SK Telecom Q1 2025 Earnings Call Transcript

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May 12, 2025
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Operator

Good morning and good evening. Thank you all for joining the conference call for the SK Telecom Earnings Results. This conference will start with a presentation followed by a Q and A session. Now we will begin the presentation on SK Telecom's First Quarter of Fiscal Year twenty twenty five Earnings Results.

Moderator

Good afternoon. I am Hee Joon Jung, IRO of SK Telecom. Let us begin the earnings conference call for the first quarter of twenty twenty five. Today, we will first deliver a presentation on the financial and business highlights followed by a Q and A session. Please note that all forward looking statements are subject to change depending on various factors such as market and management situations.

Moderator

Let me now present our CFO. Good afternoon. This is Young Seok Kim, CFO of SK Telecom. Before I start the earnings presentation, I understand that there are great concerns among investors regarding the cybersecurity incident that happened last month. A joint public private investigation team is currently looking into possible causes and scope of the incident.

Moderator

And SK Telecom is doing its utmost to protect our customers from any damage or loss related to the recent incident. Immediately after detecting data leak, systems suspected of malware infection were isolated. Also an enhanced fraud detection system is running at its maximum level to block suspicious authentication attempts. As of now, all the eligible SK Telecom customers have enrolled in U SIM protection service. The dual layers of the FDS and U SIM protection service bear the same effect of U SIM replacement.

Moderator

Starting from today, the upgraded U SIM protection service will be applied sequentially to provide protection during roaming as well. We are also looking for various ways to address the situation including securing as many UCM chips as possible in the short span of time along with the suspension of new subscriber sign ups. We will keep the investors updated on matters related to the incident. Let me now report on the consolidated financial results for the first quarter of twenty twenty five. Consolidated revenue reported KRW4453.7 trillion, down 0.5% year over year due to the sale of certain subsidiaries.

Moderator

Operating income posted KRW 5 and 67,400,000,000.0, up 13.8% year over year. Profitability improved, thanks to the decline in marketing and depreciation costs as the five shoe market matures. Net income posted KRW361.6 billion, down 0.1% year over year. Next, let me report on business highlights. Fixed and mobile business saw a continued increase in five gs and broadband subscribers.

Moderator

AI business revenue grew 15.6% year over year maintaining a growth momentum. AIDC business posted KRW102 billion of revenue in the first quarter, up 11.1% year over year. It is firmly established as a successful business with more than KRW100 billion of quarterly revenue. In the short term, we will quickly increase data center utilization rates while generating additional profits through services such as GPU as a service. In the mid to long run, we will prepare for hyperscale AI DC business.

Moderator

AIX revenue was KRW45.2 billion, up 27.2% year over year. Along with the steady growth of AI cloud revenue, AI B2B business has contributed to earnings, thanks to the virtual consultation services and AI marketing services for financial institutions. AI. Biz is conducting a beta test and is scheduled for an official launch in the first half of the year after further improving functionality. In addition, we are determined to demonstrate business feasibility of AgenTik AI within this year.

Moderator

ADOT has strengthened the profit base with the cumulative subscribers surpassing 9,000,000 in the first quarter. It is focusing on enhancing user convenience by adding Google Gemini and Liner Pro to the multi LLM agent. Esther has completed an open data service in The U. S. And is preparing for an official launch in the second half of the year.

Moderator

Let me now turn to shareholder returns. The Board of Directors resolved to set the first quarter DPS at eight thirty one with the record date of May 31. As a result of the amendments to the articles of incorporation approved at the AGM in March, the record date for quarterly cash dividends is designated after the dividend amount is determined in an effort to enhance predictability of cash dividends. In light of the recent cyber security incident, SK Telecom will conduct a thorough and comprehensive review of the business management and further strengthen fundamental competitiveness. Customers are the foundation of the company and customer value enhancement is ultimately linked to corporate value and shareholder value enhancement.

Moderator

We will mobilize all the resources within the company for customer protection so that we can regain and uphold the trust of our customers and shareholders have placed in us for over forty years. Now more than ever, we ask for your continued support and encouragement. Thank you.

