SK Telecom Co.,Ltd (NYSE:SKM) Q4 2022 Earnings Call Transcript

SK Telecom Co.,Ltd (NYSE:SKM) This autumn 2022 Earnings Name Transcript February 8, 2023

Unidentified Firm Consultant: Good afternoon. I’m Hee Jun Chung , IRO of SK Telecom. Thanks for becoming a member of SK Telecom’s Earnings Convention Name. We’re offering consecutive interpretation for the decision which is able to encompass a presentation on fiscal 12 months 2022 earnings highlights, future enterprise plans, and strategic instructions in addition to the Q&A session. The decision is attended by our executives from related enterprise divisions together with Jin-won Kim, CFO and Head of Company Planning of SK Telecom. Earlier than we start I want to remind you that every one forward-looking statements are topic to vary relying on market scenario. Now, let me current our CFO.

Jin-won Kim: Good afternoon. That is Jin-won Kim, CFO of SK Telecom. As it’s my first time greeting you within the new 12 months, I want to want all of you a Joyful New Yr. All over the world, a lot consideration has been paid to synthetic intelligence and mobility know-how and these future-oriented modern applied sciences are anticipated to be a part of our every day lives within the close to future. In opposition to this backdrop, SK Telecom introduced the imaginative and prescient of changing into a differentiated AI firm in November final 12 months. This 12 months would be the first 12 months to attain our AI firm imaginative and prescient in earnest by company-wide transformation and innovation. For extra particular methods and street maps on AI firm we plan to share them with the market as quickly as potential.

Now, let me report on the consolidated monetary outcomes for fiscal 12 months 2022. Consolidated income reported KRW17,305 billion, up 3.3% year-on-year and the working revenue posted KRW1,612.1 billion, up 16.2% year-on-year. 5G subscriber progress and stable progress of latest companies together with B2B enterprise resulted in sturdy income progress, whereas market stability contributed to improved earnings for 2022. Internet revenue recorded KRW947.8 billion on the again of lower in fairness methodology good points following the spinoff in 2021. On a non-consolidated foundation income grew 2.6% year-on-year to KRW12,414.6 billion. Working revenue and web revenue reported KRW1,321.1 billion and KRW869.5 billion respectively. Supported by such stable earnings, we’ll actively pursue transformation into an AI firm that I discussed earlier and lay a powerful basis for future progress companies to bear tangible and fruitful outcomes.

SK Telecom has been focusing our capabilities on AI know-how for the previous a number of years. Primarily based on these efforts, we’re securing factors of contact with clients, offering modern companies of value time and house and main adjustments in numerous industries, by which we’re making ready ourselves to play a key function within the world AI period. Moreover, we’re making investments in and forge partnerships with main home and world AI firms to make sure that everybody can profit from this era-defining know-how of AI. Launched as an open knowledge model final 12 months A. is the world’s first GPT-3 mannequin in Korean utilized for B2C companies. We’re working to reinforce the important service features of A. reminiscent of dialog and UX and planning for an official launch of A.

inside this 12 months. Additionally, we’re making steady efforts to remodel A. right into a every day digital mate to first obtain the following Web gateway of our clients. A. is an in-house improvement based mostly on GPT-3 know-how to offer generative language companies. We’ll proceed to reinforce our personal GPT-3 know-how in response to the worldwide pattern of speedy development in AI language. As well as, incorporating numerous third-party dialog technology fashions, together with the brand new AI applied sciences is being thought-about. Via these actions, we goal to guide the tremendous massive AI service market in Korea. We’ll advance A.’s dialog and repair ranges by making use of long-term reminiscence know-how that may keep in mind outdated info and use it for conversations and multimodal know-how that may comprehensively infer and talk like people based mostly on a number of knowledge sorts, reminiscent of voice, picture, gesture and biosignals along with textual content.

