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SK Telecom Ends '12 with Y/Y Growth

Zacks Equity Research

SK Telecom Corp. (SKM) – leading South Korean wireless communication service provider – reported fourth quarter and full year 2012 results. Quarterly consolidated net income shot up 165.5% year over year to KRW 519.1 billion (approximately $467.2 million). Better network quality and launch of new services aided the outperformance.

Consolidated operating revenue grew 6.0% to KRW 4,197.4 billion ($3.8 billion) in the fourth quarter, driven by strong contributions from ancillary units, SK Broadband and SK Planet, plus improving enterprise business and rising Long Term Evolution (:LTE) subscriber base.

For full-year 2012, SK Telecom posted net income of KRW 1,116 billion ($1.0 billion), down 29.5% year over year. Revenues increased 2.3% year over year to KRW 16,300 billion ($14.7 billion).

Segment Revenues

Mobile service revenue increased 5.3% year over year to KRW 2,782.0 billion (approximately $2.5 billion). Interconnection revenue declined 34.4% to KRW 166.0 billion ($149.4 million), while new business and other revenues were up 56.3% at KRW 211.0 billion ($189.9 million) from the year-ago quarter.

Operating Income & Expenses

Operating income improved 37.6% to KRW 544.6 billion (approximately $490.1 million) in the fourth quarter, resulting in operating margin of 13.0%. The decline was mainly due to less marketing expenses.

Operating expenses rose 2.5% year over year to KRW 3,652.8 billion (approximately $3.3 billion). Marketing expenses declined 11.4% year over year to KRW 754 billion ($678.6 million).

Subscriber, ARPU & Churn

During 2012, subscribers increased 1.8% year over year to 26.68 million with a net addition of 409 customers.

Average revenue per user (:ARPU) fell 0.5% year over year to KRW 40,128 (approximately $36.11) in 2012, while the churn rate decreased to 2.6% from 2.7% a year ago.


SK Telecom exited 2012 with KRW 1,445 billion (approximately $1.3 billion) of cash and marketable securities on its balance sheet compared with KRW 2,705 billion (approximately $2.4 billion) in 2011. Debt-to-equity ratio was 52.0% compared with 45.8% a year ago. Capital expenditure increased to KRW 2,858 billion (approximately $2.6 billion) from KRW 2,277 billion (approximately $2.0 billion) in the prior year.

Other Stocks

Among other foreign telecom firms, Telus Corporation (TU) is expected release its fourth quarter results on Feb 8, while Rogers Communications Inc. (RCI) will release the same on Feb 15.

Another foreign stock worth considering is Cellcom Israel Ltd. (CEL) which carries a Zacks Rank #1 (Strong Buy).

Our Analysis

Looking into 2013, we remain optimistic about SK Telecom based on strong smartphone offerings, 4G LTE network expansions and the launch of superior and new services. The company’s focus on enhancing network capacity by increasing Wi-Fi zones and expanding femtocells as well as the deployment of integrated network solution are encouraging. SK Telecom currently retains a Zacks Rank #2 (Buy).

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