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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