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Tickers in this Article: CHU, SKM, CHL, DCM
On Jul 3, we maintained our Neutral recommendation on SK Telecom (SKM). The company displays strength in its ancillary units, focuses on the expansion of new businesses and has a growing Long Term Evolution (LTE) subscriber base. Nevertheless, the company faces several headwinds that may impede its operating performance going forward. This South Korean leading telecom company holds a Zacks Rank #3 (Hold).

Why Maintained?

We believe that SK Telecom’s strong smartphone offerings, 4G LTE network expansions and investments in high-speed Wi-Fi business provide it immense potential for future growth. There is a growing demand for smartphones and high-speed data services that the company can cater to, fueling its business activities. Further, the launch of the T&T Sharing price plan is attracting a vast number of customers.

SK Telecom remains focused on expanding the world’s first LTE-Advanced (LTE-A) network. The company already commercialized the newly launched network across the Seoul region and the central cities of Gyeonggi-do and Chungcheong-do, with plans to broaden the coverage to 84 cities across the nation in the coming months. We believe that this advanced network will enhance the popularity of high quality broadcasting and video content as well as boost the customer service level.

The company has high prospects in the media segment. The IPTV business is booming and expected to reap in immense benefits, supported by a leading number of 600,000 mobile pay-TV subscribers and the broadcast of major U.S. league games as well as the launch of the high-definition mobile TV. We also appreciate the company’s entry into the cloud computing market and association with other organizations for the development of business to business (B2B) mobile health care service.

Despite these positive aspects, we prefer to stay on the sidelines taking into account certain risk factors. The company continues to incur heavy spending for promotional efforts to contain customer churn amid stiff competition. Additionally, regulatory issues, tough economic conditions and drop in monthly rates will continue to pressure the growth momentum of the company.

Other Stocks

Companies operating within the telecommunication sector that are worth taking note of include China Unicom (Hong Kong) Limited (CHU), NTT DOCOMO Inc. (DCM) and China Mobile Limited (CHL). While the China Unicom and NTT DOCOMO hold Zacks Rank #1 (Strong Buy), China Mobile carries a Zacks Rank #2 (Buy).

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