[Non-English content]
Good afternoon, I am Jeong Hwan Choi, the IRO of SK Telecom. Today's conference call will consist of the presentation on the earnings results for Q3 of 2020, and the future management plans and strategic direction by Poong Young Yoon, CFO and Head of Corporate Center 1 and Hyung-i l Ha, Head of Corporate Center 2, followed by a Q&A session.
[Non-English content]
Today, the achievements and strategic plans for MNO will be provided by Poong Young Yoon, Head of Corporate Center 1. Hyung-i l Ha, Head of Corporate Center 2, will discuss that of the New ICT business division.
[Non-English content]
Today's conference call will provide consecutive interpretation. We also have here with us executives from relevant business divisions to help deepen your understanding. Before we begin, we want to remind you that all forward-looking statements are subject to change depending on the macroeconomic and market situation. Let me now present our CFO.
[Non-English content]
Good afternoon. This is Poong Young Yoon, CFO of SK Telecom. Let me first discuss the consolidated earnings highlights for Q3 of 2020.
[Non-English content]
Consolidated revenue for Q3 2020 recorded KRW 4,730.8 billion. Continuing on from last quarter, all business divisions achieved even growth, with media, security, and commerce recording two-digit growth in particular, leading to a 3.7% year-on-year and 2.8% quarter-on-quarter increase.
[Non-English content]
Consolidated operating income increased by 19.7% year-on-year and 0.6% quarter-on-quarter to record KRW 361.5 billion. Q3 saw meaningful achievements including MNO's operating income rebound year-on-year and the operating income of media, security, and commerce businesses exceeding KRW 100 billion for the first time.
[Non-English content]
Net income recorded KRW 395.7 billion. It increased by 44.2% year-on-year due to equity method income on SK Hynix, and decreased by 8.4% quarter-on-quarter.
[Non-English content]
Let me now discuss major achievements and strategic direction for each business division.
[Non-English content]
Non-consolidated MNO revenue for Q3 recorded KRW 2,940.6 billion. While 2G shutdown had a negative impact on the revenue, continued 5G subscriber growth led to a 1.0% increase year-on-year.
[Non-English content]
MNO operating income recorded KRW 264.1 billion. It rose by 4.5% year-on-year, thanks to revenue growth and market stabilization, leading to a year-on-year operating income increase.
[Non-English content]
Our 5G subscriber count for Q3, it was increased by 920,000, recording 4.26 million as of the end of September. Increased coverage, stronger non-face-to-face channels, and various 5G experiences have led to accelerated quarterly subscriber growth.
[Non-English content]
Meanwhile, during this quarter, we shut down our 2G service nationwide, which we have provided for the past 25 years. We are providing support for former 2G subscribers to assist their migration process, and we will ensure that the 2G shutdown will make way for a virtuous cycle that leads to improved services, including a more advanced 5G service.
[Non-English content]
As such, we will continue to maintain the current stable market trend as well as aim to increase the 5G subscriber base with a more enhanced service quality as we continue to strengthen the 5G network quality and launch more specialized products.
[Non-English content]
This past September, we launched a new 5G subscription service called V Coloring. The nation's first short form video-based ringback tone service saw 400,000 subscribers within just one month of its launch and has also been well received globally, garnering attention from major global MNO companies from Hong Kong and Australia. While it started out as a B2C service, we plan to expand our subscriber base by launching B2B, B2G services in the future, and we will grow it into one of the company's key subscription services along with the music platform FLO and video platform Wavve.
[Non-English content]
In media business, SK Broadband's consolidated revenue recorded KRW 966.8 billion. With strong earnings from pay TV, including IPTV and cable TV, it rose by 20.3% year-on-year and by 5.3% quarter-on-quarter. Operating income increased by 78.8% year-on-year and 6.7% quarter-on-quarter, recording KRW 64.9 billion, thanks to the revenue growth.
[Non-English content]
Security business recorded KRW 353.3 billion in revenue. With the growing new security service and higher convergence security solution sales, it increased by 15.5% year-on-year and 9.4% quarter-on-quarter. Operating income recorded KRW 40.1 billion. Increased costs related to responding to the re-spreading of COVID-19 and costs related to expanding new businesses brought the number down by 3.1% year-on-year, but it increased by 9.6% quarter-on-quarter, thanks to the revenue growth.