Operator

Now Q and A session will begin. Please press 1, that is 1 if you have any questions. Questions will be taken according to the order you have pressed the number 1. For cancellation, please press 2. That is 2 on your phone.

Operator

The first question will be provided by Jon Seok Kim from KB Securities.

Moderator

I'm Kim Jong Seo from KB Securities. Thank you for the opportunity to ask you questions. I have two questions related to the recent cyber security incident. The first one is about customers switching to another mobile operators. I understand that the number of customers switching to other MNO operators has been increasing more than the historical level.

Moderator

So I'd like to understand the company's position and response measures. Secondly, you have recently decided to suspend new subscriber sign ups related to the recent cybersecurity incident. I'd like to understand for how long the suspension will be maintained and what will be potential impact of this decision on your revenue? And if you can answer these questions, it will help us understand those current situation. Thank you.

Moderator

Thank you for your questions.

Moderator

And as for your two questions, Mr. Yoon Jae Eun, Head of Marketing Strategy will answer them. I am Yoon Jae Yoon, Head of Marketing Strategy. In the beginning of this cyber security incident, it is true, yes, that there were some inconveniences and confusion due to the surge in customers demanding using replacements or enrolling in using protection service. And in this process, there was an increase in the number of customers who are switching to other networks.

Moderator

We will understand that the customer base is the most valuable asset of SK Telecom and a foundation for medium to long term profit generation. Therefore, it will be inevitable that we have to bear some expenses to regain the trust of our customers and lock them in. Currently, we are doing everything we customer protection and market stability and we will continue to closely monitor the market situation and respond accordingly. Moving on to your second question against the backdrop of the recent cyber security incident in accordance with the administrative guidance by the Ministry of Science and ICT, we have suspended new subscriber sign ups from May 5. As of now, it has not been decided whether and when, we will be able to resume new sign ups.

Moderator

However, the recent suspension was made to secure enough supply of U SIMs for affected customers. And we have already 100% of eligible customers enrolled in the U SIM protection service. And now the U SIM protection service has been upgraded to provide protection for roaming customers. And starting from mid May, we believe that we'll be able to get a stable supply of U SIM and we have introduced a U SIM reset function and have simplified the process for eSIM replacement. So we will be able to handle the demand for eSIM and eSIM replacement going forward smoothly.

Moderator

And then we will discuss when we will resume the new sign up together with the relevant government ministries on this matter. Upon your question on potential impact of this decision on our revenue will very much depend on for how long we will have to suspend new subscriber sign ups. And so we are doing our best to stabilize the market as quickly as possible. And we will voluntarily disclose to the investors and to the market when we finally decide to resume new sign ups.

Operator

The following question will be presented by Sungwong Lee from Uanta Securities. Please go ahead with your question.

Moderator

I am Lee Seung Woon from Yuan Ta Securities. I'd like to ask some questions that are rather follow-up questions to the previous questions. In short, I'd like to understand the overall financial impact of the recent cyber security incident on your earnings performance. I know that a lot of the factors have not been finalized. So there's a lot of uncertainty, but if you can guide us and provide us with some color on what factors and what situations and what factors that we need to consider as investors to understand potential financial impact.

Moderator

And moving on to your first quarter dividend amount, you decided to maintain it to the same level as the previous quarter. I'd like to understand if the recent incident will have any impact on your shareholder return policy? Thank you.

Moderator

Thank you for your questions.

Moderator

I would first like to address your question on the overall financial impact of the recent incident on our performance. I understand that the investors would like to very much know the potential impact financial impact of the recent cyber security incident on our earnings performance. But at this point in time, we don't really have any specific details to share with you. But what I can do is to cover some of the related areas and potential measures that may have some financial impact. And then I will be able to provide you with more details as progress is made regarding the investigations and also market situations.

