration of 5G companies, on prime of the present premium charges and to be able to facilitate the migration of the mid-to-low finish charge [indiscernible] the LTE subscribers emigrate a lot sooner to 5G. We launched  charge plans final October.
[Foreign Language] It has been solely a month for the reason that launch of this charge plan. It is tough to provide you any specifics about its influence. However having mentioned that, with – in the event you have a look at the October figures, there was some improve within the share of subscribers taking out to this mid-to-low finish tariff plan beneath [80K]. However nonetheless we see that individuals who’s really taking out the Tremendous Plan charge plan, which is above the premium tariff plan, above [KRW80,000], that share continues to be at round 80%.
[Foreign Language] And likewise, particularly on the finish of October, we launched Netflix alternative charge plan. We expect that this might really assist us appeal to extra high-end subscribers who take out charge plans within the vary of [KRW90,000 or KRW110,000]. This new charge plan may have some [indiscernible] some stress on the 5G ARPU decline, however we expect that it’s useful and that we are able to develop the bottom for 5G subscribers and that it may have a much bigger influence due to this fact on the topline.
[Foreign Language] Responding to your iPhone query, iPhone 12 is promoting fairly properly. And with the launch of iPhone in This autumn, we anticipate there to be a extra accelerated migration from LTE to 5G as a handset improve. And by the tip of the yr, we expect 5G penetration, based mostly on the handset, will improve to 25%.
[Foreign Language] And many of the iPhone subscribers really select the selective low cost charge plan. So we anticipate iPhone gross sales is just not going to considerably improve the advertising and marketing expense on our facet. So with extra expanded 5G subscribers and decreasing of the fee, we expect that we are going to have an uplift assist to revenue.
[Foreign Language] There are not any additional questions. So, we want to now shut our earnings presentation. As soon as once more, thanks very a lot for becoming a member of KT’s Q3 2020 earnings presentation. Thanks.
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