KT Corporation (KT) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and good evening. Thank you all for joining this conference call. And now we will begin the conference of the third quarter of fiscal year 2026 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.

Good afternoon. I'm KT IRO, Kim Sun Wook. Let's commence KT's 2026 Third Quarter Earnings Presentation. Please be reminded that today's presentation includes K-IFRS financial estimates and operating results, which have not yet been reviewed by an outside auditor. We, therefore, cannot ensure accuracy nor completeness of financial and business data, aside from the historical actuals. So do note that these figures may change in the future. With that said, I now give the floor to CFO, Min Hye-Byung, for his opening remarks and presentation on the 2026 third quarter earnings results.

Good afternoon. I'm KT's CFO, Min Hye-Byung. In Q3 of 2026, we were able to affirm the recovery trajectory of our core telecom business, while expanding B2B order wins anchoring on the data centers as we fortified the foundation for mid- to longer-term turnaround. Mobile business has shown clear recovery with a gradual uptrend in monthly subscriber count and ARPU following the end of the customer appreciation program. In B2B, on order wins around AIDC business, cumulative value of order intake expanded by more than 20%, strengthening the basis for future revenue growth. In terms of the group portfolio, we've maintained solid growth across core businesses, including data centers, cloud, real estate and content. By driving both capital efficiency and growth potentials of each business, we will continue to expand profit contribution from across the group of companies. We decided on DPS of KRW 600 per share for Q3, and the record date is set at 12th of November. We also completed treasury share buyback amounting to KRW 250 billion back in September as per the communications made at the start of the year. We will continue to implement shareholder return policy without any friction and will strive to enhance corporate value. We're also fully implementing AX platform company strategy. Under the AIDC 1 gigawatt plan, we announced the opening time line for 6 sites and the launching of the Token Factory, driving tangible execution and results of the AX strategy. AX revenue in Q3 on a cumulative basis thus posted 11.9% year-over-year growth, and our target is to drive more than a twofold growth by 2028 from the 2025 baseline. Now before moving on to the financials, I will turn it over to the heads of each business who will run through segment performance and plans.

Hello. I am the Head of Customer Division, Park Hyun-jin. KT's priority in B2C business is to regain customer trust while strengthening our core business competitiveness. And thus, we have focused on innovating AX-driven customer experience. First, under the priority of winning back customers' trust, we strengthened the system for customer protection. We thus operated one-stop resolution center, identifying customer inconveniences preemptively and responding quickly with a solution. As a result, complaints of customer harm declined 60% in Q3 versus the first quarter. Second, we are sustaining quality-driven growth of the core businesses underpinned by stronger competitiveness of fixed and mobile products that cater to customer needs. In mobile, we sequentially released Choice Double plan designed to meet a wide variety of patterns of content usage and Google AI subscription. And after the customer appreciation program ended in August, ARPU has shown gradual recovery. For the Media business, on the back of revamping of Modeun G rate plan for Genie TV and the release of a new set-top box, Genie TV A2, we strengthened AI-driven content experience. As a result, VOD usage by Modeun G subscribers went up meaningfully compared to usage volume of the general users. Lastly, we are expanding AI adoption across customer touch points. At the end of September, we embedded conversational AI agent in the [ MyKT ] app on the customer-facing layer. And by expanding generative AI-based services inside the customer service centers, we are enhancing both convenience and operational efficiency. AI will be brought into the entire customer journey spanning from product search, recommendations, sign-up and use. And through such approach, we will endeavor to deliver hyper-personalized experience and drive profitability.

