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On Wednesday, Citi analysts adjusted their stance on SK Telecom (017670:KS) (NYSE: NYSE:SKM), downgrading the company’s stock from Buy to Neutral and reducing the price target to KRW58,000.00 from the previous KRW67,000.00. Currently trading at $21.79, InvestingPro analysis suggests the stock is undervalued, with a P/E ratio of 9.31 and an attractive dividend yield of 5.97%. The company has maintained dividend payments for 33 consecutive years, demonstrating consistent shareholder returns. The revision comes amid growing concerns about the telecom giant’s operating profit (OP) forecast for the fiscal years 2025 and 2026.
The analysts at Citi highlighted a potential downside to the consensus OP estimate of W2 trillion for 2025, with risks including the impact of USIM replacement and the suspension of new sign-ups contributing to potential declines of 1.3 percentage points and 3.0 percentage points, respectively. Despite these concerns, InvestingPro data shows SK Telecom maintains strong financial health with a robust free cash flow yield and an overall financial health score of "GOOD". Get access to 10+ additional exclusive ProTips and comprehensive analysis through the Pro Research Report. These factors, along with the possibility of further subscriber loss, increased agency compensation, government fines, and higher cybersecurity capital expenditures, could contribute to a less favorable financial outlook for SK Telecom.
The report also suggested that SK Telecom may face a challenging environment for future subscriber growth unless it opts to increase marketing expenditures. Additionally, the analysts expressed concern over potential regulatory headwinds in the lead-up to upcoming elections, which could pose additional risks to the company.
The downgrade by Citi reflects a more cautious view of SK Telecom’s ability to improve its operating profit, a key reason the firm previously held a Buy rating on the stock. The analysts’ assessment indicates that the potential for negative developments outweighs the likelihood of positive outcomes for SK Telecom in the near future. However, the company’s strong fundamentals, including a gross profit margin of 71.17% and stable revenue growth, suggest potential resilience. Discover more detailed insights and Fair Value analysis with a subscription to InvestingPro.
In other recent news, SK Telecom has been at the center of several notable developments. The company disclosed a significant customer data breach caused by a cyberattack, which led to a sharp decline in its shares. This breach, detected on April 18, involved a large-scale data leak triggered by malware. In response, SK Telecom has committed to taking full responsibility for any resulting damages. Meanwhile, UBS has initiated coverage on SK Telecom with a Buy rating and a price target of KRW65,000, citing strong growth prospects in the company’s data center and cloud business. UBS forecasts a compound annual growth rate of 6.5% in operating profit from 2024 to 2026, driven by AI strategies and cost reductions. On the other hand, both BofA Securities and Goldman Sachs have downgraded SK Telecom to Neutral, with price targets set at KRW61,000 and KRW57,000, respectively. These downgrades reflect concerns over the company’s profitability and its strategic focus on AI, which may limit shareholder returns. Despite these mixed analyst opinions, SK Telecom’s financial health and growth potential remain under close scrutiny.
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