SK电讯

SK Telecom's second-quarter 2026 revenue was up 0.5%, with operating income up 67%, given that the second quarter of 2025 was affected by the cybersecurity breach.

Why it matters: SKT's core telecom business is only now recovering from the April 2025 cybersecurity breach, with the company narrowing its year-on-year mobile revenue declines. SKT's revenue market-share loss was evident in its 1.9% decline in second-quarter 2026 wireless services revenue, compared with LG Uplus' 0.9% growth. SKT's subscriber additions were also lower compared with LG Uplus' 536,000 adds. SKT's AI data center revenue grew 93% on higher utilization of data centers, while its AI B2B and B2C revenue grew 25% due to increased orders for cloud business. SKT plans to increase AI data center capacity from 137 MW currently to 5 GW by 2029.

The bottom line: We make small upgrades to our forecasts but decrease the value of the Anthropic stake now, using the USD 965 billion valuation from its USD 65 billion June 2026 capital raise, and reduce our estimate of its stake in the company to 0.4% from 0.6% previously. Our fair value estimate for SKT decreases by 11% to USD 40.

Between the lines: SKT has invested in other companies such as Joby Aviation, Perplexity AI, and Penguin Solutions since 2023, which are currently showing very solid returns, but these are relatively insignificant compared with the roughly 40 times unrealized return made on Anthropic.

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Our fair value estimate for SK Telecom is USD 40.00 per ADR. This valuation equates to a 2026 P/E ratio of 18 times. We assume a 2.1% per-year increase in revenue and 19% for operating profit for SK Telecom from 2026 to 2030, but this is using an unusually low 2025 as a base, which was affected by the malware attack on April 18. Underlying forecast operating profit growth averaged around 6% per year. The P/E ratio of 18 times seems high, but is influenced by SKT's stake in Anthropic. In June 2023, SKT invested USD 100 million in Anthropic at a post-money valuation of USD 5.1 billion. Assuming SKT's stake in Anthropic is now 0.4% after dilution, SKT's stake in Anthropic would be valued at USD 3.9 billion, assuming a value for Anthropic of USD 965 billion, at which it raised USD 65 billion in June 2026.

While the capital expenditure/sales ratio ran at nearly 20% from 2018 to 2020 as SKT built out the 5G network, we expect this level to fall to a more normalized 14%-15% by 2030.

On a long-term horizon, management is targeting a 2030 revenue of KRW 30 trillion from the 2023 level of KRW 17.6 trillion, implying 8% average annual revenue growth over that period. AI businesses are targeted to contribute 35% of the total 2030 revenue, up from what we estimate as around 1% in 2023, which implies 2% average annual growth for the core telecom business and 70% average annual growth for the AI businesses. The telecom growth target seems reasonable to us, but the AI business target seems aspirational, and we have some concerns about the ability to monetize the AI business-to-business and business-to-consumer businesses. The AI data centers business could generate significant revenue, but this would be dependent on heavy capital expenditure, and based on other stand-alone data center businesses, the returns on this capital expenditure could be long-dated. We note that management has set very aggressive, longer-term targets in the past that have not been met, so we are comfortable with leaving our revenue forecasts below these new targets.

We give SKT a no-moat Morningstar Economic Moat Rating based on the company’s low returns as compared with its cost of capital. We would normally expect a three-operator telecom market with mature operators to allow all operators to earn returns above the cost of capital due to the efficient scale moat source, where new entrants are precluded from market entry due to the very high cost of entering the market and uncertainty around the new entrants building enough scale to be viable. However, we have seen the Korean telecom operators earning average consolidated returns below their costs of capital over the past 10 years, despite enjoying a stable three-player market structure for the whole of this period. We see this as largely a result of 1) the operators being very competitive with each other, and 2) the two largest operators, SK Telecom and KT, investing aggressively in no-moat nontraditional telecom businesses.

Given the market share advantages that KT and SKT have in the key mobile, fixed-line broadband, and Pay TV markets, we would have expected them to earn at or above cost-of-capital returns from their telecom assets, but consolidated ROICs have been below the weighted average cost of capital, or WACC. We believe this is largely a function of the companies’ investment in nontelecom businesses such as artificial intelligence, e-commerce, and Metaverse social media. We’ve seen KT and SKT consistently invest in these types of businesses over the past 10 years, with SKT investing in semiconductor manufacturer SK Hynix in 2012 and making a string of acquisitions in security businesses. While some of SKT’s nontelecom businesses were spun off into a new business called SK Square in 2021, the remaining “telecom” business continues to invest in e-commerce (SK Stoa and T universe), metaverse (ifland), and Urban Air Mobility (joint venture with Joby Aviation). LG Uplus has far fewer investments outside its core telecom business, which we believe explains why its ROIC does not appear to be significantly lagging the other operators, despite its scale disadvantages.

Another reason for low returns for operators in Korea’s telecom market is often cited as the highly competitive culture in Korea, with the most famous example being the extremely competitive schooling and education. It is difficult for us to verify this, but it could help explain why the telecom companies have always competed very hard against each other.

Despite the Korean government attempting to attract a new, fourth mobile operator at least three times between 2010 and 2020, no new licenses were awarded. Some small companies did make bids for licenses but were rejected by the regulators. Larger international telecom companies were reportedly concerned about the difficulties of entering the market due to cultural and language differences and did not bid for licenses. The Korean market was also already very well served by existing operators and was very competitive. Korean regulators are expected to announce policy changes to allocate a 28 GHz mobile network to a new entrant, and the government has indicated that it will provide incentives to the newcomer in the form of tax cuts and loans. Given the struggles that new mobile entrants have had to date in Singapore and Japan, and the history of little interest in new licenses in Korea, we do not expect much interest in this license from serious mobile operators.

KT generates around 60% of its revenue from traditional telecom services and the remainder from nontraditional telecom services such as ICT, data centers, cloud services, robots, blockchain, energy, and real estate. We see these businesses as generally operating in competitive markets where KT has few competitive advantages, except perhaps real estate, where it is monetizing telecom real estate that it no longer needs as network equipment gets smaller and it consolidates buildings required for its network.

China is another three-player telecom market where we have two companies, surprisingly, without a moat, and only one, China Mobile, with a moat. All three operators are controlled by the Chinese government, which has shown a tendency to push telecom prices down to benefit the broader society, to the detriment of the telecom operators. China Mobile has been able to maintain returns above the cost of capital due to its dominant market share and economies of scale, while the smaller China Unicom and China Telecom have consistently earned returns below the cost of capital.

Telecom leads the South Korean wireless telecom market with around a 45% share, and this gives it some scale efficiency benefits.

Although wireless operating profit nearly halved from 2017 to 2019, it has returned to growth from 2020 to 2024.

The company has a stake in Anthropic that we estimate was worth around USD 6.9 billion post its November 2025 capital raise.

SK Telecom has aggressive investment targets for AI, but AI revenue and profit streams are uncertain.

Governments tend to want to lower prices for telecom products, so companies like SK Telecom remain at risk for government-mandated price reductions.

Telecom operators around the world are investing in value-added and noncore businesses to drive revenue growth to offset stagnant core telecom revenue. SKT’s ability to do this could be curtailed by its mandate.