KT Corporation (KT) Q2 2025 Earnings Report, Transcript and Summary

[Foreign Language] Good morning, and good evening. Thank you all for joining this conference call. And now we will begin the conference of the second quarter of fiscal year 2025 earnings results by KT. We would like to have welcoming remarks from KT IRO, and then CFO will present earnings results and entertain your questions. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we would like to turn the conference over to KT IRO.

[Interpreted] This is KT's IRO, Jaegil Choi. We would like to begin KT's Second Quarter 2025 Earnings Presentation. Be reminded that today's presentation includes financial estimates and operating results under the K-IFRS standards that are yet to be reviewed by an outside auditor. We, therefore, cannot ensure accuracy nor completeness of financial and business data, aside from the historical actuals. So please note that these figures may be subject to change in the future. With that said, I now invite the company's CFO, Chang Min, to run through the second quarter results of 2025.

[Interpreted] Good afternoon. This is Jang Min, KT's CFO. KT continued to drive revenue and operating profit growth this quarter while making the effort towards a complete transformation into an AICT company. Also, corporate value enhancement plan is well underway. And as part of that value-up program, we plan to complete share buyback of KRW 250 billion on August 13. Dividend for the second quarter has been decided at KRW 600 per share, an increase of 20% year- over-year. And starting from this quarter, even for quarterly dividend payouts, dividend amount will first be declared, which will then be followed by setting of the record date, a system that is shareholder friendly. KT, as an AICT company, has responded actively to company's AX demand, successfully winning large-scale projects from large companies and IT enterprises, thereby laying the basis for growth. And under the multi-model strategy road map, we launched KT's proprietary LLM, Mi:dm2.0 last July and will be completing AI full lineup with the unveiling of the open source model and Microsoft collaboration model in sequence. Based on KT's proprietary model, Mi:dm2.0, we won AI platform build projects from large companies, Gyeonggi provincial government and Korea Water Resources Corporation, further cementing our positioning in the public sector. Microsoft collaboration continues also as we roll out new services. In July, AI agent, powered by Azure open AI-based LLM, was integrated into Genie TV, expanding the AI use case. In the second half, we plan to launch AI model better tailored for Korea that is powered by ChatGPT for Omni and secure public cloud which uses top-notch security protocol, confidential computing in order to kick-start our reach into the market. To proactively strengthen security, KT has a plan to invest cumulative KRW 1 trillion in information security over 5 years. To make sure customers can feel safe in using telecom services in their everyday routine, we will innovate our information security system. From now onwards, I will move on to financial results for second quarter 2025. Operating revenue increased 13.5% year-over-year, reaching KRW 7,427.4 billion. Operating profit was up 105.4% year-over- year, reaching KRW 1,014.8 billion on the back of balanced growth from telco business and the group's core portfolio as well as profitability improvement efforts and onetime gains from real estate sales. Net income increased 78.6% year-over-year to KRW 733.3 billion, driven by higher operating profit. EBITDA was up 36.3% year- over-year, reporting KRW 1,990.7 billion. Next page is operating expense. Despite a decline in labor costs due to costs of real estate sales project at Gangbuk division and increase in COGS from growing wireless handset sales, operating expense was up 5.9% year-over-year, recording KRW 6,412.6 billion. Next is on financial statement. Debt-to-equity ratio as of June end of '25 was 123.5%, while net debt ratio edged up 3.3 percentage points year-over-year, reaching 36.8%. Next is CapEx. Total CapEx spend by KT and its major affiliates was, in total, KRW 1,364.3 billion on a cumulative basis as of Q2 of '25. KT's separate basis cumulative CapEx as of Q2 was KRW 845.8 billion, while CapEx of major group affiliates amounted to KRW 518.5 billion. Next is on the breakdown of results by each business segment. Firstly, wireless revenue increased 0.9% year-on-year, reporting KRW 1,781.7 billion. Whilst 5G subscribers accounted for 79.5% of total handset subscribers due to the impact from subscriber addition through MNP, MNO subscriber increased 3.4% Q-on-Q. Next, the fixed line business. On the back of GiGA Internet subscriber growth and expanded value-added services, broadband revenue increased 2.1% year-over- year, reporting KRW 631.4 billion. On net IPTV subscriber adds and premium plan uptake, Media business posted 0.8% growth year-over-year. Home telephony revenue recorded KRW 176.2 billion, up 0.4% year-on-year. Next, KT's B2B services. Despite streamlining of low-margin businesses, B2B service revenue posted 4.5% year-on-year growth on balanced growth coming from telecom and AI and IT services. Thanks to the growth of design and build projects and cloud business, AI IT business revenue saw 13.8% year-over-year growth. Next, moving on to performances of our major subsidiaries. BC Card revenue fell 6.9% year-on-year to KRW 909.8 billion as acquiring volume declined, but operating profit was kept flat year- over-year through risk management and profitability enhancement efforts. Content subsidiaries reported 6% year-on-year revenue growth on the back of production and distribution expansion by KT StudioGenie and increase in subscribers of KT Millie's Library. KT Cloud saw its revenue grow 23% year-on-year, driven by growing data center usage by global customers and expanded DBO project wins. KT Estate revenue increased 2.0% year-on-year reaching KRW 160.4 billion, driven by growth in rental revenue from office and hotels. This has been an update on KT's earnings for second quarter 2025. KT will endeavor to complete the transformation into AICT company. And through successful execution of corporate value-up plans, we will drive KT's corporate value a notch higher. We look forward to your ongoing support and interest from the investors and analysts. Thank you very much.

