KT (Buy) – Q1 25 Quick Take: Benefiting from cost cutting
What’s new: KT reported strong profit growth as it benefits from the hefty headcount reduction programme undertaken in Q4, and despite a softer topline, a result of its conscious effort to shift away from lower-margin B2B businesses. Both EBITDA (+12%) and EBIT (+36%) were up sharply. None of this is reflected in the valuation of 8x FY25 P/E and 4.4% dividend yield, the stock remains one of our Top Picks with a KRW 85,000 price target.
Key takeaways
- Strong profit growth. Consolidated service revenue eased to -0.4% YoY from +0.6% prior as it continues to shift away from lower margin B2B businesses. Along with the 20% headcount reduction in Q4 this has started to pay dividends as EBITDA rose sharply by 12% YoY, Wireless saw a pickup in topline growth, which helped partially offset the decline in B2B services and Fixed Line.
- 2025 guidance (reiterated). The company had previously guided 2025 revenue of KRW 28tn which implies revenue accelerating to at least 5.9% YoY, partly fuelled by real estate sales.
- EBITDA margin expanded by 200bps YoY to 24.2%; EBIT grew by 36% YoY to KRW 689bn and saw margin improve by 240bps to 10.1%.
- Reported bottom line grew 44% YoY to KRW 589bn from last quarter’s net loss of KRW 737bn due to the one-off labour costs in relation to its early retirement programme (~KRW 1tn).
Better Wireless partially offset by conscious effort to streamline its B2B. KT’s Wireless segment (30% of service revenue) improved to 1.7% revenue growth YoY from 0.1% prior. This pace of growth is in-line with our expectations for 1-2% growth given the rather benign mobile dynamic despite the maturity of 5G.
As part of its ongoing restructuring efforts to streamline the business, B2B (15% of service revenue) eased to -0.3% YoY from 5.3% previously. Enterprise trends can be lumpy, but over the longer term, we see a structural demand for AX services and corporate broadband. Fixed line (23% of service revenue) also eased to -0.8% from 0.4% YoY, dragged by steeper decline in Telephony while broadband continue to grow in the low-single digits.
Subsidiaries inflected on accelerated KT Cloud and better other subsidiaries. KT Cloud (3% of service revenue, spun off back in Q2 22) accelerated to 42% YoY from 21.4% on strong colocation demand from global hyperscalers and momentum in its Design and Build operations. Together with Other subsidiaries (+20%), this helped offset the decline in Skylife (-4.5% YoY) and BC Card (-6.8% YoY from -6.4%) amidst lower card transactions due to the macro-outlook.
KPIs. Mobile net additions grew by 313k; 5G penetration reached 78.9% too. Meanwhile, mobile ARPU improved to 1.1% from 0.8% prior. Broadband net addition maintained at 28k while ARPU was flat.
Q1 capex was higher, up 28% YoY to KRW 652bn driven by increased investments in subsidiaries (KT Cloud etc). The spending can be lumpy and as we are past the peak 5G rollout, we would expect capex spend to stabilise/decline until 6G. 2025 capex guidance is for flat on 2024.
Conclusion
Strong profit growth reflects the significant headcount reduction undertaken in Q4 last year. This should continue supported by the streamlining of lower margin businesses and lower labour costs over time. At the same time, shareholder return is moving in the right direction. With significant “idle” assets to be sold the stock continues to look far too cheap to us, despite strong performance recently and it remains one of our Top Picks in our coverage with a KRW 85,000 price target.