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On Wednesday, UBS began coverage of SK Telecom (017670:KS) (NYSE: NYSE:SKM), assigning the stock a Buy rating and setting a price target of KRW65,000.00. According to InvestingPro analysis, SK Telecom is currently undervalued, trading at an attractive P/E ratio of 9.35 with a beta of 0.57, indicating relatively low price volatility. The firm forecasts a robust operating profit (OP) growth for SK Telecom, projecting a compound annual growth rate (CAGR) of 6.5% from 2024 to 2026, which surpasses the consensus estimate of 3.4%. This optimistic outlook is attributed to several key factors, including the expected expansion of the company’s data centre and cloud business, which UBS anticipates will see a 19% CAGR within the same timeframe. InvestingPro data reveals the company maintains strong fundamentals with a healthy gross profit margin of 72% and has consistently paid dividends for 33 consecutive years.
The report also highlights the potential for reduced depreciation, amortization, and marketing costs, as well as the positive impact of shedding unprofitable business ventures. UBS analysts are particularly positive about SK Telecom’s dual artificial intelligence (AI) strategy. They believe the consumer-focused ’A.Dot’ AI agent could effectively monetize the company’s substantial user base, while the ’GPUaaS’ service, which caters to business clients, is likely to satisfy the growing demand for AI solutions.
In addition to these growth drivers, UBS expects SK Telecom’s telecommunications revenue to provide a stable cash flow, forecasting a 1.5% CAGR from 2024 to 2026. The report also suggests that shareholders could benefit from a significant increase in dividend per share (DPS), with a predicted 20% CAGR over the same period. This expectation is based on anticipated margin expansion and a 70% payout ratio, which could result in a dividend yield of 7.1% in 2025 and 8.9% in 2026, considering the current share price.
Despite potential regulatory risks, UBS maintains a positive stance on SK Telecom’s financial health and its ability to generate consistent returns for its investors. The firm’s coverage initiation and positive outlook underline the potential value and growth prospects of SK Telecom in the coming years. InvestingPro subscribers can access 12 additional valuable insights about SK Telecom, including detailed financial health metrics and comprehensive valuation analysis in the Pro Research Report.
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