Hello, I'm the Head of KT Enterprise, Kim Bong-gyun. During the third quarter, we built stronger foundation for the growth of the B2B AX business by expanding meaningful references in AX across key industries, including finance, defense and the public sector. We won major AX projects such as Woori Bank's Agentic AICC and intelligent national defense platform project. And through the collaboration with KT Cloud, we are building upon the order pipeline for AI data centers. As a result, B2B order volume up to the third quarter on a cumulative basis increased more than 20% year-over-year, while establishing the pipeline towards growth. We are also speeding up efforts to beef up KT's competitiveness in AI infrastructure. Based on actual demand, KT Group's plan is to supply more than 1 gigawatt AIDC capacity by 2031. For the metropolitan region, development will be focused on sites where electricity and relevant permits have already been secured. And for the regions outside metropolitan area, we will first work on identifying tenant demand, which will be followed by concrete business plan. As part of such efforts, we will also expand new submarine cables and build ultra-low latency interconnection between AIDCs in order to gain an upper hand in providing AI connectivity at the national level, mainly focusing on the coverage segments of North America and Asia. We are also developing sector-specific standardized models by combining telecommunications with AI capabilities to solve customers' key problems. Standardized model is designed in a way for one to choose and assemble AX service and data and infrastructure that one needs just like assembling blocks in order to fit customer requirements. We set up such model for the health care vertical in collaboration with Yonsei Medical System, Seoul Asan Hospital and SNU Hospital and plan to expand into insurance and public sector going forward. During the fourth quarter, we will drive tangible results from the order pipeline secured this year and widely deploy proven AX references and the standardized models across key industries so as to prepare for a full-fledged growth of the company's B2B AX business.

Hello. I am Park Sang-won, Head of KT's AX Business Division. The AI market recently is undergoing a paradigm shift from AI that is well built to using AI to create value. In step with such changes, we defined trust, efficiency and execution as key conditions under which we will quickly bring it into the real business settings. At the center of efficiency and execution lies Agentic On, the next-generation AX platform. Upon the foundation of Agentic On, we scaled up AICC into Agentic AICC. Through such efforts, we strengthened executional capabilities for the core businesses while enhancing efficiency through platform-centric business implementation. We already introduced this to the banking sector and the adoption is being expanded across the financial sector, including credit cards, insurance and securities companies as well as to other sectors, including manufacturing, services, distribution, public and defense. In line with the national AI policy, we are also pushing ahead with AI for All, offering Eum service connecting AI to everyday settings. We are laying the basis so that everyone, not just the businesses can use AI with confidence and without feeling burdened and experience the value in the daily settings. Token Factory launched end of October, together with Agentic On are the core engines of KT's AX business. We plan to achieve both trust and efficiency by embedding more than 500 AI models, which is by far the biggest scale domestically, optimizing token usage and cost with security guardrails in place. In 2027, we will focus on 2 directions forward in order to translate AX foundation solidified over the years into a fully-fledged business growth and earnings driver. First, leveraging Agentic On designed to be modular and assembly based, we will more quickly expand customized AX business. Taking the premade set of the industry standardized models, customers can reduce time in assembling and required functions like blocks and by offering services fitting customer needs, we will accelerate AX adoption. Second, by leveraging managed AX, we will scale into operations and upgrade businesses post the implementation phase. In operations, by creating follow-on business opportunities, we will secure a virtuous cycle and cement our position as customers' AX partner, being at the side of the customer along their AX journey. KT based on trust, efficiency and execution will be at the forefront of making Korea a nation that best utilizes AI. In 2027, we will enhance customer value translated into growth and earnings and make the leap together with customers.