[Non-English content]
Commerce revenue recorded KRW 206.6 billion. With GMV continuing its growth trend, it rose by 18.7% year-on-year and 7.3% quarter-on-quarter. Operating income recorded KRW 6.1 billion. With 11Street seeing an improved operating income and that of SK Stoa continuing to grow, total operating income for the commerce business achieved a fourfold growth on a year-on-year basis and a threefold growth quarter-on-quarter.
[Non-English content]
Now, the Head of Corporate Center 2, Mr. Ha, will walk you through the achievements and plans for the New ICT businesses.
[Non-English content]
Good afternoon. I am Hyung-il Ha, Head of Corporate Center 2.
[Non-English content]
Q3 of 2020 was a meaningful period for New ICT businesses. Our New ICT businesses have surpassed the KRW 100 billion mark in operating profit. Through this meaningful achievement, we expect New ICT businesses to be recognized for its value as a key business division that leads SK Telecom's growth.
[Non-English content]
Allow me to discuss the achievements and strategies for the New ICT business division. First, the media business.
[Non-English content]
SK Broadband's revenue in Q3 grew by over 20% year-on-year based on the growth of the pay TV business arm, including IPTV and cable TV. Profitability also improved, recording an operating margin of 6.7%, a 2.2 percentage point increase year-on-year. Net subscriber additions for IPTV reached 129,000 in Q3, the highest in four years, allowing SK Broadband to acquire over 8.5 million paying subscribers.
[Non-English content]
Monthly active users for Wavve in August exceeded 3.88 million, the highest we've seen this year. With over 2 million paying subscribers and successful original content, including drama series and entertainment shows starring K-pop idols, its growth momentum is becoming stronger once again.
[Non-English content]
I will now move on to the security business.
[Non-English content]
Despite constraints due to the re-spreading of COVID-19, ADT Caps revenue continued to grow thanks to increase in CMS service subscribers and new non-face-to-face services. From home security and unmanned parking to new services responding to non-face-to-face service demands such as Caps Smart Check, Caps Clean Care, and Caps Smart Walk-in, ADT Caps is introducing new services in a timely manner, thereby expanding its business spectrum.
[Non-English content]
With increased demand from corporate clients and new business growth, including cloud and convergence security, SK infosec is continuing to see its revenue grow. As a result, security business achieved a two-digit revenue growth and the highest ever quarterly revenue.
[Non-English content]
Despite the challenging environment due to COVID-19, the security business will achieve the annual revenue target of KRW 1.3 trillion, led by aggressive new business development efforts, and generate a stable income going forward.
[Non-English content]
Moving on to commerce business.
[Non-English content]
Despite intensified competition, 11Street and SK Stoa exceeded KRW 200 billion in quarterly revenue while also achieving income growth by strategically responding to the market. In particular, 11Street executed a sales strategy in line with market trends and an efficient marketing strategy, thereby achieving both revenue growth and operating surplus simultaneously for the first time and confirming the validity of its growth strategy.
[Non-English content]
11Street will continue to execute strategies that take both growth and profit into consideration, and the goal of achieving annual GMV growth and reaching BEP levels still stand. SK Stoa is smooth sailing to become the leader in the T-commerce industry.
[Non-English content]
Lastly, I will discuss the achievements of our app market subsidiary One Store and the spin-off of our mobility business division.
[Non-English content]
One Store recorded continued growth for nine consecutive quarters. This past September, we've completed selection of book runners and aim to complete the IPO process in 2021. Thanks to growing number of available applications and users, revenue in Q3 increased by 26% year-on-year, recording the highest ever quarterly revenue.
[Non-English content]
Recently, through a split off of our mobility business division, we are on our way to establish a new mobility company and have been recognized as a KRW 1 trillion business. Furthermore, we have formed a strategic partnership with Uber to create synergies through hyper collaboration. The newly established mobility company will attract investment from Uber to provide innovative services as well as establish a taxi JV with Uber.
