Morningstar Rating

Stock Research and Analysis

by Ross MacMillan

Bulls Say

Up until 2013, KT generated solid free cash flow despite government intervention and strong competition. If new cost cutting measures are successful this free cashflow (and resulting dividend) can be restored.
New management is addressing the cost base, with an Early Retirement Package in 2014 leading to 8,300 people retiring and is expected to reduce total costs by over KRW 500 billion per annum. Capital expenditure is also being cut by 25%.
All telecom operators in Korea will benefit from the Handset Distribution Act which could be implemented in October 2014 and would likely reduce overall handset subsidies in the industry. Read more 

Bears Say

KT’s fixed line revenue declined by 7% in 2013 and declines of similar magnitude are expected in the near future.
By expanding into non-telecom businesses, KT is moving away from its core competence and economic moat into more competitive businesses.
Because of weak revenue and earnings since 2010, KT has gradually cut its dividend from KRW 2,410 per share in 2010 to KRW 800 per share in 2013. Given earnings are likely to decline further in 2014 there is some risk to our KRW 800 per share forecast dividend in 2014. Read more 

Management

We rate KT stewardship as Standard.  Capital allocation decisions have been reasonable and the new management team is making sensible decisions but previous management teams have been clouded with allegations of corruption.
Senior management at KT has   Read more 

Profile

KT Corp. is the largest fixed-line telecoms operator in South Korea, with 17.8 million customers, including 3.5 million VoIP subscribers. It is the largest broadband firm,  Read more 

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