SK Telecom Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 10, 2023

There are 2 speakers on the call.

Operator

Morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2023 First Quarter Earnings Results by SK Telecom. This conference will will start with a presentation followed by a divisional Q and A session. That is star and 1 on your phone during the Q and A.

Operator

Now we shall commence the presentation on the fiscal year 2023 1st quarter earnings results by SK Telecom.

Speaker 1

Good afternoon. I am Hee Joon Chong, Investor Relations Officer at SK Telecom. Thank you for joining SK Telecom's earnings call. We are providing consecutive interpretation for the call, which will consist of a presentation on the Q1 2023 earnings highlights, future business plans and strategic directions as well as the Q and A session. The call is attended by our executives from relevant business divisions, including Jin Won Kim, CFO and Head of Corporate Planning of SK Telecom.

Speaker 1

Before we begin, I would like to remind you that all forward looking statements are subject to change depending on market situations. Good afternoon. This is Shinwon Kim, CFO of SK Telecom. SK Telecom participated in MWC 2023 held in Barcelona, Spain in late February and presented its with concrete plans for the AI company vision and recent achievements. It was an opportunity to introduce AI startups that we're closely cooperating with and engage in active discussion with overseas telcos and big tech companies to build a global cooperative framework.

Speaker 1

SK Telecom will strive to lead AI Transformation to ensure that all generations, businesses and industries can enjoy the benefits of AI to the fullest. Call. Now let me report on the consolidated financial results of the Q1 2023. Consolidated revenue reported KRW4372.2 billion, up 2.2% year over year, Thanks to the growth of both the fixed and mobile business and the new businesses. It reported a decline of 0.5% Q on Q due to the drop in handset sales of the with Yuri Company.

Speaker 1

The operating income posted KRW494.8 billion, up 14.4 percent year over year call in 94.4 percent Q on Q, mainly due to the base effect of one off labor costs recognized in Q1 of the previous year and seasonal expenses recognized in the previous quarter. Net income grew 37.3 percent year over year and 35.2 percent q on q to come in at KRW 300 KRW 2,500,000,000 on the back of increase in dividend income from the invested companies. On a non consolidated basis, revenue grew 1.3% year over year and 0.7% Q on Q to KRW 3,117,300,000,000. Operating income and net income reported KRW 415,700,000,000 and KRW 422.2 billion, respectively. Let me now turn to the Q1 business highlights and strategic directions of the company that is pursuing transformation and leap forward into an AI company.

Speaker 1

SK Telecom is providing differentiated AI services based on its own hyperscale language technology accumulated over the years. In addition to the ADOT service, we are actively applying our AI technology to the 5 business groups wherever appropriate to identify and implement concrete ways to maximize growth and profitability of each business. As you're aware, AI is advancing rapidly and the scope of AI powered services is getting wider. Against this backdrop, SK Telecom will continue to scale up its AI capabilities and services through partnerships with diverse Korean and foreign AI companies in areas where such partnerships are necessary, including the use of ChatuPT, while further advancing its own AI technology. As part of the strategy, SK Telecom signed a strategic partnership with ScatterLab in April with an equity investment of KRW 15,000,000,000, known for in the Iruda chatbot that can hold empathetic conversations.

Speaker 1

ScatterLab is an AI startup that uses deep learning to develop a relationship oriented AI agent that can have human like conversations with users. Session. The partnership with Scatter Labs aims to jointly develop an AI agent service capable of holding empathetic conversations for the ADOT service, which is optimized for personalization through long term memory and multimodal technology. The joint development will support the evolution of ADAT to be more human like than humans. The 2 companies have also agreed to pursue close cooperation to develop a hyper scale language model that is equipped with emotion and knowledge domains.

Speaker 1

Like this, SK Telecom is stepping up efforts on all fronts to transform itself into an AI company by strengthening cooperation with leading AI companies in Korea and actively pursuing partnerships with global top tier AI companies. With global presence secured through its launch in 49 countries session. Last year, Ifland has attracted more than 10% of MAU from overseas in the Q1. It is expanding the scope of global cooperation through MOUs signed with several global companies, including Deutsche Telekom, T Mobile and Axiata. Furthermore, this land is evolving into metaverse type social media platform centered on 3 d virtual spaces by launching If Home in May, a personalized three d space.