Subsequent, with the objective of servicing Korea’s first business UAM in 2025, SK Telecom is specializing in the UAM enterprise as its key modern future service to achieve management on this space. We now have fashioned the Okay-UAM Dream Group Consortium and took part in UAM demonstration initiatives in Korea. For the success of the pilot program in 2025, a goal 12 months for UAM commercialization, we’ll make earnest efforts to safe differentiated competitiveness, together with creating a framework for hyper collaboration with Joby Aviation, a world chief in UAM plane with which SK Telecom has fashioned an unique partnership. With world enlargement began in November final 12 months ifland recorded 21.27 million cumulative downloads as of the tip of 2022 and greater than 10% of the whole MAU in December got here from abroad, an encouraging achievement.

This 12 months we plan to strengthen ifland financial system by introducing in-app transactions, which function a basis for constructing a revenue mannequin. We attempt to create a world success story by choice and focus. T Universe turned Korea’s main subscription service with the common MAU of greater than 1 million and annual GMV of roughly KRW570 billion in 2022. Going ahead T Universe goals to evolve as an AI based mostly subscription commerce platform and construct a digital cycle of the platform by increasing market dominance by securing essential mass and attracting extra sellers by the creation of an open market. Transferring on to our knowledge middle enterprise. Due to the rise within the utilization charges of Gasan and Siksa knowledge facilities, income for 2022 noticed greater than 30% progress year-over-year.

We’re making ready for added knowledge facilities whereas carefully monitoring macroeconomic conditions and adjustments in market demand. Our cloud enterprise loved a twofold income progress year-on-year on the again of rising demand for cloud migration centered on MSP and site visitors progress in 2022. We goal to maintain the income progress pattern by aggressive MSP scale-up and enlargement of added worth in 2023. As for the enterprise enterprise, we’re supporting our purchasers’ AI transformation utilizing a various array of AI applied sciences and options reminiscent of robotics and imaginative and prescient AI and reaching out to new clients within the distribution and manufacturing sectors to pursue alternatives for added progress. Let me now current the efficiency of the fastened and cellular enterprise, which function a basis for our transformation into an AI firm.

As of the tip of 2022, the variety of 5G subscribers reached 13.39 million accounting for greater than 50% of the whole subscribers, a sign that we now have the 5G mass market. Because the share of 5G subscribers is predicted to succeed in 80% by 2025, we’ll concentrate on buying high quality subscribers by AI-based digital transformation, which is able to drive sustained earnings enchancment. The Pay TV subscribers reached 9.32 million as of the tip of 2022. On the again of the sturdy Pay TV subscriber base supported by the synergies between SK Telecom and SK Broadband, efforts to produce a variety of content material together with newly launched movies are anticipated to end in income progress. As well as, three IPTV suppliers together with SK Broadband determined to make joint investments final 12 months in content material value KRW 300 billion for the following three years to compete with world OTT service suppliers and strengthen content material competitiveness.

This 12 months, we’ll successfully hyperlink our numerous media belongings together with SK Stoa, Media S and TEAM Studio, and strengthen our portfolio to safe extra synergies. The quantity of dividend for 2022 was decided by the Board at KRW 3320 together with KRW 2,490 that was already paid out and KRW 830 for This autumn. It’s topic to the approval on the Normal Assembly of Shareholders in March. In the meantime, the Board of SK Broadband resolved to pay money dividend for 2022 based mostly on excellent progress of enterprise efficiency and earnings, which is predicted to ship roughly KRW 150 billion of dividend revenue to SK Telecom. Lastly, let me share with you our administration steerage for 2023. We challenge our consolidated income to be KRW 17,800 billion up roughly 3% year-on-year supported by total progress in each new progress companies and glued and cellular enterprise by AI-based digital transformation.

We’ll do our greatest to exceed the steerage. SK Telecom will proceed to speed up transformation into an AI firm that advantages clients with know-how and companies. We’ll try to make sure that such transformation and innovation of SK Telecom will contribute to earnings enchancment and tangible outcomes from the brand new progress companies to maximise company worth and shareholder worth. We ask to your continued help and encouragement. Thanks.

Unidentified Firm Consultant: We’ll now start the Q&A session.