[Non-English content]
We ask for your continued interest and support for our mobility business, which will grow into SK Telecom's fifth business arm with TMAP, the nation's number one mobility platform, and Uber's Taxi E-hailing expertise combined.
[Non-English content]
We will continue to present you with greater achievements in the New ICT area in the future.
[Non-English content]
I will now hand it back to the CFO. Thank you.
[Non-Engl
During the conference call held at the beginning of the year, I told you that we would make this year the starting point of our company being rightly recognized for our enterprise value. To realize the inherent corporate value, we announced a new dividend policy linked to the performance of New ICT businesses and shared plans of our subsidiaries IPO, beginning with One Store, over the past 10 months. We are buying back our own currently undervalued shares and establishing a new mobility company to further enhance our enterprise value.
[Non-English content]
On top of such efforts to pave the way for enterprise value growth during this year, we've been rewarded with the MNO earnings turning around and New ICT businesses reaching KRW 100 billion in operating income. Based on even stronger earnings going forward, we will meet our goals for this year one by one and achieve the enterprise value growth in full force beginning from next year.
[Non-English content]
We ask for the continued support and encouragement from our investors and analysts. Thank you.
[Non-English content]
The first question will be provided by Lee Joon-hyuk from Hana Investment & Securities . Mr. Lee, please go ahead.
[Non-English content]
Thank you for the opportunity. I have two questions. My first question is, recently your competitor has launched a lower-end 5G price plan. Does SK Telecom have any plans for a low-end 5G price plan? What kind of effect would that have on your 5G ARPU, as well as the revenue? My second question is regarding the OTT service. With the spin-off of TVING by CJ ENM, we do expect quite a competition to take place in full force in the OTT market domestically. There's talks of Disney+ entering Korea as well. You did mention that users for Wavve compared to the year end of last year, that it rose by 30%. I would like to hear about your strategic direction for Wavve.
[Non-English content]
Thank you for your questions. I will be taking the first one. Then Mr. Ha will answer your second question.
[Non-English content]
Currently at SK Telecom, we are taking into consideration the overall competitive environment as well as the subscriber growth trend, and we are reviewing, reorganizing our 5G price plans to one that is more customer-oriented and friendly. We expect these to launch either at the end of this year or early next year. When these new price plans are launched, we expect the 5G subscriber base growth rate to become even faster. While the acquisition ARPU may be slightly lower, due to a more invigorated 5G subscriber base growth, we believe that it will have a positive impact on the MNO revenue increase.
[Non-English content]
I will now move on to answer the question regarding our strategies for Wavve.
[Non-English content]
In Q3, Wavve actually recorded its highest ever this year, number of users in August and September, thanks to a stronger original content strategy, which include original content that showed very high viewership, such as titles like 'Alice' and 'Lie After Lie.'
[Non-English content]
We're also continuing to see growing number of paying subscribers, and this number surpassed the 2 million mark in Q3. As we have announced in the past, we still stand by our goal of 5 million paying subscribers by the year 2023, as well as a revenue target of KRW 500 billion.
[Non-English content]
Going forward, Wavve will continue to put its efforts in enhancing its core competitiveness, including stronger content. One example of that is our recent announcement of a strategic partnership plan with Astory, a very capable content production company who has proven its capabilities recently in the global market. With Astory, we will be jointly investing in drama series as well as collaborate on casting endeavors, also collaborate on our sales in the domestic and also overseas market.
[Non-English content]
We believe that the higher or more active competition in the OTT market is a natural phenomenon in the process of the market expanding. Wavve aims to be an open platform through which we work together with a variety of different players. Through hyper collaboration with players from home and abroad, we also want to be very open in ways to contribute to the K-content ecosystem.
[Non-English content]
[Non-English content]
The next question will be presented by Kim Joonsop from KB Securities. Mr. Kim, please go ahead.
[Non-English content]
[Non-English content]
Thank you for the opportunity. I have two questions regarding your new businesses, namely One Store and TMAP Mobility. My first question is: recently you finished the selection process of your IPO book runners for One Store. I'd like to hear about the schedule going forward for the IPO as well as your expected corporate value. My second question is regarding the split off of the establishment of TMAP Mobility. In the existing competitive structure of the traditional mobility market, what does SKT have that is a stronger competitive edge compared to your competitors?
