Despite the current macroeconomic challenges, the telecom industry is experiencing growth due to strong demand, rapid digitalization, increased need for high-speed internet and 5G deployment, and the rising use of technologies like IoT and AI.
Considering these factors, it could be wise to buy fundamentally strong telecom stocks Internet Initiative Japan Inc. (IIJIY), KT Corporation (KT), and SK Telecom Co., Ltd. (SKM).
Before delving deeper into their fundamentals, let’s discuss why the telecom industry is well-positioned for growth.
The telecom industry is swiftly incorporating AI for improved customer experience, network reliability, and network management, automating tasks like traffic routing and optimizing network structures.
The global AI in telecom market is set to grow from $1.18 billion in 2023 to $14.50 billion by 2033, driven by 5G adoption, increased smartphone usage, and growing acceptance of AI solutions in the telecommunications sector, with a notable CAGR of 28.5%.
Moreover, the global telecom market is forecasted to achieve a 6.2% CAGR until 2030. This growth is primarily due to the increased demand for high-speed internet, widespread adoption of 5G, rising smartphone use, and expanding digitalization in various industries.
As a result, the global 5G infrastructure market is expected to hit $95.88 billion by 2030, with a CAGR of 28.4%, fuelled by the increasing adoption of IoT technology.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Telecom - Foreign industry picks, beginning with the third choice.
Stock #3: Internet Initiative Japan Inc. (IIJIY)
Headquartered in Tokyo, Japan, IIJIY provides Internet connectivity, WAN, outsourcing, systems integration, and network-related equipment sales services in Japan. It operates through two segments, Network Services and Systems Integration Business; and ATM Operation Business.
In terms of the trailing-12-month Return on Common Equity, IIJIY’s 16.74% is 283.1% higher than the 4.37% industry average. Its 7.27% trailing-12-month Return on Total Assets is 354.2% higher than the 1.60% industry average. Likewise, the stock’s 12.49% trailing-12-month Return on Total Capital is 257.6% higher than the 3.49% industry average.
IIJIY’s total revenues for the fiscal first quarter that ended June 30, 2023, increased 5.6% year-over-year to ¥61.42 billion ($412.42 million). Its total gross profit rose 8.7% year-over-year to ¥13.80 billion ($92.66 million). Its net profit attributable to owners of the parent came in at ¥3.58 billion ($24.04 million). Also, its earnings per share stood at ¥19.91.
Analysts expect IIJIY’s revenues for the quarter ended September 30, 2023, to increase 9.2% year-over-year to $474.89 million. Over the past month, the stock has declined 5.2% to close the last trading session at $32.63.
IIJIY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability. Within the A-rated Telecom - Foreign industry, it is ranked #21 out of 44 stocks. To see IIJIY’s Growth, Value, Momentum, Sentiment and Quality ratings, click here.
Stock #2: KT Corporation (KT)
Headquartered in Seongnam, South Korea, KT provides integrated telecommunications and platform services in Korea and internationally. The company offers fixed-line telephone services, broadband Internet access service and other Internet-related services, and data communication services.
In terms of the trailing-12-month net income margin, KT’s 4.72% is 14.3% higher than the 4.13% industry average. Its 13.35% trailing-12-month Capex/Sales is 226.8% higher than the 4.09% industry average. Likewise, the stock’s 3.41% trailing-12-month Return on Total Assets is 93% higher than the 1.60% industry average.
For the second quarter that ended June 30, 2023, KT’s operating revenues increased 3.7% year-over-year to KRW6.55 trillion ($4.89 billion). Its operating income increased 2% year-over-year to KRW576.10 billion ($429.79 million).
For the same quarter, the company's net income for the same quarter rose 19% year-over-year to KRW432.50 billion (322.66 million). In addition, its EBITDA came in at KRW1.51 trillion ($1.13 billion), representing an increase of 8.5% from the prior-year quarter.
Street expects KT’s revenue for the quarter ended September 30, 2023, to increase 1.9% year-over-year to $3.53 billion. Its EPS for the fiscal year ending December 31, 2023, is expected to increase 25.6% year-over-year to $2.49. Over the past three months, the stock has gained 11.9% to close the last trading session at $12.58.
KT’s strong prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability. It is ranked #10 in the Telecom - Foreign industry. Click here to see KT’s Growth, Momentum, Sentiment, and Quality ratings.
Stock #1: SK Telecom Co., Ltd. (SKM)
Headquartered in Seoul, South Korea, SKM provides wireless telecommunication services in South Korea. The company operates through three segments: Cellular Services, Fixed-Line Telecommunications Services, and Other Businesses.
On September 24, SKM announced a collaboration with Joby Aviation (JOBY) in the K-UAM Grand Challenge for UAM development in Korea, beginning with flight testing in Goheung, Jeollanam-do.
SKM's strategic investment in JOBY, along with this collaboration, positions them to lead in the UAM sector, aligning with their vision of becoming an AI company in the mobility field. Joby Aviation leads eVTOL certification with the FAA and is expanding production facilities.
On September 18, SKM, SK Broadband, and Netflix announced a strategic partnership to enhance entertainment experiences for customers. The collaboration offers simplified access and payment options for Netflix content on mobile devices and IPTV, along with diverse pricing plans and bundled packages. Furthermore, the partnership will explore AI technologies to improve entertainment experiences.
SKM's Choi Hwan-seok, VP and Head, Corporate Strategy Office, said, “This strategic partnership with Netflix originates from the philosophy of SK Telecom and SK Broadband, where customer value is prioritized, and comes as part of our efforts to provide customers with an enhanced media service environment. We will continue to evolve into an AI company and work together with various players at home and abroad.”
In terms of the trailing-12-month gross profit margin, SKM's 71.94% is 45.7% higher than the 49.37% industry average. Its 17.37% trailing-12-month Capex/Sales is 325.1% higher than the 4.09% industry average. Likewise, the stock’s 3.52% trailing-12-month Return on Total Assets is 119.9% higher than the 1.60% industry average.
For the fiscal first quarter that ended June 30, 2023, SKM’s revenue increased marginally year-over-year to KRW4.31 trillion ($3.22 billion). Likewise, its operating income rose marginally year-over-year to KRW463.40 billion ($345.71 million). Also, its net income rose 34.8% year-over-year to KRW347.80 billion ($259.47 million).
For the quarter ended September 30, 2023, SKM's revenue is expected to increase 4.2% year-over-year to $2.41 billion. Its EPS for the fiscal year ending December 31, 2023, is expected to increase 20.1% year-over-year to $2.11. Over the past year, the stock has gained 8.6% to close the last trading session at $20.40.
It’s no surprise that SKM has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has an A grade for Value and a B for Stability and Sentiment. It is ranked #9 in the same industry.
Beyond what we stated above, we also have given SKM grades for Growth, Momentum, and Quality. Get all SKM ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SKM shares were trading at $20.14 per share on Thursday afternoon, down $0.26 (-1.27%). Year-to-date, SKM has gained 0.53%, versus a 14.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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