Ace South Korean telecom firm SK Telecom Corp. (SKM) reported third quarter 2013 results. Quarterly consolidated net income shot up to KRW 502.0 billion (approximately $451.8 million) from KRW 176 billion (approximately $158.4 million) in the year-ago quarter aided by a strong contribution from SK Hynix and gains from the sale of LEON Entertainment Inc.
Consolidated operating revenue grew 1.0% to KRW 4,125 billion ($3.7 billion) in the third quarter driven by growth in ARPU and new business that includes B2B services.
Mobile service revenues increased 2.9% year over year to KRW 2,768.0 billion (approximately $2.5 billion). Interconnection revenues declined 8.1% to KRW 231.0 billion (approximately $208.0 million), while new business and other revenues were up 42.8% year over year at KRW 224.0 billion (approximately $201.6 million).
Operating Income & Expenses
Consolidated operating income grew 33.2% to KRW 551.4 billion (approximately $496.3 million) in the third quarter as a result of deeper focus on service-oriented marketing and reduced subsidy-based activities. Operating margin was 13.4%, up 620 basis points.
Operating expenses fell 5.8% year over year to KRW 3,573.2 billion (approximately $3.2 billion). Also, marketing expenses decreased 20.0% year over year to KRW 827.0 billion ($744.3 million) thanks to the company’s focus on promoting services through advertising instead of subsidy-based marketing.
Subscriber, ARPU & Churn
During the quarter, subscribers increased 1.6% year over year to 27.2 million with net addition of 71,000 customers.
Average revenue per user (:ARPU) went up 6.2% year over year to KRW 42,780 (approximately $38.5) on increased LTE subscribers. The churn rate decreased to 2.25% from 3.0% a year ago as the company is seeking customer retention through its marketing initiatives.
As of Sep 30, 2013, SK Telecom had KRW 1,937.0 billion (approximately $1.7 billion) of cash and marketable securities on its balance sheet compared with KRW 1,688.0 billion (approximately $1.5 billion) in the comparable quarter last year. Debt-to-equity ratio was 49.1% compared with 60.9% in the prior-year quarter. Capital expenditure decreased to KRW 418.0 billion (approximately $376.2 million) from KRW 788.0 billion (approximately $709.2 million) in third quarter 2012.
Looking ahead at the balance of 2013, SK Telecom’s focus on developing LTE-Advanced technologies as well as deploying 5G Wi-Fi hotspot routers is encouraging. Further, introduction of services, investment in high-speed Wi-Fi and data femtocell, foray into mobile software businesses and various collaborations are expected to boost the company’s long-term results.
SK Telecom currently retains a Zacks Rank #1 (Strong Buy).
Other stocks worth considering are Orange (ORAN), Vodafone Group Plc. (VOD) and Shenandoah Telecommunications Co. (SHEN). All these stocks also carry a Zacks Rank #1 (Strong Buy).