Moody's: SK Telecom's 4Q Results are Credit Positive
Moody's Investors Service says that the better-than-expected results of SK Telecom for the fourth quarter of 2012 are credit positive, but will not have any immediate impact on its ratings and outlook.
On 5 February, SK Telecom said its 4Q2012 consolidated and reported operating income rose to KRW545 billion, an increase of 38% compared to previous year, albeit from a low base.
"Such results were driven by a broadly improving trend in the firm's monthly average revenue per user during 2012 and the decline in marketing expenses in the quarter, given regulatory demands to contain excessive spending by telecom companies on marketing," says Yoshio Takahashi, a Moody's Assistant Vice President and Analyst.
The company also sold some of its property assets as well as part of its stake in POSCO (Baa1 negative) during 4Q 2012, and the proceeds of about KRW672 billion were used to repay debt. In addition, SK Telecom's subsidiaries reduced their debt levels by KRW0.4 trillion to an aggregated KRW1.5 trillion during the same period. The result was a decline in SK Telecom's consolidated, reported debt to KRW6.9 trillion in December 2012 from KRW7.8 trillion in September 2012. We expect SK Telecom to remain focused on deleveraging its balance sheet.
Based on the preliminary results for 2012, Moody's estimates that the firm's leverage -- as measured by adjusted consolidated debt/EBITDA -- was in the 1.8x to 1.85x range for the year and its adjusted EBITDA margin was around 30%.
While these metrics have improved from last twelve months to September 2012 when adjusted consolidated debt/EBITDA stood at 2.1x-2.2x and adjusted EBITDA margins were approximately 29%, they remain weak for the A3 rating.
"We remain concerned about the intense competition in Korea's telecommunication industry, as telecom firms are vying to increase their total number of subscribers for LTE or 4G services," adds Takahashi, who is also the lead analyst for SK Telecom.
For example, in January, LG Uplus -- Korea's third-largest telecom operator by subscribers -- unveiled its unlimited data package plans for its LTE subscribers, and SK Telecom and KT Corp followed the suit.
For 2013, Moody's expects SK Telecom to improve its profit margins on the back of growth in average revenue per user from a larger LTE subscriber base, although margins are likely to remain weak for the A3 rating level given the ongoing heightened state of competition in the Korean telecommunications space.
SK Telecom is the largest mobile telecommunications provider in Korea, with an estimated market share of 50.3% as of November 2012. Its core business is to provide voice and wireless internet services for mobile phones.
It is also the controlling shareholder of SK Broadband, Korea's second-largest fixed-line operator by subscribers.