[Interpreted] For details, I do refer to the earnings material that we have given out. We will now take your questions from the participants. [Operator Instructions]

[Interpreted] [Operator Instructions] The first question will be provided by Joonsop Kim from KB Securities.

[Interpreted] I would like to ask 2 questions. First, on AI business direction going forward and second is a question relating to how you see the MNP market following the repeal of the Handset Subsidy Act. Regarding the AI business direction, you've talked about the full AI lineup as well as your estimates as to a steep growth going forward from your AI and IT business. Because AI scope really includes wide-ranging aspects, I would like to know where KT wants to focus on going forward? That will help us understand better in terms of your AI business direction into the future. Second question, how do you see the MNP market following the repeal of the handsets -- lifting of the Handset Subsidy Act because different people see the market differently so I would like to understand as to what KT's thoughts are regarding the MNP market going forward.

[Interpreted] Well, thank you for those questions. So regarding the first question on our AI business direction forward, I would like to just summarize that point into 3 main items. Now the first strategy that we have is through the partnerships with global big techs like Microsoft as well as the partnership that we have, the exclusive licensing partnership that we have with Palantir. We've been able to really enhance our competitiveness and fill up the gap that we internally did not have. And by leveraging these aspects, we want to be able to provide new AI services to our customer base that includes secure public cloud as well as K-GPT, the more Korean tailored type of GPT services. The second strategy is, as I've mentioned during my opening presentation, we have taken on a multi-model-based strategy. So not only will we be using the Microsoft collaboration model, but as you know, over the past year, we've been developing our internal model, which is Mi:dm2.0. We will continuously make enhancements to that so that we can come closer to the needs that our customers have. We will also be leveraging open source models like Llama to provide and build the AI services that our customers require. Moving on to the third strategy. We will be leveraging such AI capabilities and services and managing -- and managing the network that we have and also providing media-related services. A good case in point is we've basically installed an AI agent that is based upon Microsoft Azure open service into our Genie TV set-top box as well as using such AI capabilities and enhancing the operational efficiency of our 5G base stations. So we will be continuously leveraging such AI capabilities. Responding to your second question about what impact there was following the lifting of the Handset Subsidy Act as well as the market impact. Firstly, as you know, even though there was a launch of Galaxy flagship handset model, we did not see any overheating of competition in the market. But of course, if -- when the iPhone, the next versions, are introduced into the market, competition in the market may heat up. So there is that possibility. But having said that, we do not believe -- it is our belief that it is not going to be long-lasting, even if that happens. Now I say that because of 3 main reasons. First being already the 5G penetration is above 80%. And also, the handset replacement cycle has gotten longer compared to the past. And right now, it is an important timing for all the telcos to really focus and invest into the new business areas relating to AI and IT. So that is the basis upon which I believe that, that's why the competition in the wireless market, even if it exists, it's not going to be long lasting.

[Interpreted] The following question will be presented by Hoi Jae Kim from Daishin Securities.

[Interpreted] I'm Kim Hoi Jae from Daishin Securities. Before asking the question, I would like to first congratulate Jaegil Choi, the new IRO. I look forward to very good and productive communication going forward as we've done in the past. So my 2 questions are: The first is your second quarter results have been quite outstanding. I would like to know what your therefore outlook is for the second half of the year. And regarding the value-up plan, you've made the implementation disclosure already. Would like to understand as to what the update is. Would you be considering any changes to your dividend or your share buyback plans?

[Interpreted] Responding to your question, the first one on the second half outlook. In Q2, there was, yes, a significant one-off gain from our real estate business. So that had a big impact on bringing a good performance. But even aside from that, if you look at our separate basis statements, you will see that our year-over-year performance had been quite good -- it was quite good. It was very good. And we think that we will be able to continue on with that good momentum into the second half of the year considering the fact that we will be able to sustain a very solid service revenue uptrend. Now on the cost side, we were able to drive an improvement in our head count. And so we are keeping our labor costs. We're managing that quite well. And on the depreciation side, we have completed the depreciation on our 5G. So we see the depreciation costs coming down. But there may be some concern on the commissions paid as well as selling-related expenses. There may be slight risk there, but these are numbers that are linked to our earnings performance. So we're not at all greatly worried about this item. Regarding the second question about our dividend payout plan. First off, basically, our basis upon which we make the dividend decision is 50% of adjusted net profit. And already we have declared and made the decision on dividend per share of KRW 600 already, which is actually in excess of that criteria. Having said that, as long as we -- and as we are confident that we'll be able to carry on with the performance levels into the Q3 and Q4, I believe that a minimum the BoD will continue to make such decisions in alignment with the market expectations. In terms of how our shareholder return program will look like after next year, of course, the BoD will make appropriate decision as we go forward. But in light of the fact that we are seeing an improvement in our bottom line and the fact that our dividend program is shareholder-friendly and market-friendly, I can tell you that you can expect that we will not, in any circumstances, failed -- fail the expectation of the market. In terms of the value-up program, under the value-up program, we'll be making additional share buyback in the size of KRW 1 trillion. We've already done KRW 250 billion. And over the coming 3 years, we will, in sequence, be making that share buyback in the amount of KRW 750 billion.

[Interpreted] This ends the Q&A for today. Thank you for your time and interest. We will close the earnings call for the second quarter of 2025. Thank you for joining despite your very busy schedule. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]