Morningstar Rating

Stock Research and Analysis

by Dan Baker

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 cash flow (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 was also being cut by over 25% in 2014.
All telecom operators in Korea should benefit from the Handset Distribution Act which was implemented in October 2014 and should reduce overall handset subsidies in the industry. Read more 

Bears Say

KT’s fixed line revenue declined by 7% in 2014 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.
Since 2010, KT has been gradually cutting its dividend on weak revenue and earnings, from KRW 2,410 per share in 2010, to eliminating it completely in 2014. Continued earnings weakness may mean no reinstatement in 2015. 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 South Korea's largest fixed-line telecom operator, with 17.3 million customers. It is the largest broadband firm, with 8.1 million customers; the second-largest   Read more 

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