Sunday, December 27, 2015

Seeking Alpha: SK Telecom May Be Cheap For Some Good Reasons

I wasn't particularly bullish on SK Telecom (NYSE:SKM) back in April, but I thought the combination of more disciplined competition in the South Korean mobile market and increasing growth of LTE subs would at least be good for dividend coverage. As it turns out, growing MVNO subs and fierce rate competition have kept a lid on per-user growth, leading to several underwhelming quarters at the operating line. What's worse, it looks like management hasn't completely moved beyond its value destroying aspirations of empire building.

I guess the good news here is that the business hasn't eroded as dramatically as the 20%-plus decline in the share price might otherwise suggest. In fact, a lot of what's wrong with SK Telecom's share price performance could be tied to the wider rout in emerging markets, as the local shares (017670.KS) are down only about 8% more than the KOSPI index as a whole (-15% versus -7%).

The company's lower ARPU has led me to revise my growth expectations lower, but today's share price is still about 20% below my fair value estimate. Unfortunately, I have real concerns about management's ability to effectively deploy capital. Rumors of a spin-off of non-strategic investments in POSCO and Hynix are encouraging but not new, and I think investors considering these shares need to at least contemplate the risk that the shares look undervalued for some good reasons.

Read more here:
SK Telecom May Be Cheap For Some Good Reasons

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