Q&A Session

Operator: Now Q&A session will start. The primary query shall be offered by Solar Jung Lee from Financial institution of America. Please go forward along with your query.

Solar Jung Lee: I’m Lee Solar Jung from Financial institution of America. Thanks very a lot for this chance to ask you questions. I do have two questions. The primary query is about your MNO enterprise. As you talked about, the 5G subscribers has reached about 50% of the whole subscribers. So there are some issues that, there shall be a slowdown within the income progress pattern for MNO enterprise. And as your MNO enterprise takes up a big portion of your earnings, I’d wish to know, total outlook for MNO income going ahead for 2023. As well as, I perceive that there was a lowering pattern of promoting bills which led to improved earnings. And I ponder, if this pattern will proceed in 2023? The second query has to do with the shareholder return coverage.

You introduced that, the 2022 dividend payout degree is much like that of the earlier 12 months. And what’s your outlook for dividend payout for 2023? And I’d additionally wish to know, if you’re contemplating different choices for shareholder return together with share buyback? Thanks.

Jin-won Kim: Thanks to your query. You’ve got requested two questions. The primary query was involved with our dividend steerage and our plans for shareholder buyback and the second query needed to do with outlook on MNO income and advertising bills. Let me reply your query concerning the dividend coverage first. As for the dividend payout degree for 2023, that is one thing that’s topic to the quarterly efficiency, in addition to the year-end efficiency of our companies which can also be topic to the dialogue and determination by the Board. Due to this fact, I’m not able to present you any particular quantity as to the 2023 dividend steerage. Nonetheless, what I can say is that, as you understand, very effectively SK Telecom has been devoted to shareholder returns and the scale of the shareholder return has by no means decreased previously.

So, I want to guarantee you that, we’ll like to take care of that degree. Transferring on to our plans €“ future plans for share buyback or treasury shares, I want to say that, SK Telecom has been implementing shareholder return insurance policies on par with world requirements. And within the means of the spinoff, we canceled treasury shares value KRW 2 trillion previously, and we now have launched a quarterly dividend payout and a inventory cut up as effectively. And we now have maintained the general dividend measurement after the spin-off. Because of this, we have been in a position to enhance the dividend per share from KRW 2000 to KRW 3300, which is about 65% enhance. So by way of the dividend payout ratio and the dividend yield, you’ll be able to say that our dividend return coverage is the very best within the business.

However contemplating that our earnings proceed to enhance and our money move continues to enhance, we imagine that we have to return extra to the shareholders. Once we check out the general conditions within the monetary market, we are able to see that there’s nonetheless a whole lot of macroeconomic uncertainty and we’re now not within the low rate of interest surroundings as rates of interest have been persevering with to extend. Due to this fact, it’s true that dividend revenue just isn’t as interesting as previously to the shareholders. And we see that the present inventory value of SK Telecom is manner undervalued contemplating the potential worth that we’re aiming for. So in opposition to this backdrop, in the case of our shareholder coverage, we are able to contemplate critically the choice of shareholder — the choice of share buyback.

Our efficiency continues to enhance. Our money move continues to enhance. And ranging from this 12 months, we now have been having fun with the brand new dividend revenue coming from SK Broadband. As well as Hana Monetary Holding, with which we swapped shares have been persevering with to pay out dividends on a yearly foundation. So we are able to think about using these assets and these good points as monetary assets for share buyback. However as soon as once more, we at the moment are contemplating numerous choices for shareholder return insurance policies for 2023, together with share buybacks, so I can’t provide you with any particular reply. However we’ll proceed to think about and deliberate on numerous choices for shareholder returns and we’ll undergo the interior processes together with the deliberation on the Board. And as quickly as we now have a selected thought, we’ll share them with you.

