KII Liquidating, Inc. Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Financials: Operating revenue KRW6,697.4 billion (+3.4% Y-o-Y). Operating income KRW321.9 billion (-28.9% Y-o-Y) due to dollar renegotiations and content sourcing costs. Net income down 11.6% Y-o-Y to KRW288.3 billion. EBITDA down 7.3% Y-o-Y to KRW1,259.9 billion.
• Expenses: Operating expense up 5.8% Y-o-Y to KRW6,375.5 billion.
• Financial position: Debt-to-equity ratio 134.9% as of Sept 2023, net-debt-to-equity 38.5%.
• CapEx: KT Group cumulative Q3 CapEx KRW2,253.2 billion; stand-alone KRW1,600.4 billion.
• Business line revisions: Revised revenue categorization into wireless, fixed, and B2B service.
• Subsidiary performances: BC card, KT Cloud, KT Estate showed growth; content subsidiaries affected by economic recession.

Segment Performance

• Wireless business: Revenue rose 1.6% Y-o-Y to KRW1,708.1 billion. 5G subscribers at 9.51 million, covering 70% of total handsets. Roaming revenue recovered to pre-COVID levels.
• Fixed line business: Broadband revenue up 3.2% Y-o-Y to KRW619.4 billion. Home Telephony revenue down 7.6% Y-o-Y to KRW186.3 billion. Media revenue up 3.9% Y-o-Y, supported by IPTV subscriber growth.
• B2B services: Revenue up 2.7% Y-o-Y. Monetization of enterprise DX backlog orders and robust real estate market contributed. AI new business revenue down 11.9% Y-o-Y to KRW106 billion due to delayed orders and rationalization of low-profit projects.
• Subsidiaries: BC card revenue up 1.2% Y-o-Y to KRW995.7 billion. Skylife revenue down 2.8% Y-o-Y to KRW260.5 billion. Content subsidiaries revenue down 3.6% Y-o-Y to KRW290.4 billion. KT Estate revenue up 30.3% Y-o-Y to KRW142.3 billion.

Guidance

• Some costs recognized in Q3 that would usually be in Q4, but excluding these, operating income in Q3 increased 19% Y-o-Y. Q4 and full-year performance expected to improve as these costs are front-loaded. Main subsidiaries' robust growth to maintain full-year contribution.

Risks

• Inflationary pressures like utility costs impacting the company. Competition in AI and IDC markets with new entrants and supply-demand dynamics in IDC.

Question and Answer

Q: Number of MNO subscribers gap reduction and Q3 earnings underperformance A: Salary negotiations and content sourcing costs led to early recognition of KRW140 billion and KRW50 billion costs in Q3, causing Y-o-Y decline. Excluding these, operating income up 19% Y-o-Y. Q4 and full-year expected to improve.

Q: MNO subscribers gap reduction A: Competitor's subscriber growth in IoT remote control devices, not actual human customers. KT focuses on profitability, scalability, and innovation, not low-end bidding. Maintains gap in human subscribers, wearables, etc.

Q: New CEO strategy and B2B outlook A: CEO's strategy focuses on IT capabilities for B2B growth, customized B2C services, and AI-driven innovation. B2B leverages telco and IT strengths, digital transformation trend, and end-to-end services.

Q: Inflationary pressures and AI strategy A: Inflationary pressures like utility costs impact, but KT is improving efficiency via AI and process reforms. Launched MIDEUM large AI service with full stack, customized models, and competitive edge in Korean system.

Q: IDC market outlook and KT Cloud strategy A: IDC demand outpaces supply. KT has 20+ years of IDC experience, 7 IDCs in Seoul area, plans to add 100MW in next 5 years. KT Cloud's growth due to secured orders and IDC completion, expected to continue with double-digit growth. Profit margins expected to improve with growth.