SK Telecom Posts Better 2Q - Analyst Blog

SK Telecom Corp. Ltd. (SKM), a leading South Korean telecom operator, declared strong financial results in the second quarter 2010, boosted by a solid smartphone growth. Quarterly total operating revenue was approximately $2.66 billion, up 1% year over year. Total Cellular service revenue was $2.39 billion, up 1% year over year. Interconnection revenue was $263 million, down 5% year over year.
 
Net income in the second quarter 2010 was $313 million, an improvement of 17% year over year. Total operating expenses were approximately $2.16 billion, almost flat year over year. Quarterly operating margin was 18.8% compared with 18% in the year-ago quarter. Marketing to sales ratio in the quarter was 28.7% compared with 30.9% in the prior-year quarter.
 
In the quarter, total EBITDA was around $933 million, up 7% year over year. Quarterly EBITDA margin was 35.1% compared with 33% in the year-ago quarter. Capital expenditure was $255.4 million, a reduction of 7% year over year.
 
SKM Telecom added 322,000 net new subscribers in the quarter, down 33% year over year. Total subscriber base at the end of the quarter was 25,146,000, up 6% year over year. Quarterly churn rate was 2.6% compared with 3.2% in the year-ago quarter. In the same quarter, ARPU was $35.42, down 5% year over year.
 
At the end of the second quarter 2010, SK Telecom had $665.73 million of cash and marketable securities on its balance compared with $1,156 million at the end of the prior-year quarter. Total debt at the end of the same quarter was $3,166 million compared with $4,006 million at the end of the year-ago quarter. At the end of the quarter, debt-to-capitalization ratio was 0.25 compared with 0.29 at the end of the year-ago quarter.
 
Cellular Service Segment Results
 
Quarterly Sing-up fees were $6.7 million, down 40% year over year. Monthly Fees were $969.2 million, up 11% year over year. Call Charges were $613.2 million, down 16% year over year. VAS & Others revenues were $129.9 million, up 72% year over year. Wireless Internet sales were $613.2 million, up 6% year over year.
 
Our Recommendation
 
We maintain our long-term Neutral recommendation for SK Telecom. Currently, it is a Zacks #3 Rank (Hold) stock.