Telecom stocks bullish as foreigners' net purchases increase

South Korea’s telecommunication stocks are getting a boost from foreign investors’ net purchases. Telecom shares, which are relatively defensive to economic swings, are attracting foreigners concerned over interest rate hikes and inflation.

Foreign investors bought a net 182.1 billion won ($147.9 million) worth of KT Corp. shares from March 11 to April 12, according to Korea Exchange (KRX) on April 12. Foreigners purchased a net 137.6 billion won of shares and 64.5 billion won of shares in SK Telecom Co. and LG Uplus Corp., respectively. During the same period, KT and LG Uplus respectively ranked fifth and eighth in terms of net purchases by foreign investors.

In April, SK Telecom ranked top in terms of foreigners' transactions, with 110.9 billion won. KT ranked third, posting 84.9 billion won of transactions by foreigners. Although foreign investors have recently been on a net-selling spree in the Korean stock market, they have kept buying telecom shares.  

The three major telecom stocks are enjoying a bullish trend -- SK Telecom stocks rose by 14.47% between March 2 and April 12. KT and LG Uplus stock prices jumped by 12.5% and 9.51%, respectively, during the same period. Particularly, KT shares soared to 37,400 won on April 4, hitting their highest point in eight years.  

The stock prices rose in line with the improved performances of the telecom firms. Combined operating profits of the firms during the first quarter will be more than 1 trillion won, much higher than initially expected, industry officials said. As the 5G market has stabilized, the telecom giants are spending less on marketing and network infrastructure, the officials added.

“The three telecoms giants’ marketing expenses in the first quarter are probably lower than those in the fourth quarter of 2021, as well as 1% less than those in the first quarter of 2021,” said Kim Hong-shik, an analyst at Hana Financial Investment Co. “The average growth rate of consolidated earnings by the three companies is expected to reach 11%,” Kim said.

The telecom firms' high dividend yield ratios were also attractive to foreign investors. During its quarterly performance announcement in January, LG Uplus said it will increase its dividend payout ratio from 30% to 40%. SK Telecom pledged to enhance its dividend policy last November when it spun off SK Square Co., an investment arm of conglomerate SK Group.

KT maintains a 50% dividend payout ratio, the highest among the three telecom companies. Its last dividend per share was 1,910 won, up 41.5% from the previous year.  

"The dividend yield ratios of the three major companies were previously around 4%. But LG Uplus is slated to offer a 5% ratio this year, and KT and SK Telecom are planning late 5% ratios," said Ebest Investment & Securities analyst Lee Seung-woong.

Write to Tae-Ung Bae at btu104@hankyung.com
Jihyun Kim edited this article.