Moderator

First of all, as for U SIM replacement, we are working based on the assumption that all 24,000,000 customers may want to get their U SIM replaced. So we're accelerating the shipments of U SIMs as much as possible and we're also developing our financial plans accordingly. And regarding any potential negative impact on our revenue, this may be expected due to some mobile carrier change or suspension of new subscriber sign ups. But the size of such impact is dependent on future telco switch trends and when we will be able to resume new subscriber sign ups. So please understand that we will not be able to offer any specific numbers at this point.

Moderator

Also additional potential costs such as administrative penalties may be considered, but whether such costs would be incurred is again dependent on so many factors including the results of the ongoing joint investigation led by the Ministry of Science and ICT and investigation by the Personal Information Protection Commission and the potential amounts are also difficult to estimate at this point in time. Negative financial impact due to the recent cyber security incident may be inevitable. However, we believe that it is crucial for us to put in all the available resources as quickly as possible to stabilize the market and regain trust from our customers. And this will be the best way in the long run to minimize any potential losses and recover our corporate value. Moving on to your question on potential change to our shareholder return policy.

Moderator

We understand that market participants would like to know whether there will be any change to our shareholder return policy due to the recent incident. Certain levels of financial impacts would be inevitable related to the recent incident, but it is rather too early to estimate any potential financial impact with any certainty. So what I can say is that our basic principle of maintaining stable dividends for shareholder returns remains the same.

Operator

The following question will be presented by Sujin Kim from Mirae Asset Securities. Please go ahead with your question.

Moderator

Thank you for the opportunity to ask questions. Because questions were already asked regarding the recent cyber security incident, I'd like to ask a question on your business situations and plans. For your AIDC business, it recorded a double digit growth rate on a year over year basis. So I'd like to understand your future AIDC operation and expansion plans. And if you can give us some color on the profitability of AIDC business, it would be great.

Moderator

Thank you.

Moderator

Thank you for your questions.

Moderator

As for your questions, Mr. Lee Hyun Woo, Head of AIDC Development will address them. I'm Yeonoo, Head of AIDC Development. As for your question on our medium to long term AIDC or DC business expansion plan, as of now we are operating eight data centers including the Yangzhou Data Center, which recently opened in February. Furthermore, we are working on a project to build a hyperscale AI data center in regional headquarters or in regional hubs in close cooperation with the global big tech.

Moderator

And our target is to open hyperscale AI data centers by 2027. And when we have more detailed plans, we will communicate them with the market. In addition, we already have put in place plans to establish new data centers in the Seoul Metropolitan area. So we have a pipeline until 02/1930 for capacity expansion and we will continue to increase our data center operational capacity gradually. Furthermore, with the full fledged opening of the AI era, we understand that the existing colocation based data center business model is quickly switching to a new AI data center business model and we expect a new types of demand in the market will continue to emerge.

Moderator

So we are working to proactively establish our new data center business models to respond to these demands. To give you more details, we already launched the subscription based GPU as a service at the end of last year, so that customers can quickly get access to AI data centers with high performance GPUs. And as I mentioned earlier, we are cooperating with a global big tech company so that we can establish Korea's First hyperscale AI data center. In addition, we are building and developing new business models including a modular AI data center business model where those who need quick access to low capacity AI data center can utilize as well as the dedicated AI data center business model where customers who want to possess their own AI data centers can receive a tailored turnkey projects. So in summary, we will continue to supply AI data center in order to meet changing needs in the market, while establishing the AI infrastructure domain as a foundational business for SK Telecom.

Moderator

Moving on to your second question on the profitability of our data center business in terms of EBITDA margin. I would first like to mention that our data center business is classified as B2B business for SK Broadband. And for this reason, it's difficult to separate the and calculate EBITDA margin for data center business only in consideration of allocation of indirect costs and expenses. However, what I can say is that AI or data center business EBITDA margin is slightly higher than the consolidated EBITDA margin of SK Broadband. Thank you.

Moderator

Now we would like to conclude the earnings conference call for SK Telecom. If you have any additional questions, please contact the IR team. Thank you.

Analysts
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SK Telecom Q1 2025
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