[Non-English content]
Thank you, first of all, for your question.
[Non-English content]
I will be taking your first question regarding One Store. As for your second question, I will hand that over to Mr. Lee Jong-ho, Head of Mobility Business Group.
[Non-English content]
One Store selected its IPO book runner this past September.
[Non-English content]
Beginning with the due diligence process for One Store in October, we have begun the preparation process for the IPO with our underwriters. After we go through all of the processes, including applying for the preliminary IPO review during the first half of 2021, we are planning to list the company during the back half of 2021.
[Non-English content]
Going forward, as we look and closely follow the overall environment as well as the performances of our subsidiaries, we plan to have companies like ADT Caps, Wavve, 11Street, SK Broadband, and in the mid to longer term, TMAP Mobility, we are planning for the IPO of these subsidiaries so that they are rightly valued in the market.
[Non-English content]
Once these plans for IPO are made complete, we will be sure to communicate them with the market.
[Non-English content]
One Store has attracted its financial investment in 2019, and it has been valued at KRW 500 billion. Since then, its growth rate has only been accelerated.
[Non-English content]
With more applications coming to join us and forming a more diverse application platform as well as a growing user base, in 2019, its revenue grew by 23%. As for up to the third quarter this year, revenue grew by 27% year-on-year.
[Non-English content]
We are looking forward to welcoming quite powerful game titles in the future, which will only lead to accelerated growth in 2021.
[Non-English content]
Based on such growth momentum, we are expecting One Store to be valued at a much higher price than at the time of funding in 2019.
[Non-English content]
As for more detailed outlooks on One Store and our future plans, when we have the IPO preparation all set in place, we will be sure to communicate that with the market.
[Non-English content]
Hello, I am Lee Jong-ho, Head of Mobility Business Group, as was introduced.
[Non-English content]
I would have to say that the competitive edge that TMAP Mobility would have compared to its competitors is the user base that TMAP has as the mobility service with the highest number of users in the nation, as well as the large amount of data that it has.
[Non-English content]
Despite COVID-19, TMAP saw 4.54 million daily users as of the end of October, as well as 13.23 million monthly users in October, which was the highest ever.
[Non-English content]
This number represents 56% of all registered card in the nation, as well as 74% of all navigation users.
[Non-English content]
Through TMAP based data analysis, we give scores for driving patterns of our users, which leads to a discount benefit for your car insurance premiums. This is the type of business model that we already have.
[Non-English content]
On top of that, we have TMAP based ad businesses as well as map data businesses, which are our unique business models.
[Non-English content]
Already names like BMW, Renault, Volvo, Jaguar, to them, we are currently providing the TMAP based in-vehicle infotainment in their auto OEMs. We also have our TMAP Auto business, which does the IVI business, and that would be quite a competitive edge and upper hand compared to our competitors.
[Non-English content]
A unique line of services that we provide through the mobility and telecommunication data, as well as synergies that could arise from utilizing SK Telecom's marketing channels. These are all part of the competitive upper hand that SK Telecom currently has.
[Non-English content]
[Non-English content]
The next question will be presented by Kim Hee-jae from Daishin Securities. Please go ahead, sir.
[Non-English content]
I have two questions. The first one is regarding the spectrum allocation, it seems to me that there is quite a gap between what the government is proposing or going toward and what the operators want. Recently we saw that you made a statement that it would even be better just to go in the form of an auction. Where is this coming from and why the gap of your opinions, what should we expect to happen? My second question is with the launch of the 5G iPhone, I would first like to hear about what kind of impact this would have on the 5G ecosystem, as well as some of the more detailed outlooks on what we can expect in terms of 5G in 2021 and onwards.
[Non-English content]
First, thank you for your questions, Mr. Kim.
[Non-English content]
I will be taking your first question regarding the spectrum allocation.
[Non-English content]
Currently, in the process regarding the pricing of the reallocation of spectrums, there is indeed a discrepancy between the operators and the government, whether it will reflect former or past auction results, and if so, to what extent it would be reflected.