Speaker 1

It also plans to strengthen its economic system in order to secure a new monetization structure by introducing a content marketplace based on in app transactions in the second half of this year. On the U. S. EUniverse has solidified its position as a leading subscription product in Korea with the average MAU of more than 1,800,000 in Q1. Following the introduction of an annual subscription service last year, T Universe continues to launch new service features to enhance customer experience and convenience, including a topping function where users can add extra services to their description and a gifting function.

Speaker 1

It is also reinforcing competitiveness in product differentiation by leveraging partnerships with big players, which resulted in the recent launch of YouTube Premium in addition to Amazon free shipping. In the UAM business that aims to launch Korea's 1st commercial and UAM service in 2025, SK Telecom aims to be a total service provider that covers aircraft, telecommunications and services. We have secured differentiated capabilities based on mass platform, 5 gs aerial network and an exclusive partnership with Joby Aviation, Global No. 1 UAM Aircraft Manufacturer. We're doing our best to gain leadership in the industry by securing a license early through successful demonstration projects.

Speaker 1

Call. In addition, we continue to showcase interactive items such with immersive VR content experienced UAM at various exhibitions and events including MWC, Seoul Mobility Show and World IT Show to boost public interest and familiarity, which is essential to secure social acceptance in the early stages of UAM commercialization. The enterprise business is enjoying continued revenue growth centered on data centers and cloud business. In particular, stable increase in the utilization rate of call. In the Q1, we have secured the largest order in AICC business, which started last year.

Speaker 1

Using this as a reference, We plan to expand AI transformation of the call center industry, which has been in the spotlight recently. In addition, We intend to utilize various AI technologies and solutions to support customers' AI transformation and continue to explore further growth opportunities through new customer acquisition. Let me now report on the performance of the fixed and mobile business, which is the basis of our company. As of the end of Q1, the number of 5 gs subscribers reached 14,150,000, accounting for more than 60% of the total subscribers. We plan to attract high quality subscribers through continuous digital transformation based on AI to sustain earnings improvement.

Speaker 1

Call. As of the end of Q1, the pay TV subscribers and broadband subscribers reached 9,400,000 and 6,760,000 respectively. We continue to grow the subscriber base by achieving number 1 net ads Market share for IPTV and Broadband. Based on our strong subscriber base, we plan to pursue growth centered on efforts to acquire high value added subscribers such as increasing the share of GiGA Internet users. Finally, for shareholder returns, the Board determined the 1st quarter DPS to be the same as the previous quarter at 831.

Speaker 1

We will do our best to ensure that transformation into an AI company will lead to maximization of corporate value and shareholder value. We ask for your continued support and encouragement. Thank you. We will now begin the question and answer session.

Operator

Now Q and A session will begin. Questions will be taken according to the order you have pressed the number that is star and 2 on your phone. The first question will be provided by Soojin Kim from Mira Asset Securities. Please go ahead with your question.

Speaker 1

I am Kim Soo Jin from IR Asset. Thank you very much for giving me this opportunity to ask you questions. The first question is related to your shareholder return policy for of year 2023. At the last conference call, you mentioned that you would consider the possibility of share buyback by utilizing income coming from Hana Financial Group and SK Broadband. But you did not mention about this in your initial presentation.

Speaker 1

So I'd like to understand what your plans are regarding the shareholder return policy in terms of the timing and the method. The second question is related to the recently launched If Home service that you announced last week. And I can see that If Home is Very similar to OSAI World in a sense that users will have their personalized spaces on your Metaverse platform. So I'd like to understand how this will lead to your monetization of the Metaverse presentation of the Metaverse business and your business model development. Thank you.

Speaker 1

Thank you very much for your question. As per your question on our shareholder return policy, we mentioned yes about the potential share buyback at the last conference call, so the market would like to know more about this. Call. Currently, we have the dividend yield of more than 7%, which means that our stock price is rather undervalued. So we still have in mind a potential share buyback program going board.

