Ace South Korean wireless communication service provider SK Telecom Co. Ltd. (SKM) reported impressive third-quarter 2014 results. Quarterly consolidated net income improved 5.7% year over year to approximately $531 million. The upside in earnings was primarily diven by the equity gains from SK Hynix.
Consolidated operating revenue grew 5.9% to approximately $4,367 million in the third quarter of 2014 on the back of expanding Long Term Evolution (LTE) subscriber base, signing of new businesses, PS&Marketing’s acquisition of SK Telecom’s retail business and earnings growth of subsidiary companies.
Segment Revenues
Quarterly Mobile service revenues were approximately $2,814 million, 1.7% year over year. Interconnection revenues improved 4.2% $241 million while new business and other revenues were up 11.1% to $249 million.
Operating Income & Expenses
Operating income decreased 2.7% year over year to $537 million in the third quarter resulting in an operating margin of 12.3% compared with 13.4% in the prior-year quarter. Operating expenses rose 7.2% year over year to approximately $3,831 million. Marketing expenses increased 0.6% year over year to approximately $832 million. This rise was led by the addition of new subscribers.
Subscriber, ARPU & Churn
During third-quarter 2014, subscribers grew 4.4% year over year to 28.403 million with a net addition of 514,000 customers. The number of LTE subscribers reached 16.212 million at the end of the reported quarter constituting over 57% of SK Telecom’s subscriber base.
Average revenue per user (ARPU) improved 4.9% year over year to approximately $44.892 in the third quarter owing to growth of LTE service, while the churn rate decreased to 2.0% from 2.2% a year ago.
Liquidity
SK Telecom exited the reported quarter with approximately $1,665.3 million of cash and marketable securities on its balance sheet compared with $1,765.1 million at the end of 2013. Capital expenditure increased to around $588 million from $419 million in the prior-year quarter.
Our View
In Jun 2013, SK Telecom became the first wireless operator in the world to commercially launch LTE-Advanced network using carrier aggregation. Recently, the company has entered into collaboration with Ericsson AB (ERIC) to develop industry’s first Smart Wake-up technology to control the operation of idle base stations during late night and early morning.
Zacks Rank
SK Telecom currently carries a Zacks Rank #1 (Strong Buy). Other Asian wireless operators which are also doing well include China Mobile Ltd. (CHL) and Chunghwa Telecom Co. Ltd. (CHT). Both these stocks currently hold a Zacks Rank #2 (Buy).
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