KT Corporation (NYSE:KT) Q3 2023 Earnings Call Transcript
KT Corporation (NYSE:KT) Q3 2023 Earnings Call Transcript November 8, 2023
Young-Jin Kim: [Call starts abruptly] Our salary negotiations were reflected in Q4 last year, while we were able to smooth our content sourcing cost this year. In this regard, operating income has increased Y-o-Y in both consolidated and stand-alone basis to continue solid growth. Excluding wage negotiations and content servicing costs moving, operating income recorded KRW512.2 billion on a consolidated basis and KRW383.7 billion on a stand-alone basis in Q3 which is a 13.1% and 18.6% Y-o-Y growth, respectively. In addition, on October 17, KT announced the new midterm shareholder return policy which is for the fiscal year 2023 to 2025 period. We are planning to use 50% of the stand-alone adjusted net income as resources for shareholder return.
Dividend per share should be maintained at a minimum of 2022 levels. We also plan to purchase and cancel treasury shares within the financial resources available for shareholder return. Quarterly evidence should be introduced after receiving approval at the ordinary General Shareholders' Meeting in 2024. KT will implement the Digital Service-First strategy by leveraging the company's CT and IT strengths. ICT capabilities are essential to offer differentiated and innovative digital services sought out by customers. As such, we will make utmost effort to integrate and strengthen the outstanding telco and IT strength of KT. We plan to boost corporate value by focusing on fundamentals based on the company's ICT capabilities to pursue quality growth.
Next, I will go over the business performance of 2023, Q3. Operating revenue reached KRW6,697.4 billion which is a 3.4% Y-o-Y increase. Operating income recorded KRW321.9 billion which is a 28.9% Y-o-Y decrease caused by a reflection of collective dollar renegotiations and smoothing out of content sourcing costs. Net income declined by 11.6% Y-o-Y to KRW288.3 billion and EBITDA decreased by 7.3% Y-o-Y to KRW1,259.9 billion. I will now go over the operating expense on the next page. Operating expense increased by 5.8% Y-o-Y to reach KRW6,375.5 billion. The next slide is about the company's financial position. The debt-to-equity ratio as of September 2023 stood at 134.9%, while net-debt-to equity decreased by 6.1 percentage points Q-o-Q to 38.5%.
Next, I will go over CapEx. KT Group's cumulative Q3 CapEx amounted KRW2,253.2 billion. On a stand-alone basis, cumulative CapEx as of Q3 stood at KRW1,600.4 billion. The group's CapEx, including the core business areas of finance, media content and real estate recorded KRW652.8 billion. CapEx implementation is in line with the annual investment plan. Now, I will go over each business line. We revised the revenue categorization system to better align revenue with our business direction which is to concentrate on fundamental growth and to enhance intuitive understanding of our businesses. We have broken down revenue into wireless, fixed and B2B service and will work to deliver quality growth for each business line. Revenue of the wireless business rose by 1.6% Y-o-Y to KRW1,708.1 billion.
5G subscribers recorded 9.51 million which now covers 70% of total handsets. With travel gaining traction, roaming revenue has recovered to pre-COVID levels and we are also solidifying our leadership in the MVNO market. In particular, wireless revenue continues to show robust growth as we focus on premium subscribers driven by quality growth rather than volume growth. Next is the fixed line business. Broadband revenue rose by 3.2% Y-o-Y to KRW619.4 billion, thanks to increased demand for high-quality services and growing GiGA subscribers. Home Telephony revenue decreased by 7.6% Y-o-Y to KRW186.3 billion. Media revenue increased by 3.9% Y-o-Y which was supported by the expansion of IPTV subscriber base which was mainly driven by high ARPU subscribers.
Since rebranding KT IPTV to Genie TV in October last year, VOD and OTT usage doubled, cementing its role as the first media window at homes. We will continue to strengthen differentiated services that are set out by customers to contribute to invigorating the domestic media ecosystem. Next is B2B services. B2B service revenue rose by 2.7% Y-o-Y, thanks to the monetization of enterprise DX backlog orders and a robust real estate market. Revenue from corporate broadband and data slightly declined Y-o-Y due to rationalization of some low-profit businesses. But main product segments showed balanced growth as higher demand for social, safety and infrastructure drove sales of lease lines for CCTV and the core net business growth supported by expansion of local and global CP customer base.
Enterprise DX continues to show growth as previously secured orders, such as the M-BcN project starts turning into revenue. DX demand of government and corporations is consistently rising, we expect B2B backlog orders to remain above KRW3 trillion this year. Also, AI new business revenue declined by 11.9% Y-o-Y to KRW106 billion, as some order placements are delayed and low-profit projects are rationalized. Meanwhile, the KT AICC service is accommodating a wide clientele from large corporates to small and medium businesses with a cloud-based subscription model to lead the AICC market. In addition, KT launched MIDEUM, KT's large AI service on October 31. MIDEUM has 4 main line-ups ranging from light to super large models to satisfy every corporate size and purpose.
We will be focusing on key 5 areas which are manufacturing, finance, public, education and global markets as future growth drivers. Next, I will go over the performance of main subsidiaries. BC card revenue saw 1.2% Y-o-Y growth to reach KRW995.7 billion, mainly driven by new businesses, such as PLCC and loans. Skylife revenue decreased by 2.8% Y-o-Y to KRW260.5 billion due to the decline in HCM subscribers despite growth of TPS. KT Studio Genie and Sky TV released 4 original dramas and 3 original variety shows in Q3. New Recruit Season 2 topped the Monday, Tuesday drama ranking in terms of both buzz and viewership. Also, the viewership of Not Others, Longing For You and The Kidnapping Day, all showed upward trend, evidencing the strength of our content production capabilities based on strong storytelling.
Sky TV is also establishing a line-up of hit shows with the successful launch of new seasons creating massive buzz such as [indiscernible]. However, revenue from the content subsidiaries decreased by 3.6% Y-o-Y to KRW290.4 billion due to contraction of the advertising and commerce market amid economic recession. Revenue of KT Estate jumped by 30.3% Y-o-Y to KRW142.3 billion, thanks to higher office lease revenue and robust hotel business. In particular, the diversification strategy of the hotel business, launching customer bespoke packages while attracting corporate clients was effective. KT Cloud revenue rose by 34.5% Y-o-Y to KRW193.8 billion, driven by robust growth of private cloud project orders and the IDC business. KT's large AI model, needing [ph] service is offered with KT Cloud's AI full stock package which helps customers reduce their AI introduction cost.
We believe that this combination will contribute to the popularization of large AIs. This concludes the earnings presentation of KT in Q3, 2023. As the digital innovation partner of Korea, KT will focus on strengthening our fundamental ICT capabilities and pre-emptively developing and launching services that maximize the customer experience to pioneer the transformation of the digital paradigm. We ask for the continued interest and support of shareholders and analysts. Thank you.
Seung-Hoon Chi: For more details, please refer to the earnings presentation which has been previously circulated. We will now begin the Q&A session. In order to allow as many Q&A opportunities as possible, we would appreciate only two questions from each participant. Thank you.
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