QUOTE AND NEWS
The Hindu Business Line  May 25  Comment 
The upside potential for the Indian poultry industry is expected to be huge due to the outbreak of avian flu in the US. And Erode-headquartered SKM Egg Products Export (India) Ltd will be no excep...
Cellular News  Apr 29  Comment 
SK Telecom's President and CEO Jang Dong-Hyun held a press conference at SK Telecom headquarters in Seoul to announce the company's new growth strategy with the aim to sustain growth amid rapidly changing business environment. Click here for more.
Reuters  Mar 20  Comment 
South Korean telecommunications firm SK Telecom Inc said on Friday it seeks to acquire the remaining 49.4 percent stake in internet services provider SK Broadband via a share swap...
Wall Street Journal  Feb 27  Comment 
Viber, one of the world’s most widely-used mobile messaging services, will appeal a patent infringement suit brought against it by South Korea’s SK Telecom Co., according to a person familiar with the matter.
TechCrunch  Feb 24  Comment 
 Free calling and messaging service Viber could be banned in South Korea, after the company lost a patent suit to domestic operator SK Telecom. Read More
Cellular News  Feb 20  Comment 
Last month at the 2015 Consumer Electronics Show, Ericsson announced License Assisted Access (LAA), sometimes referred to as LTE-U, a mobile technology innovation that improves indoor app coverage for smartphone users. Click here for more.
Market Intelligence Center  Jan 8  Comment 
After closing Wednesday at $27.11, SK Telecom Co Ltd (SKM) presents an attractive opportunity to get a 3.69% return in just 162 days, which is an annualized return of 8.32% (for comparison purposes only). To enter this trade, sell one Jun. '15...
Forbes  Dec 19  Comment 
Looking at units outstanding versus one week prior within the universe of ETFs covered at ETF Channel, the biggest outflow was seen in the iShares MSCI Emerging Markets ETF (EEM), where 52,200,000 units were destroyed, or a 6.0% decrease week over...




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SK Telecom is the leading wireless telecom operator in South Korea, providing 3G voice and data services along with "convergence" services such as portals, mobile entertainment, satellite GPS, etc. They also have operations in Vietnam, the US and Mongolia as well as a significant stake in China Unicom.

Business

Market Cap: $16.8B (US$); Yield: 3.7% Valuation: Intrinsic Value: at least $40. Accumulation Range: $25 or better Risk-assessed Score: 3.10 (12.39% of price) [1]

SK Telecom, as the market leader in wireless (50.5% share), is designated a market-dominating entity and must operate under tighter restrictions than competitors KT Freecell (KTF) and LG. For example, SK's peak usage rate is 11% higher than their competitors. SK's self-posed market share limit of 52.3% ran through the end of 2007 but management has not enumerated their stance going forward.


Trends and Forces

Industry Specifics

This industry is heavily capital-intensive, most notably in the following 2 areas:

  • Infrastructure - companies must spend massive amounts of capital to build out networks, run cable, etc.
  • Market share - customer acquisition costs are high as wireless and broadband services are mainly price-based.

In fairly Mature Markets

South Korea is a fairly mature wireless market, with nearly 90% market saturation. Growth in the domestic market will have to come from increasing revenue in value-added services as well as getting customers to trade up the technology chain (ie from CDMA to WCDMA, WiBro, etc.) Moreover, The telecom industry is highly regulated in South Korea. Market leaders are required to adhere to more stringent guidelines than their competitors, allegedly to foster competition and consumer benefit. With an incoming, hardliner conservative President, diplomatic tensions with North Korea could ratchet up, leading to cross-border conflict. Finally, the incoming President has also vowed to lower mobile tariffs by 20%+ which has spooked investors away from the stock.

In 2006, the government lifted restrictions on handset subsidies, leading to fierce competition for market share among the three major wireless operators and compressed margins for all. And, corporate governance standards are arguably not as robust as in some Western countries. The S. Korean chaebols have gained some notoriety for not maximizing shareholder value, to put it diplomatically. SK Telecom is part of the SK Group, who has had some issues with corporate malfeasance in the SK Networks subsidiary, leading to fines and jail time for the culprits. SK Telecom leases 66% of their leased lines from SK Networks.

Like most of the chaebol, SK Telecom does engage in non-core activity and non-strategic investment. For example, they own a sizable stake in Posco, the steel company. Unfortunately, the rest of their record doesn't invite favorable comparison with Warren Buffett. Shareholders have to acknowledge that South Korean corporations may not be the most effective stewards of resources.[2]

Investments in new areas

The S-Fone venture is an interesting prospect, with SK seemingly increasing their share of new adds above their proportion relative to the market (20.6% of new adds vs. 9% market share). Also, Vietnam has a huge under-served population and with the government's blessings, the company has come up to own a 73% stake in the company based there. Management has made no mention of any interference or blockage by the Vietnamese government.

The company also has a sizable investment in CHINA UNICOM (CHU), ostensibly to build a relationship to take advantage of the Chinese market. However, other than the paper gains, little tangible gain has come out of this supposed strategic investment. As rumors have swirled for some time of a break-up of China Unicom, it is unclear what SK Telecom's strategy will be toward entering the Chinese market.

Competitors

One of their major Telecom compeitors are the KT Corporation in South Korea, is the second largest wireless provider in South Korea. Salient points of their company happen to be:

  • Over 90% market share in the fixed-line market
  • 44% share in the broadband market.
  • 32% market share in the wireless market
  • Relatively stable margins and earnings visibility in the near-future
  • Fixed-line capacity allows them to target businesses more effectively.
  • Flat to negative growth expected in the near-term.
  • Seemingly little to no ability to take market share in the wireless market.
  • Little to none Overseas Exposure



References

  1. Enlightened American Research
  2. SK Telecom Industry Risks
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