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Cost efficiency and full-stack AI capabilities to drive profitability improvement

1Q26 review: Return to net handset subscriber additions; dividends resume

For 1Q26, SK Telecom (SKT) reported in-line results, with consolidated revenue of roughly W4.4tr (-1.4% YoY) and operating profit of W537.6bn (-5.3% YoY).

Handset subscribers returned to net additions (+208,000). The number of 5G subscribers rose 3.2% YoY to 17.8mn, bringing 5G penetration to 81.1% and SKT’s 5G market share to 46.4%. Meanwhile, as earnings entered a more normalized phase, the company resumed quarterly dividends with a DPS of W830.

SK Broadband reported revenue of W1.1tr (+3.2% YoY) and operating profit of W116.6bn (+21.4% YoY). The strong results were driven by higher utilization at the Gasan and Pangyo data centers as well as expanding GPU-as-a-Service (GPUaaS) revenue, with AI data center revenue jumping 89.3% YoY to W131.4bn.

2026 outlook: Margins to improve on cost efficiency and full-stack AI capabilities

For 2026, we look for revenue of around W18tr (+5.1% YoY) and operating profit of W1.9tr (+81.5% YoY). Efforts to improve cost efficiency should continue to support earnings growth. Competition is likely to remain relatively limited, leading to only a modest rise in full-year marketing expenses (estimated at W3.4tr; +1.7% YoY). Depreciation expenses should also continue to trend downward amid the earnings recovery cycle. We forecast 2026 DPS at W3,540 (+113% YoY).

We believe SKT’s unique full-stack AI capabilities―spanning infrastructure, models, and services―should increasingly translate into monetization opportunities. Going forward, we expect AI-related top-line growth to be supported by: 1) the construction of a roughly 100MW hyperscale data center in Ulsan; 2) service expansion based on sovereign AI; and 3) the A. (AI assistant) service.

Raise TP by 22% to W120,000; our top pick in the sector

We maintain our Buy rating on SKT and raise our target price by 22% to W120,000 (from W98,000). Our target price is based on the sum of SKT’s operating value (W22tr) and the value of its stake in Anthropic (W3.2tr). We maintain the stock as our top pick in the sector.