Transferring on to your query on the MNO outlook, as we talked about, the portion of 5G subscribers has reached greater than 50%. So, we now have the 5G mass market. Nonetheless, we nonetheless see a whole lot of potential for progress within the MNO enterprise, as a result of there are extra value choices out there for purchasers and there’s growing pattern from migration from LTE to 5G going ahead. As well as, as restrictions associated to COVID-19 are being lifted, we see restoration of the roaming income as effectively. So given these numerous constructive components, we’ll do our greatest to take care of the expansion pattern of MNO enterprise sooner or later as effectively. Now concerning your query on the advertising expense outlook Mr. Keun-joo Hwang Head of Built-in Advertising and marketing Technique Workplace will reply this query.

Unidentified Firm Consultant: Howdy I’m Keun-joo Hwang answerable for Built-in Advertising and marketing Technique. Lately the market has been fairly secure. Presently in the whole market we now have greater than 30 million 5G subscribers. So the 5G market has turn into extra mature and there’s an growing variety of subscribers switching from one 5G to a different 5G. So we don’t see any excessive potential for subscriber acquisition competitors. Whereas we’ll proceed to guarantee that the market will keep secure we’ll make use of numerous choices to extend value effectivity together with the strengthening of on-line distribution competitiveness. Thanks.

Operator: The next query shall be offered by Soojin Kim from Mirae Asset Securities. Please go forward along with your query.

Soojin Kim: I’m Kim Soojin from Mirae Asset. Thanks for this chance. I’ve two questions. The primary query is expounded to the MVNO market. Lately even a monetary establishment and entered the MVNO market and the MVNO market measurement continues to develop. So I want to know the way you will reply to the potential decline out there share within the MNO enterprise? The second query has to do with ChatGPT and your A. enterprise. Globally and in addition in Korea there’s a rising consideration and curiosity in ChatGPT and we’re saying that €“ they’re saying that there shall be a brand new period of generative AI. SK Telecom already has A., which so far as I do know is predicated on GPT-3. So how are you going to make the most of A. and the way are you going to pursue the expansion of A. going ahead?

Jin-won Kim: Relating to your first query there was some media studies on the growing market share of MVNO companies. And I perceive that there are some issues over MNO companies out there. So concerning this query Mr. Keun-joo Hwang, Head of Built-in Advertising and marketing Technique Workplace will clarify the present market scenario and our responses.

Unidentified Firm Consultant: To start with, I want to point out that the market share that was talked about within the media studies embody IoT traces and auto management traces as effectively. And ranging from 2020, the IoT traces for auto management have been acknowledged as a part of MVNO. That’s the reason there was a rise out there share for them. Nonetheless, the handset accounts cater to the earnings or profitability of the MNO enterprise. And as of the tip of December final 12 months, our market share is 42%. And since 2018, the change in our market share has been lower than 1%. Additionally our 5G market share was 48% as of the tip of final 12 months. So because the launch of 5G, our market share has been persevering with to extend. To reply to competitors from MVNO, we’ll proceed to strengthen companies and merchandise that cater to particular wants of our clients and we’re going to proceed to supply new and extra advantages together with subscription that SK Telecom has and we’re going to strengthen trending membership advantages for our clients.

And in doing so, we will provide differentiated buyer experiences and advantages that can not be offered by MVNO suppliers. And on the identical time, we’ll proceed to make efforts to discover a good and positive steadiness between the retention of MNO subscribers and co-growth with these smaller MVNO gamers. Thanks. And your second query concerning ChatGPT, as everyone knows there was a flood of reports studies on ChatGPT not too long ago and there was a report that the variety of subscribers to ChatGPT has exceeded greater than 100 million in a short time. So — and even this morning, there was a information about MS, one of many massive tech firms asserting a brand new strategy to ChatGPT for his or her Bing search engine and there was additionally a report a couple of new initiative utilizing ChatGPT by Google.

So you’ll be able to see that there are numerous information studies about ChatGPT. SK Telecom launched A. final 12 months and I imagine it is rather significant for us to share with you ways we’re going about A. improvement and what sorts of traits we now have for A. know-how. So for that we now have Mr. Son Yun Heok and Mr. Kim Yong Jon who’re answerable for the A. challenge and so they’re going to present you some extra particulars.