Let me now move on to the financial results for the third quarter of 2026. Operating revenue was down 1.8% year-on-year, reporting KRW 6.997,5 trillion, while operating profit was down 6.1% year-on-year, reporting KRW 505.3 billion. Operating profit fell due to the ending of the customer appreciation program in July and onetime base effect from last year's property development profit. Similar to last year, the outcome of the collective bargaining is also reflected in the third quarter figures. Net income declined 17.5% year-on-year to KRW 367.3 billion and EBITDA came down 5% year-on-year, reporting KRW 1.428,3 trillion. For your reference, excluding NCP impact, which was a one-off gain from real estate development last year, operating profit increased rather 3.5% year-on-year, while net income fell 7.1% year-over-year. Next is on CapEx. Total CapEx by KT and its group subsidiaries until Q3 of '26 on a cumulative basis was KRW 1.599,1 trillion. KT stand-alone CapEx reported KRW 1.228,2 trillion, while core subsidiaries CapEx spend recorded KRW 370.9 billion. Moving on to the breakdown of performance by each business segment. On the back of subscriber churn during the waiver period for early contract cancellation and on the impact of customer appreciation program, wireless service revenue fell 3.9% year-over-year, reaching KRW 1.666,8 trillion. But on the release of flagship handset models and higher adoption of premium rate plans, including the Choice Double plan, wireless revenue since August is showing a gradual trend of recovery. 5G subscriber count is also up trending persistently with penetration reaching 83.5% end of Q3. Next is fixed line. Broadband revenue was flat year-over-year, but we saw sustained uptrend in GiGA Internet subscriber count and value-added service usage volume. For the Media business, despite rise in IPTV subscriber count, advertisement and PPV revenue fell, which drove media revenue down by 2.4% year-over-year. Next is on B2B services. Underpinned by dedicated line services, enterprise internet and data revenue expanded, but due to the end of the system infrastructure project last year, B2B service revenue dipped marginally by 0.7% year-over-year. AX revenue expanded 9.8% year-on-year due to continuation of steep up trends in data center business and rise in large-scale AI and cloud projects for the financial sector. Next is on the performances of our major subsidiaries. KT Cloud has seen 7.7% year-over-year expansion following the growth in public cloud business in the midst of an uptrend in utilization rate of the Gasan Data Center. KT Estate reported 39.1% year-over-year growth, driven by the growth of hotel business and expanded revenue from development projects in Dunsan, Daejeon. Content business reported 12.1% year-over-year growth, powered by growth from KT Studio Genie and KT Millie's Library. KT Studio Genie is expected to achieve highest non-captive revenue since the establishment of the company based on the commercial success of original titles called New Recruit 4 and A Dream for You and global OTT sales expansion. All in all, on balanced growth of core businesses, including data centers, cloud, real estate and content business, profit contribution from the subsidiaries rose significantly versus last year on the basis that excludes one-off development profit booked last year. Now this brings me to the end of the third quarter '26 earnings of KT. In looking back, during the quarter, we affirmed the recovery trend from our core telecom business as well as the foundation for growth for B2B and the group's portfolio of businesses. While quickly normalizing profitability of the core businesses, we will translate order wins and AX business opportunity into tangible revenue and profit drivers as well as cash flow and further strengthen growth prospects of the group portfolio. We will also endeavor to ensure implementation of the corporate enhancement plan, which we committed to the market and will also strive to deliver shareholder returns in line with market expectations. We look forward to your continued interest and support from the investors and analysts. For more details, please refer to the materials that we have previously circulated. We would now like to begin the Q&A session.

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

I am Kim Joonsop from KB Securities. I would like to ask you 2 questions. First, with regards to the earnings presentation that was made by your subsidiary, KT CS, I now see that the AX is starting to impact your KT's cost base. I would like to know how you assess it based on the KT parent level. I would assume that there will be different line items such as the customer service activation and network operation-related costs. I would like to know whether in 2027, all of these different line items will have impact on your bottom line, the P&L. That's the first question. And the second question relates to Token Factory. You've mentioned this during the Investors Day that you have started the Token Factory business from end of October. I believe that we can really look forward to added value that's generated from token generation rather than simply brokering the usage of the tokens. So going forward, from an outside investor's perspective, when we are making assessment, would it be right for us to focus on the amount of token usage for the inference purposes? Or should we focus more on additional revenue opportunities by bringing together the token aspect with your telecom and cloud vis-a-vis your telecom and cloud customers. So I would like to understand as to where we should be emphasizing where we should be focusing on when we're making the assessment.

Thank you very much, Mr. Kim, for your question. With regards -- you've posed 2 questions. With regards to the first question, the AX business having an impact on our cost, it will be the Head of our C Division, the Customer Division, Park Hyun-Jin will respond to that question. In regards to the Token Factory, we would like to have Park Sang-Won, who's the Head of the AX Business to respond.