[Non-English content]
The three operators believe that reflecting the past auction results as was, is excessive compared to the current value of the respective spectrums. We also believe that there haven't been any cases like that in the past, nor does it have any legal grounds.
[Non-English content]
We expect for a reasonable result and a reasonable pricing that takes into consideration the 5G current state.
[Non-English content]
Next, let me answer your question regarding the launch of the 5G iPhones.
[Non-English content]
The launch of the 5G iPhone will not only contribute and have a positive impact on the MNO revenue growth through 5G migration for LTE iPhone subscribers, we also believe that it will have a positive influence in invigorating the current 5G service.
[Non-English content]
In particular, including the iPhone mini, now that there is a wider range of devices from which our users can choose from, we believe that this in and of itself is very positive.
[Non-English content]
Furthermore, globally, if we are able to see stronger sales of 5G iPhone, the more people using them, that will lead to a wider variety of various applications that can be applied to 5G being launched. It will lead to a virtuous cycle of creating an ecosystem that has very powerful 5G specialized services.
[Non-English content]
Let me now brief you on our outlook regarding the 5G subscriber count going forward.
[Non-English content]
With growing 5G coverage as well as I just mentioned, including the Apple iPhone having a better and more diverse device lineup, we expect the net subscriber additions to continue going forward.
[Non-English content]
As for the outlook by the end of this year, we still stand by our initial target of hitting between five to six million at the end of this year.
[Non-English content]
Continuing in 2021 as well, we will be focusing on enhancing the overall 5G experience through more devices, network and service. As we also mentioned, if the more customer friendly 5G price plans are launched early next year, that will lead to a faster rate of 5G subscriber growth. We believe that the number of 5G subscribers by the end of the year 2021 will be around nine million.
[Non-English content]
Thank you.
[Non-English content]
[Non-English content]
The next question will be presented by Ahn Jaemin from NH Investment & Securities. Please go ahead.
[Non-English content]
Thank you. I have one question. It's regarding your B2B business. Recently, including your competitors, obviously B2C is extremely important, but B2B is going to be very important, especially beginning from next year. I would like to hear about your strategies as well as some of maybe recent achievements in the B2B area. Related to that, compare your competitors, it seems that your IDC and cloud related services seem to be a little bit weaker than your competitors. Are there any plans to further expand the IDCs or any kind of outlook that you can provide us regarding your cloud business would be very appreciated.
[Non-English content]
Hello, I am Han Myeong-jin, Head of the MNO Marketing Group. I will take the first part of your question and then hand the mic over to answer your second part of the question.
[Non-English content]
Our B2B business has two axes. For the first part, it is the 5G connected cloud services, and we are strengthening this area currently. We have already signed partnership and we are currently working together with Amazon Web Services and we've also invested.
[Non-English content]
Based on these efforts, we are currently preparing for a 5G MEC based cloud service, and we plan the commercial launch for this service by the year end.
[Non-English content]
As for the trial services, we have around 20 trial service areas, which include distribution and medical.
[Non-English content]
Our second axis is the B2B solution part, where we aim to provide our 5G-based services that can improve the profitability of leaders of various industry.
[Non-English content]
An example of that is in hydropower. We have established the world's very first quantum applied solution.
[Non-English content]
Also, for companies like Hidik, SK Hynix, Samsung Electronics, and POSCO, we have already established and rolled out 5G networks for these companies, and we also have new business models.
[Non-English content]
One of the most representative examples of our 5G B2B service would be the 5GX Smart Factory.
[Non-English content]
As for the second part of your question regarding IDC, I will take that question.
[Non-English content]
SK Broadband has been very highly interested, and also we have been putting in a lot of investments regarding IDC. We have plans to open very large-scale IDCs in Ilsan and Gasan area of Seoul in July of 2021.
[Non-English content]
We are smooth sailing in terms of the preparation process, and once it is open, we believe that the IDC business will be able to see significant results.
[Non-English content]
Just to add, we are currently reviewing additional investment plans in the field of IDC, and once these plans become more concrete, we will open them and communicate them with the market.
[Non-English content]
Thank you.
[Non-English content]
[Non-English content]
[Non-English content]
With that, we will conclude the conference call for Q3 of 2020.
[Non-English content
Thank you.