SK Telecom Co., Ltd. (A017670) Earnings Call Transcript & Summary

[Interpreted] Good morning, and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the Fiscal Year 2023 First Quarter Earnings Results by SK Telecom. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2023 first quarter earnings results by SK Telecom.

[Interpreted] Good afternoon. I am Hee Jun Chung, Investor Relations Officer at SK Telecom. Thank you for joining SK Telecom's earnings conference call. We are providing consecutive interpretation for the call, which will consist of a presentation on the first quarter 2023 earnings highlights, future business plans and strategic directions as well as the Q&A session. The call is attended by our executives from relevant business divisions, including Jinwon Kim, CFO and Head of Corporate Planning of SK Telecom. . Before we begin, I would like to remind you that all forward-looking statements are subject to change depending on market situations. Let me now present our CFO.

[Interpreted] Good afternoon. This is Jinwon Kim, CFO of SK Telecom. SK Telecom participated in MWC 2023 held in Barcelona, Spain in late February, and presented its concrete plans for the AI company vision and recent achievements. It was an opportunity to introduce AI start-ups that we're closely cooperating with and engage in active discussion with overseas telcos and big tech companies to build a global cooperative framework. SK Telecom will strive to lead AI transformation to ensure that all generations, businesses and industries can enjoy the benefits of AI to the fullest. Now let me report on the consolidated financial results of the first quarter 2023. Consolidated revenue reported KRW 4,372.2 billion, up 2.2% year-over-year, thanks to the growth of both the fixed and mobile business and the new businesses. It reported a decline of 0.5% Q-on-Q due to the drop in handset sales of the subsidiary company. The operating income posted KRW 494.8 billion, up 14.4% year-over-year and 94.4% Q-on-Q, mainly due to the base effect of one-off labor costs recognized in Q1 of the previous year and seasonal expenses recognized in the previous quarter. Net income grew 37.3% year-over-year and 35.2% Q-on-Q to come in at KRW 302.5 billion on the back of increase in dividend income from the invested companies. On a non-consolidated basis, revenue grew 1.3% year-over-year and 0.7% Q-on-Q to KRW 3,117.3 billion operating income and net income reported KRW 415.7 billion and KRW 422.2 billion, respectively. Let me now turn to the first quarter business highlights and strategic directions of the company that is pursuing transformation and leap forward into an AI company. SK Telecom is providing differentiated AI services based on its own hyperscale language technology accumulated over the years. In addition to the A. service, we are actively applying our AI technology to the 5 business groups wherever appropriate, to identify and implement concrete ways to maximize growth and profitability of each business. As you're aware, AI is advancing rapidly, and the scope of AI-powered services is getting wider. Against this backdrop, SK Telecom will continue to scale up its AI capabilities and services through partnerships with diverse Korean and foreign AI companies in areas where such partnerships are necessary, including the use of ChatGPT, while further advancing its own AI technology. . As part of the strategy, SK Telecom signed a strategic partnership with Scatter Lab in April with an equity investment of KRW 15 billion. Known for its Lee Lu-da chatbot that can hold empathetic conversations. Scatter Lab is an AI start-up that uses deep learning to develop a relationship-oriented AI agent that can have human-like conversations with users. The partnership with Scatter Lab aims to jointly develop an AI agent service capable of holding empathetic conversation for the A. service, which is optimized for personalization through long-term memory and multimodal technology. The joint development will support the evolution of A. to be more human-like than humans. The 2 companies have also agreed to pursue close cooperation to develop a hyperscale language model that is equipped with emotion and knowledge domains. Like this, SK Telecom is stepping up efforts on all fronts to transform itself into an AI company by strengthening cooperation with leading AI companies in Korea and actively pursuing partnerships with global top-tier AI companies. With global presence secured through its launch in 49 countries last year, ifland has attracted more than 10% of MAU from overseas in the first quarter. It is expanding the scope of global cooperation through MOUs signed with several global companies, including Deutsche Telekom, T-Mobile and Axiata. Furthermore, ifland is evolving into metaverse-type social media platform centered on 3D virtual spaces by launching if home in May, a personalized 3D space. It also plans to strengthen its economic system in order to secure a new monetization structure by introducing a content marketplace based on in-app transactions in the second half of this year. T Universe has solidified its position as a leading subscription product in Korea with the average MAU of more than 1.8 million in Q1. Following the introduction of an annual subscription service last year, T Universe continues to launch new service features to enhance customer experience and convenience, including a topping function where users can add extra services to their subscription and a gifting function. It is also reinforcing competitiveness in product differentiation by leveraging partnerships with big players, which resulted in the recent launch of YouTube Premium in addition to Amazon free shipping. In the UAM business that aims to launch Korea's first commercial UAM service in 2025, SK Telecom aims to be a total service provider that covers aircraft, telecommunications and services. We have secured differentiated capabilities based on MOS platform, 5G area network and an exclusive partnership with Joby Aviation, global #1 UAM aircraft manufacturer. We're doing our best to gain leadership in the industry by securing a license early through successful demonstration projects. In addition, we continue to showcase interactive items such as immersive VR content experience UAM at various exhibitions and events including MWC, Seoul Mobility Show and World IT Show to boost public interest and familiarity, which is essential to secure social acceptance in the early stages of UAM commercialization. The enterprise business is enjoying continued revenue growth centered on data centers and cloud business. In particular, stable increase in the utilization rate of Gasan and Siksa data centers is supporting steady revenue growth. In the first quarter, we have secured the largest order in AICC business, which started last year. Using this as a reference, we plan to expand AI transformation of the call center industry, which has been in the spotlight recently. In addition, we intend to utilize various AI technologies and solutions to support customers' AI transformation and continue to explore further growth opportunities through new customer acquisition. Let me now report on the performance of the fixed and mobile business, which is the basis of our company. As of the end of Q1, the number of 5G subscribers reached 14.15 million, accounting for more than 60% of the total subscribers. We plan to attract high-quality subscribers through continuous digital transformation based on AI to sustain earnings improvement. As of the end of Q1, the pay-tv subscribers and broadband subscribers reached 9.4 million and 6.76 million, respectively. We continue to grow the subscriber base by achieving #1 net adds market share for IPTV and broadband. Based on our strong subscriber base, we plan to pursue growth centered on efforts to acquire high value-added subscribers such as increasing the share of Giga Internet users. Finally, for shareholder returns, the board determined the first quarter DPS to be the same as the previous quarter at 831. We will do our best to ensure that transformation into an AI company will lead to maximization of corporate value and shareholder value. We ask for your continued support and encouragement. Thank you.