Thank you. Taking your question, I am Park Hyun-Jin. With the adoption of AI across all of the businesses that we are engaging in, from the perspective of the customer, it will provide them with more convenient experience. And from our perspective, the company -- from the company's perspective, we will be able to reduce the number of headcount that would have been -- that would have required for handling certain business as we shift to automization, which will help the companies to gain efficiency improvements. So for example, if you look at the AI customer service, number of AI human agents, when there are similar types of queries that the service center receives, the rate at which the AI handles those questions and inquiries have gone up, and that will help in terms of efficiency gains vis-a-vis the number of customer service headcount. And also under our fixed line business for activation to provide activation services, there would be cases where our personnel would have to actually visit the houses of our subscribers. And in order to make that visit, there will be a programming for running of scheduling. There has to be a scheduling program. And when we bring AI into it and make that process more automated, the number of visits that individual technician can actually do would have increased actually from past maybe 6.5 to 7 visits per day to 8 visits per day. Aside from those areas, we've also adopted AX into network operations as well as across all of our business flows. And come next year, we will be able to provide you with more quantifiable impact.

Responding to your question on Token Factory, if you look at the framework of the token factory business that we are engaged in, it's made up of 2 aspects. We make use of our own GPUs, providing that locally -- providing locally hosted model, providing the inference services our own. And the second aspect is partnering up with global providers like OpenRouter and actually providing the routing services in the provision of those third-party outside models. So we employ both approaches of generating or producing ourselves as well as routing or intermediating that workload. And especially, we have a structure whereby we are able to serve more than 500 models. And actually, the key strength that we have is the fact that we can generate the token ourselves as well as intermediate. We are the only company who would have that competitive edge. Especially the fact that we are able to perform the inference workload by using our locally hosted models that really distinguishes us from others, and that also opens up an opportunity in terms of the sovereign AI as well. So going forward, as we expand on the GPU infrastructure or GPU resources, I believe that from a longer-term perspective, we can grow into a hub whereby we will be able to engage in both token generation as well as distribution. Also, we will be -- we will grow the both aspects of this business, meaning using our own GPU resources as well as intermediating and routing the external models. So we will try to strive towards a well-balanced growth between the 2. Especially as a telecom company, we have highly precise billing capabilities. And when we bring that into Token Factory, we believe that we will be able to generate synergies with our existing business, upon which we will be able to further expand on the synergy-based revenues.

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

I am Kim Hoi Jae from Daishin Securities. I have 2 questions that I would like to ask you. If we look at your Q3 earnings, your B2C business and earnings have underperformed. I would like to know what your outlook is going forward. How should we understand the growth direction going forward? Second question relates to your dividend. Previously, you've communicated that at minimum, you will be paying out KRW 2,400 per share. So can you provide some color as to what the Q4 dividend would look like as well as your next year's upcoming shareholder return approach?

Thank you, Mr. Kim Hoi Jae for those questions. First question relating to our next year's outlook on the basis of the B2C performance that we've posted in Q3. That question will be taken by Head of the Customer division, Park Sang-won. Second question on shareholder return, I myself, the CFO, will respond. Yes. This is the CFO, first responding to your dividend question and next year's performance outlook. As we've communicated in May the 12th, we -- for this year, we have set our dividend level at KRW 2,400 at minimum DPS. In terms of the year-end dividend, the final decision will be made by the BOD based upon the annual net profit that we book. And we are fully aware of the level of market expectation with regards to the company's dividend payout. And as I've mentioned in my opening presentation, in the remainder of the time until the end of the year, we are going to focus on regaining and recovering our core telecom business, expanding on the performance of the AX business and also implementing efficient cost spending, thereby focusing on improving the bottom line of the company. And supported by the improvements in the performance, we will make sure that we continue on with the track record of a progressive dividend payout policy. With regards to the outlook for 2027 and the shareholder return plan going forward, I understand that it is the timing for you to have that interest. As I mentioned in my Q3 earnings opening presentation, we are seeing a recovery in terms of the turnaround from our core telco business, and we are also seeing expanded order pipeline being built from our B2B business as well as the AX business. So underpinned by the recovery of the core business as well as growth from the AX business, we will make sure and we will strive towards achieving those performances next year. Also to provide a bit more color on shareholder return, we are committed to consistently implementing the shareholder return plan that we had previously communicated, and we are well aware of the market expectations, and we will strive to honor that commitment. Under the value-up plan, we have committed that we will do share repurchases or treasury share buyback in the amount of KRW 1 trillion by 2028 on a cumulative basis. And under the value-up plan that we have previously communicated, we have also included different approaches in terms of monetizing the noncore assets, and we're currently actively looking into those prospects as well. So through the recovery of our core telco business and also gaining more visibility in terms of the growth from our other businesses, we will translate that into earnings and be able to secure the sources for future investment. And through those efforts, we will be striving and endeavoring our utmost to make sure that we achieve the ROE target of 9% to 10% by 2028.

