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Adopt a wait-and-see approach for now

Solid 1Q25 results

For 1Q25, SK Telecom (SKT) announced consolidated revenue of W4.45tr (-0.5% YoY; 1.1% below the consensus) and operating profit of W567.4bn (+13.8% YoY; 6.1% above the consensus). Both the mobile and fixed-line businesses continued stable growth, and 5G penetration reached 76%. Meanwhile, B2B revenue declined slightly to W464.3bn (-1.8% YoY) due to reduced usage of messaging services by enterprises.

AI-related businesses (a key strategic focus) delivered double-digit growth. Data center revenue rose 11% YoY to W102bn, and AI cloud revenue climbed 27% YoY to W45.2bn. Looking ahead, we expect growth in both areas to accelerate, especially as the GPU-as-a-Service (GPUaaS) segment expands and new B2B contracts are secured.

Net subscriber losses and earnings deterioration are inevitable

An investigation into the recent USIM hacking incident is ongoing, with the findings expected to be announced in June. At present, it is difficult to quantify the impact in terms of: 1) USIM replacement costs; 2) whether early termination fees will be waived; 3) potential fines; and 4) subscriber churn. However, with new subscriber additions currently suspended, a net decrease in subscribers in 2Q25 appears unavoidable. It is estimated that approximately 248,000 users switched from SKT to other carriers between Apr. 22 and May 6, although the pace of churn has been slowing. Meanwhile, the Personal Information Protection Commission could impose fines of up to 3% of total revenue.

As a result, for 2025, we revised down our revenue estimate by 1.4% to W17.75tr and our operating profit estimate by 7% to W1.891tr. For 2Q25, we look for revenue of W4.42tr (-0.1% YoY) and operating profit of W516bn (-4.1% YoY), which are 1.5% and 9.5% lower than our previous estimates, respectively.

Lower TP by 3% to W75,000; maintain Buy

SKT set its DPS for 1Q25 at W830 (unchanged vs. 1Q24). The dividend for 2024 was W753.6bn, representing a payout ratio of 65% based on consolidated net profit. Despite the likely negative impact of the hacking incident on earnings, we forecast 2025 shareholder returns to be on par with the 2024 level. We maintain our Buy rating on SKT but lower our target price by 3% to W75,000 (from W77,000), reflecting our downward 2025 earnings forecasts revisions.