KT Corporation Q3 FY2026 earnings call

• Core Telecom Recovery: The mobile business shows a clear recovery trajectory with gradual uptrends in monthly subscriber counts and ARPU following the end of the customer appreciation program in August. Flagship handset releases and premium plan adoption (Choice Double) are supporting this rebound.
• B2B and AIDC Expansion: B2B order wins increased over 20% year-over-year cumulatively, anchored by AI Data Center (AIDC) business. Major projects won include Woori Bank’s Agentic AICC and national defense platforms. The company aims to supply over 1 gigawatt of AIDC capacity by 2031, focusing on sites with secured electricity and permits.
• AX Strategy Execution: The AX platform company strategy is advancing with the launch of the 'Token Factory' and 'Agentic On' platform. AX revenue grew 11.9% year-over-year cumulatively, with a target to double growth by 2028 from the 2025 baseline. The Token Factory embeds over 500 AI models domestically, optimizing token usage and cost.
• Customer Experience & Trust: Customer complaints regarding harm declined 60% in Q3 compared to Q1 due to strengthened protection systems and one-stop resolution centers. Conversational AI agents were embedded in the MyKT app to enhance hyper-personalized experiences.
• Shareholder Returns: A dividend per share (DPS) of KRW 600 was declared for Q3. The company completed a KRW 250 billion treasury share buyback in September and remains committed to a progressive dividend policy and a KRW 1 trillion cumulative buyback target by 2028 under its value-up plan.

Operating revenue decreased 1.8% year-over-year to KRW 6.9975 trillion, while operating profit fell 6.1% to KRW 505.3 billion. Excluding one-off real estate development gains from the prior year, operating profit actually grew by 3.5%. Wireless service revenue declined 3.9% to KRW 1.6668 trillion due to subscriber churn during the customer appreciation program waiver period; however, recovery signals emerged post-August. Fixed-line broadband revenue remained flat year-over-year with steady GiGA Internet subscriber growth. Media revenue dropped 2.4% year-over-year despite IPTV subscriber increases, driven by lower advertising and pay-per-view income. B2B service revenue dipped marginally by 0.7% due to the absence of large infrastructure projects from the previous year, though AX revenue expanded 9.8% year-over-year. Among subsidiaries, KT Cloud saw 7.7% growth, KT Estate surged 39.1% driven by hotel and development projects, and Content business grew 12.1% supported by KT Studio Genie's commercial success.

• Dividend Policy: Management reaffirmed a minimum DPS of KRW 2,400 for the full fiscal year 2026, with final decisions based on annual net profit. They commit to a progressive dividend payout policy supported by core business recovery.
• Long-term Financial Targets: Under the value-up plan, KT aims to achieve an ROE of 9% to 10% by 2028, funded by core telco recovery, AX growth, and monetization of non-core assets.
• AX Growth Trajectory: Management targets more than twofold growth in AX revenue by 2028 relative to the 2025 baseline, leveraging modular Agentic On platforms and managed services.
• B2B Order Pipeline: With B2B orders up >20% YTD, management anticipates further growth in order volume through year-end, expecting these wins to translate into tangible revenue drivers in FY2027.

• Regulatory and Labor Costs: Collective bargaining outcomes impacted Q3 figures similarly to last year, indicating ongoing pressure from labor costs.
• Market Saturation: The telecom market is highly saturated across mobile, internet, and TV sectors, limiting organic growth opportunities and increasing competitive intensity among the three major telcos.
• Subscriber Churn Risks: The end of the customer appreciation program led to significant churn in Q3, highlighting vulnerability to promotional dependency and contract cancellation waivers.
• Investment Execution Risk: Securing power and permits for the 1 GW AIDC expansion requires precise execution; delays in securing specific sites or financing could impact the 2031 capacity target.

Q: How does AI adoption impact KT's cost base, specifically regarding customer service and network operations, and when will this impact be visible in the P&L? / A: AI adoption drives efficiency gains by reducing headcount requirements and automating processes. For instance, AI handles more inquiries in customer service centers, and automated scheduling allows technicians to increase daily visits from 6.5-7 to 8. Network operations and other business flows are also being automated. While immediate quantifiable impacts on the bottom line are complex to isolate, management expects to provide more concrete data on these efficiency improvements in 2027 as automation scales across all business lines.

Q: Regarding the Token Factory launched in October, should investors focus on token usage for inference or additional revenue synergies with telecom/cloud services? / A: The Token Factory operates on two fronts: generating tokens using locally hosted GPUs/models and routing third-party model workloads via partnerships like OpenRouter. This dual approach offers a unique competitive edge, allowing for sovereign AI solutions. Investors should look at both aspects, as KT leverages its precise billing capabilities to create synergies with existing telecom and cloud customers, aiming for balanced growth between self-generated inference and intermediated routing services.

Q: Given the underperformance in B2C earnings in Q3, what is the outlook for B2C growth, and what is the expected dividend and shareholder return strategy for next year? / A: B2C growth faces challenges due to market saturation and a lengthened handset replacement cycle, which lowers acquisition costs but limits revenue spikes. Management prioritizes profitability over pure subscriber growth, noting that while Q3 YoY performance may not outperform due to base effects, improving signals since August indicate stabilization. Regarding returns, KT maintains a minimum DPS of KRW 2,400 for FY2026 and commits to a KRW 1 trillion cumulative share buyback by 2028, targeting an ROE of 9-10% by funding investments through core recovery and asset monetization.

Q: What is the breakdown of the steep uptrend in order intake between data center and non-data center businesses, and what are the investment plans for the 1 GW AIDC capacity target by 2031? / A: B2B order volume grew over 20% year-over-year cumulatively, diversifying across six key segments including finance, healthcare, public sector, defense, manufacturing, and distribution. For AIDC, KT currently has 152 MW capacity and aims to add 1 GW by 2031 based on actual demand. The pipeline includes 911 MW across 20 main sites and 500 MW across 10 backup sites. Of the 1 GW target, 80% will be leased and 20% owned. Financing strategies will consider debt ratios, with decisions on 200 MW already made and 60 MW more expected within two months.