Unidentified Firm Consultant: Howdy. I’m Son Yun Heok, Head of Undertaking Administration Workplace. As was introduced earlier than SK Telecom was in a position to launch the primary the world’s first business B2C companies utilizing Korean GPT-3 which is a brilliant massive language mannequin that we developed in our personal and this was quicker than different world big-tech firms as a result of it was launched in Could final 12 months. And SK Telecom was in a position to launch an AI dialog service a lot quicker than ChatGPT, which has been receiving a whole lot of consideration lately. It’s because of our long-term dedication to AI and the AI applied sciences and platforms and knowledge base that we now have been accumulating for a few years. For the reason that launch of A. in Could final 12 months, we now have been implementing a complete of 9 updates so as to establish and provide the required companies which are demanded by our clients.

So we now have been rapidly increasing the area of companies together with A.recreation A.photograph and A.television. Moreover, presently we’re within the means of strengthening, not solely the companies, but additionally AI know-how itself, so as to achieve basic competitiveness of the A.service. So on this regard we’ll proceed to enhance our UX to be extra customer-friendly based mostly on consumer suggestions and we’re going to increase to AI-based every day companies and telco companies. And thru partnerships with exterior companions, we’re going to construct a related ecosystem by utilizing numerous characters and in collaboration with know-how and companies. So according to this A., will proceed so as to add new and significant features based mostly on AI in order that A. can turn into a every day mate for our clients.

And we’re planning to launch A. as an official service and now not an open knowledge model and we’ll contemplate numerous monetization enterprise fashions. Subsequent, I want to invite Mr. Kim Yong Joon Head of A. dialog to share with you some particulars about AI know-how and dialog know-how.

Unidentified Firm Consultant: I’m Kim Yong Joon , Head of A. Dialog. In February, so this month, we’re going to use the long-term reminiscence know-how, which is ready to retailer buyer info in a separate reminiscence. As well as, we’re planning to undertake the multimodal know-how in order that A. can perceive not solely textual content but additionally pictures and voice and different forms of info. And in doing so A. will be capable to provide an interface that’s extra pure and extra pleasant for customers. And shifting on to ChatGPT, we have already got the GPT-3 in A.service. So we now have gathered a considerable amount of buyer knowledge. So by utilizing this knowledge we’re advancing the ChatGPT-type know-how. So there’s fierce competitors with massive tech firms globally.

So so as to guarantee speedy upgrades and enchancment of A. we’re contemplating numerous choices and options together with these from the abroad. And the route of advancing our know-how shall be according to the sorts of companies that we wish to provide to our clients. So, the adoption of long-term reminiscence know-how, and the multimodal know-how are very a lot according to this route. In doing so, we will provide differentiated companies to our clients, based mostly on a differentiated dialog and AI know-how. Thanks.

Operator: The next query shall be offered by Seyon Park from Morgan Stanley. Please go forward along with your query.

Seyon Park: I’m Park Seyon, from Morgan Stanley. I even have a query associated to GPT. It’s indirectly associated to A. per se, however it has to do with the demand outlook for knowledge middle. In keeping with some analyst studies, it appears that evidently ChatGPT requires rather more computing, than different engines so it might incur extra prices. And so if we assume that sooner or later there shall be extra utilization of GPT and different AI engines and options, then it might result in increased demand for knowledge facilities. So what’s your view, on the potential enhance of information middle demand going ahead? And in addition, as you’re already utilizing GPT engine to your A., I ponder if it has any particular technical necessities in comparison with different common Web companies together with any want for a selected server or extra CPU. So I ponder it has to do along with your CapEx requirement as effectively.

Jin-won Kim: Okay. Thanks, very a lot Mr. Park Seyon, to your query. And in the case of the hyperlink between the usage of ChatGPT and demand for knowledge middle, as you understand, ChatGPT has been not too long ago receiving consideration — solely not too long ago. So, we don’t have any particular info as to how such utilization of ChatGPT, will result in demand for our knowledge middle companies within the short-term or medium or long run. And I additionally heard from a seminar this morning that ChatGPT could have a direct affect on the enterprise efficiency of firms like NVIDIA, as a result of it’ll result in extra demand for CPU. So that’s going to be the primary line of affect. However going ahead as we get to make use of extra AI engines and AI companies, it’s undoubtedly going to extend demand for cloud companies, which could have a constructive affect on the demand for knowledge facilities.