Responding to your question on our B2C business. As you will appreciate, the telecom market itself is actually quite saturated, including the mobile, the internet and the TV market. So all of the 3 telcos are facing certain challenges in growing their businesses. So especially if you look at KT, the biggest revenue contribution comes from our wireless business. But if you look at our mobile business in the first quarter, we've seen a decline in the subscriber count. And due to the implementation of the customer appreciation program, the performance was quite sluggish up until the third quarter. Although we are seeing improving signals from August and September, I would have to say on a year-over-year basis, it will not be easy for us to outperform the performance of the previous year. Also, in terms of the telecom business itself, it is important to have a profit-centric approach, when you are operating a telco business. Looking at the wireless business, but one of the positive aspect is that the handset replacement cycle has become much lengthened, which means that it's going to push down on the acquisition cost -- subscriber acquisition cost. And both for the wireless internet and TV business as well, it is important to have a strong focus on ensuring profitability, ensuring the bottom line of those businesses, and that will be the approach that we will continue to take.

The following question will be presented by Jeong-chan Kim from Korea Investment & Securities.

We have seen that your order intake has uptrended quite steeply. I would like to understand how that breaks down between your data center business as well as non-data center business. And if you could share with us what the outlook is for next year, that would also be appreciated. And the first question that I had asked was that there was quite a bit of investment pressure with regards to the AIDC investment for securing the needed power around the -- mostly that we've seen in the United States. So I would like to understand that you've shared with us that your target is to expand the capacity to 1 gigawatt by 2031. What are your investment plans with respect to this investment? And can you provide us with an update as to whether you have secured the sites and whether you have the appropriate strategies in place?

Yes. Responding to your question -- thank you very much for the question. On the data centers, we would like to have our Head of Enterprise, Kim Bong-Gyun to respond to the question. And you also asked about the specific breakdown of our B2C order pipeline, which we will address.

Now responding to the data center-related question, we've mentioned that we will have 1 gigawatt capacity additions by 2031. Right now, the capacity that we have is 152 megawatts, and we will be adding 1 more gigawatt to it. And as we've previously communicated, it will be based upon the real or the actual demand. So in terms of the capacity pipeline that we have already secured, it amounts to 911 megawatts across 20 sites. As a backup, we have 500 megawatts across 10 sites. And out of that 900 megawatt, which I mentioned is the main capacity now 200 megawatts, we've already made the decision. And in the remaining of the 2 months until the end of the year, we will make decision on 60 megawatts more. And if you look at the mix of that 1 gigawatt, 80% will be the leased and 20% will be our owned data centers. And we -- in consideration of the debt ratio of the company, we will decide on the best way for financing for the -- or funding for that investment. Responding to the question about the amount of order value that we have secured on a year-over-year basis on a cumulative basis, that is the order value that we have secured has grown by about 20%. And as of the end of the year, we think that, that growth percentage will go up further. In terms -- if you look at the specifics of the order intake, we were able to secure the big projects across both telecom and the AX domain. And the significance of this growth is not just simply in the fact that we were able to grow the volume, but we were able to diversify across different customer segments and business domains. And although the size is not that significant in terms of the AX reference, I believe that we were able to drive some meaningful performance, which really forms the basis of our future of our AX growth strategy. And in terms of the type of customer segments, we were able to drive meaningful results across 6 different customer segments, including manufacturing, public healthcare, distribution, national defense and finance. And we will continue to focus on these customer segments in the future as well. And we believe that such order pipeline will sequentially translate into revenue and revenue generation. So for next year, I can assure you that we should really look forward to what will come next year.

Currently, there are no participants with questions. [Operator Instructions] There are no questions in the queue right now.

With no further questions in the queue, we would now like to close the Q&A session. Thank you very much for your interest and your questions, and thank you for joining us despite your very busy schedules. Once again, this brings us to the end of KT's earnings presentation for the third quarter of 2026. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]