Speaker 1

Session. As per specific timing and the size of share buyback, these are subject to a Board approval. So I Cannot really give you specific details at this point in time, but as you mentioned, we have enough pool of financial resources, including the dividend income coming from SK Broadband and Hana Financial Group, and we have improvement in the earnings over the past year. So when it comes to the specific details, we will consider various factors, including the stock market, our stock price trend and the overall business environment and the cash flow to determine the optimum time of the share buyback. In addition, we introduced the new shareholder return policy at the time of split off, and this year is the 3rd year since we have been implementing the existing shareholder return policy.

Speaker 1

Based on our past experiences, we understand that if a share buyback is done on a temporary basis, it may drive up the stock price momentarily, session, including dividend payout. We are considering how we can create more sustainable shareholder return policy, including a share buyback. And after active discussions at the Board, we will come up with a decision. And we will make sure to communicate with the market when we have more details and concrete plans after call. And as for shareholder return in this year, 2020 call.

Speaker 1

As I mentioned in my presentation, we are considering a very stable quarterly dividend and the 1st quarter dividend amount is EPS is $8.31 per share. Therefore, our annual dividend payout size is going to be similar to the previous year, and we continue to discuss various options to maximize shareholder value and shareholder return, including the potential share buyback and we will continue to do our best to return more to our shareholders. Call. And regarding your question on our plans for the Metaverse platform, Mr. Yang Ming Seok, Head of Hello, I am Yang Maeng Seok, Head of Metaverse Company.

Speaker 1

Thank you for your question. The If Home service that we recently launched is basically a social networking or a social media platform utilized the 3 d spaces. So in If Home, users can create their own 3 d virtual space and they can decorate their space using various items and this is basically creating their own space virtually. There in this Ifome space, users can post various writings and they can use 3 d frames to share photos. In this way they can continue to share their everyday experiences and their thoughts and their views and they can share these feed with others.

Speaker 1

By utilizing these features, users can invite their friends over to their IFF homes and They can also visit other homes of their friends. In this way, they are engaged in new types of social activities. Call. Even though this is a very new product, we are receiving various positive feedback because users find a lot of enjoyment in decorating their own spaces and visiting their friends' homes and singing together in these spaces. Call.

Speaker 1

As users continue to decorate and nurture their virtual spaces and engage in various social activities, They will be motivated to utilize various services and keep coming back to this platform. And in this way, there will be increasing needs to have unique items and differentiated items to express their own personality and such demand and need is expected to bring about benefit in terms of the economic system that we're planning to introduce in the second half of the year. Call. As As for the economic system that we're planning to introduce in the second half of the year, there are 3 main parts. The first part is offering a 3 d content marketplace where users can create and sell avatars and spaces and other motion related features.

Speaker 1

And the second part is where they can purchase premium access and premium privileges such as getting access to singing rooms and other paid spaces. And the 3rd part is about sponsoring influencers and celebrities that they want to support. In addition, we're planning to apply the NFT technology in terms of content including avatar costumes and other decorative items. And users can purchase unique content created by creators using NFT, and this is expected to bring about more revenue coming from this platform and this will also attract a larger number of creators joining this platform, which will lead to creation of a more of a creator centered platform as well. Thank you.

Operator

Session will be presented by Cheongsop Kim from KB Securities. Please go ahead with your question.

Speaker 1

Call. I am Kim Joon Seo from KB Securities. Thank you for the opportunity to ask questions. I have two questions. The first question is the impact of the recent price plans that you've introduced.

Speaker 1

So I'd also like to know if you have any plans to introduce any new additional price plans going forward? The second question has to do with your AI business. Recently, there was a presentation by SK Telecom at the MWC 2023. And since that presentation. I wonder if there have been any major updates.

Speaker 1

Thank you. Session. Thank you for the questions. As for the first question regarding new price plans, Kim Ji Hyung, Head of Integrated Marketing Strategy Office, will address the question and then the second question will be addressed accordingly. Hello, I am Kim Ji Young, Head of Integrated Marketing Strategy Office.

Speaker 1

The 3 new 5 gs price plans that we introduced recently are related to broadening the options for price plans so that customers can decide on a price plan according to their own usage patterns. Call. We expect that these new price plans will help lessen the burden on the part of the customers and increasing benefits that they can enjoy, and this will lead to a higher level of satisfaction in terms of the use of 5 gs services and it will bring about very positive benefits. Following the senior the price plan for senior customers, we launched a new 5 gs customized price plan on May 1. And this is about bringing more bringing down the gap between 59 price plan and 69 price plan, and so that 69 price plan users can choose a more reasonable price plan depending on their usage pattern.