And as you talked about the demand outlook for knowledge facilities in usually talking cloud market is quickly rising and there’s a requirement for platform firms to extend redundancy and backup for knowledge facilities in addition to within the case of the incident of Kakao. So, total, I can say that there shall be enhance within the demand for knowledge facilities going ahead. Now I want to invite Mr. Kim Yong Joon , Head of A.Dialog to debate the potential affect of ChatGPT utilization and demand for knowledge facilities.

Unidentified Firm Consultant: As you talked about GPT-3 and ChatGPT they require particular GPU servers and different technological surroundings for improvement. So I can say that SK Telecom has a large-scale high-performing computing service which may be equal to these possessed by different porter firms or different massive tech firms. And naturally sooner or later if there’s rising demand for extra computing assets we may have to extend our CapEx, however I want to say that with extra utilization of know-how and popularization of such applied sciences, there shall be value discount drives out there which is able to result in decrease prices for these developments.

Operator: The next query shall be offered by Joonsop Kim from KB Securities. Please go forward along with your query.

Joonsop Kim: I’m Kim Joonsop from KB Securities. Thanks for this chance. I can see that your knowledge middle enterprise progress and the cloud enterprise progress are fairly spectacular. And I want to know extra about your goal clients for knowledge facilities and cloud companies and your total outlook for the income progress for these companies.

Jin-won Kim: Thanks for the query. Once you have a look at our enterprise enterprise as was within the case of final 12 months, it may be damaged down into lease traces, IoT traces, and knowledge middle enterprise, and cloud enterprise. So, as for the whole enterprise enterprise, progress has been pushed by knowledge middle enterprise and cloud enterprise. As for knowledge middle, the utilization charges of information facilities elevated which led to increased income. And for cloud, site visitors enhance led to increased income from the cloud enterprise. So, on a quarterly foundation, the enterprise enterprise division’s income was KRW400 billion, which is a ten% progress Y-o-Y. And the — for the whole 12 months, the enterprise enterprise division income is KRW1.5 trillion, which represents 12.5% progress year-over-year. As for the steerage for income for enterprise enterprise, we’ll do our greatest to guarantee that our income progress is on par with that of final 12 months. Thanks.

Operator: The final query shall be offered by Hoi-Jae Kim from Daishin Securities. Please go forward along with your query.

Hoi-Jae Kim: I’m Kim Hoi-Jae from Daishin Securities. I’ve one query. I can see that SK Telecom is devoted to pursuing the UAM enterprise with a goal of commercializing the UAM service in 2025. So, in the case of a enterprise mannequin, I can see that there shall be revenue coming from community utilization payment, however you may also contemplate different enterprise fashions. So, I ponder what sort of enterprise fashions you take into account for the UAM enterprise? Thanks.

Jin-won Kim: Thanks to your query. We now have been speaking with the analysts in regards to the progress and plans for the UAM enterprise. So I’m certain you’re effectively conscious of what we now have been doing. And as for extra particulars, I’d like to ask Mr. Han Mi Nyong , Head of Company Improvement for extra info.

Unidentified Firm Consultant: Your query was a couple of potential enterprise mannequin for UAM. Presently, we’re within the means of finishing up demonstration initiatives according to the time line of the Ministry of Land, Transport and Infrastructure. And we will have some extra particular concepts about enterprise fashions, as we now have extra networks and communications with the bottom management facilities and securing of additional studies. And we could have conversations and consultations with numerous companions so as to determine on particular routes for UAM companies and the pricing plans these are elements of the enterprise mannequin. So after such critiques, we will share with you extra particulars sooner or later. Thanks.

Unidentified Firm Consultant: Thanks to your query. This concludes the Earnings Convention Name for Fiscal Yr 2022.