[Interpreted] We will now begin the question-answer session.

[Interpreted] [Operator Instructions] The first question will be provided by Soojin Kim from Mirae Asset Securities.

[Interpreted] I am Kim Soojin from Mirae Asset. The first question is related to your shareholder return policy for year 2023. At the last conference call, you mentioned that you would consider the possibility of share buyback by utilizing income coming from Hana Financial Group and SK Broadband. But you did not mention about this in your initial presentation. So I'd like to understand what your plans are regarding the shareholder return policy in terms of the timing and the method? The second question is related to the recently launched if home service that you announced last week. And I can see that if Home is very similar to AsaiWorld in a sense that users will have their personalized spaces on the your metaverse platform. I'd like to understand how this will lead to your monetization of the Metaverse business and your business model development.

[Interpreted] Thank you very much for your question. As per your question on our shareholder return policy, we mentioned, yes, about the potential share buyback at the last conference call. So the market would like to know more about this. Currently, we have the dividend yield of more than 7%, which means that our stock price is rather undervalued. So we still have in mind a potential share buyback program going forward. As per specific timing and the size of share buyback, these are subject to Board approval. So I cannot really give you specific details at this point in time. As you mentioned, we have enough pool of financial resources, including the dividend income coming from SK Broadband and Hana Financial Group, and we have improvement in the earnings over the past year. So when it comes to the specific details, we will consider various factors, including the stock market, our stock price trend and the overall business environment and the cash flow to determine the optimal time of the share buyback. In addition, we introduced a new shareholder return policy at the time of the split off. And this year is the third year since we have been implementing the existing shareholder return policy. Based on our past experiences, we understand that if a share buyback is done on a temporary basis, it may drive up the stock price momentarily, but it has some limitations as to increasing the corporate value in the medium to long term. So in consideration of our new shareholder return policies, including dividend payout, we are considering how we can create more sustainable shareholder return policy, including share buyback. And after active discussions at the Board, we will come up with a decision. And we will make sure to communicate with the market when we have more details and concrete plans after the Board discussions. And as for shareholder return in this year 2023, as I mentioned in my presentation, we are considering a very stable quarterly dividend, and the first quarter dividend amount is DPS is KRW 831 per share. Therefore, our annual dividend payout size is going to be similar to the previous year, and we continue to discuss various options to maximize shareholder value and shareholder return, including the potential share buyback, and we will continue to do our best to return more to our shareholders. And with your question on our plans for the Metaverse platform, Mr. Yang Maeng-seok, Head of Metaverse Company, will address the question. .

[Interpreted] Hello. I am Yang Maeng-seok, Head of Metaverse Company. The if home service that we recently launched is basically a social networking or a social media platform utilized the 3D spaces -- so in if home, users can create their own 3D virtual space, and they can decorate their space using various items, and this is basically creating their own space virtually. There, in this if home space, users can host various writing and they can use 3D frames to share photos. In this way, they can continue to share their everyday experiences and their thoughts and their views, and they can share these feed with others. By utilizing these features, users can invite their friends over to their if homes, and they can also visit other homes of their friends. In this way, they are engaged in new types of social activities. Even though this is a very new product, we are receiving various positive feedback because users find a lot of enjoyment in decorating their own spaces and visiting their friends homes and singing together in these spaces. As users continue to decorate and nurture their virtual spaces and engage in various social activities, they will be motivated to utilize various services and keep coming back to this platform. And in this way, there will be increasing needs to have unique items and differentiated items to express their own personality and such demand and need is expected to bring about benefit in terms of the economic system that we're planning to introduce in the second half of the year. As for the economic system that we're planning to introduce in the second half of the year, there are 3 main parts. The first part is offering a 3D content marketplace where users can create and sell avatars and spaces and other motion related features. And the second part is where they can purchase premium access and premium privileges such as getting access to singing rooms and other paid spaces. And the third part is about sponsoring influencers and celebrities that they want to support. In addition, we're planning to apply the NFT technology in terms of content, including avatar costumes and other decorative items, and users can purchase unique content created by creators using NFT. And this is expected to bring about more revenue coming from this platform, and this will also attract a larger number of creators joining this platform, which will lead to creation of a more of a creator centered platform as well. Thank you.

[Interpreted] The next question will be presented by Joonsop Kim from KB Securities.

[Interpreted] I am Kim Joonsop from KB Securities. I have 2 questions. The first question is the impact of the recent price plans that you've introduced. So I'd also like to know if you have any plans to introduce any new additional price plans going forward. The second question has to do with your AI business. Recently, there was a presentation by SK Telecom at the MWC 2023. And since that presentation, I wonder if there have been any major updates.