Speaker 1

And the price plan for the youth that will be introduced in June are focused on providing more customized benefits for the needs of to young customers so that this will gain more support and more participation from younger customers of SK Telecom. So in short, the diversification of the 5 gs price plans can lead to higher utilization of 5 gs services and better customer retention. Therefore, when it comes to the impact of such new price plans on our performance, it is not easy to give you any specific answer in terms of whether it is positive or negative, but we'll have to see the trend in the medium and long term. Call. As for your question on our future price plan related initiatives, we announced a new set of price plans in March, and some of them are not yet launched, including the youth price plan that is going to be introduced in June.

Speaker 1

So I believe it is a little too early for us to discuss any further price plan related ideas, and we have not yet made any internal review about this. But as I mentioned before, the 5 gs market has become more mature now. So it is only natural that we come up with more variety of price lineups and price plans so that we can attract more subscribers and offer more competitive prices. So that is why we have offered new price plans and data plans depending on our refined customer segments, including the direct plan and price plans for the youth and senior customers. And in our price plan package, we already have price options that are in the ranges of 3,000 and 1 to 4,000 and 1.

Speaker 1

But at the same time, we understand that a lot of customers prefer to go for unlimited data plans because they want to enjoy 5 gs services and variety of 5 gs related benefits without having to be concerned about data limit. And we also see that the size of customers' data usage continues to increase. So these are the some of the factors that we will consider when we design new price plans in the future. And moving on to your question regarding our AI strategy. Last year, yes, SK Telecom announced our new AI vision, And that was also when the Chap GPT became a big buzzword in the market.

Speaker 1

And now the market is being led by AI and AI technology is advancing very rapidly. In retrospect, I would like to say that SK Telecom has rather a long history of being involved in AI development and AI services. For 1, in 2016, we launched an AI speaker, Nougou. And in 2019, we applied Colbert, which is our own large language model to the customer service chatbot. And so it shows that for the past several years, SK Telecom has been accumulating capabilities by developing its AI services and technology.

Speaker 1

So based on our own capabilities and technology, we were able to launch ADAT, which is based on a hyperscale language model. And this was a preemptive move that allowed us to quickly ride on the wave of AI including ChaChiPT. Against this backdrop, we would like to employ a 2 track strategy. On one part, it may be a little too early to talk about this, but we also need to respond to the potential technology dependency issue at the national level. And there are more specific domain related Large language models that are being developed.

Speaker 1

So in response to these developments, we need to continue to advance and develop our own hyperscale language model. So that's one track. And the other track is utilizing partnerships and collaboration with big tech companies because AI technology is advancing rapidly and hyperscale language models including Chap CPT are being introduced in the market. So the recent investment in SCAREL Lab is also part of this 2 track strategy. This has brought us in new core technology that we did not have in the past.

Speaker 1

So likewise, we will continue to ride the waves of technological development by investing in advancing our own hyperscale AI model and at the same time, we'll explore collaborative opportunities with external partners. And in this way, we will be able to accumulate AI capabilities in a more efficient manner so that we can expand service business models based on AI that can be favored and enjoyed by our customers. Regarding more technical Thanks for our AI business. We haven't had much of an opportunity in the past. So I would like to use this opportunity to introduce Son In Hyuk and Kim Young joon who are in charge of ADOT Strategy and ADOT Technology to give you more details.

Speaker 1

Hello. I am Soni Ni Huk, Head of Project Management Office and in charge of ADOT announcement. I'd like to give you some more details in terms of service, global expansion and technology. First of all, regarding our service, we made a preemptive move of launching and operating ADOT last year, and we have been utilizing ADOT and using advanced AI technology. So we are preparing for major update, consecutively starting from June this year.

Speaker 1

Call. First of all, we're going to have an overhaul of UX based on customer behaviors. This includes a more personalized home screen and a more user friendly UX transformation as well as allowing younger users under at the age of 14 to join the platform as well as providing social ID feature. So these will help bring down the entry barriers. Thank you, Maggie.

Speaker 1

We will continue to launch AI tech based services that only a telco operator can provide. So in the Q1, we already launched various services including English language learning and professional baseball, multi play game and collaborative character. And in the second half of the year, we are going to offer new services including AI telephone where you can get briefed on the content of the conversation by utilizing the unique assets that ONIETELCOs have. 3rd, we would like to offer more natural smart conversations using on AI agents. So we have this strategic partnership with ScatterLab.

Speaker 1

And through this partnership, we are planning to launch a new agent or AI agent that is able to hold empathetic conversation in June. So this will offer conversations not only in terms of knowledge, but also in Motion and empathy. And at the same time, we are going to have a major update of the large language model that Q Telkom based on the accumulated experiences and it is going to be presented in June. The next topic is global. We are going to pursue global expansion by expanding the AI ecosystem and global presence expansion through collaboration with Global Telco Companies and Big Tech Companies.

Speaker 1

First of all, we would like to establish a global telco alliance. At the MWC in February, we had meetings with various overseas telecom operators, and we made a proposal to create an alliance to build jointly built differentiated AI services by utilizing their own services and technology capabilities. We were received by very positive from these telco potential telco partners and we're going to soon announce this alliance officially. Call. Secondly, we're going to continue to pursue collaboration with big tech companies.

Speaker 1

We are currently pursuing partnerships and collaboration with not only the telecom operators, but also big tech companies, including those specialized in large language models and AI. And in doing so, we can further advance our technology, and we will be able to accelerate global expansion at a scale by pulling off our capabilities of our partners. Hello, I am Kim Yong Joon, Head of ADOT Technology. Session. As was mentioned previously, for ADOT, we will employ a to track strategy, in which on one part, we will continue to advance our own technology and at the same time pursue technology partnership with external partners.

Speaker 1

Call. Session. When it comes to the generative language model, you may see that the amount of innovation that we used to have in 1 year is taking place in just 1 week. So the speed of development is very rapid. In order to catch up to this rate of development, We will continue to evolve our own technology and accumulate data while at the same time actively pursuing collaboration with external partners.

Speaker 1

So first of all, how we will advance our own technology? As for our own technology, we're applying data and learning models used by big tech companies to expand domain related expertise. Specifically, we used to have our own large language model that was KRW 18,000,000,000. We're going to upgrade that to KRW 39,000,000,000 in the first half of this year, and we will continue to evolve our language model by utilizing the reinforcement learning method based and feedback, which is critical for advancing language models. We're also planning to develop an integrated ranker within this year, so that we can connect customers with very specific tasks that they need and also can provide an integration with and lead customers to the right language model because we fact that there will be multiple language large language models in the future.

Speaker 1

Session. Next, I'd like to comment on our plans for external partnerships. Session. We are currently in the process of having conversations with various with domestic and overseas companies, so that we can pursue cooperation with generative AI leading companies. We will continue we will jointly develop a language model that has strong social features and is able to provide conversation in the knowledge domain by working together with ScatterLab.

Speaker 1

Thank you. Today.

Operator

The last question will be presented by Chaemin Ahn from NH Investment and Securities. Please go ahead with your questions.

Speaker 1

I'm Anjanyin from NH Securities. Thank you for the opportunity. Recently, there have been some talks on the potential, the 4th telco in Korea. So I'd like to ask you to give us some date on the current situation, your take on the government's position and your response strategy. Yes.

Speaker 1

There have been some media reports about the introduction of a potential number 4 telco in Korea. So I can see that there is some interest in the market. And regarding that, Kwon Young Sang, Head of CR Strategy Office will address the question. I'm Kwon Young Sang, Head of CR Strategy Office. In January this year, the government mentioned that they're considering The potential license to another a new telco in Korea in order to facilitate competition in the market and utilize our 28 gigahertz of bandwidth.

Speaker 1

However, this is something that the government is pursuing at at policy level, so I hope that you will understand that it is not our position as a telco to express any explicit view. So in January, the government announced a plan to invite a new player for the telecom market, and they're planning to announced that the frequency allocation plan in June. So some we understand that some businesses are considering this, but we will have to wait and see until June when the specific announcement is made by the government. This concludes the earnings conference call for the 1st quarter of 2023 of SK Telecom. I'm sure you may have some additional inquiries and questions.

Speaker 1

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