Earnings of SK Telecom Co. that have lagged behind its rivals’ this year are expected to recover next year, as profits in its communication sector and earnings of its subsidiaries SK Planet and SK Hynix Inc. will likely improve.

South Korea’s top mobile carrier posted disappointing results for the third quarter ended September this year with an operating profit of 424.3 billion won ($363 million) and sales of 4.24 trillion won, down 13.5 percent and 0.4 percent, respectively. Main culprits behind such weak results are a fall in profits of its handset retailing subsidiary PS&M due to the discontinued sale of Samsung Electronics Co.’s fire-prone Galaxy Note 7 and poor earnings of its subsidiaries, in particular, SK Planet and SK Hynix.

According to Hana Financial Investment Co. on Tuesday, SK Telecom’s operating profit for this year will likely drop 5.5 percent on year to 1.61 trillion won and sales to fall from 17.13 trillion won to 17.09 trillion won, which are in contrast to the sound performance of its rivals KT Corp. and LG Uplus.

For next year, SK Telecom is, however, expected to see its sales picking up as revenues from communication sector dampened by its discount service introduced in October 2014 would recover. The service allows customers to get their monthly wireless bill discounted by 20 percent when they sign a one- or two-year contract instead of receiving a device subsidy. This scheme has been so popular among smartphone users that the number of subscribers to this service has already reached almost 10 million and about 80 percent of premium smartphone users use this service. But as this service offers a larger discount than a device subsidy, it has been eating away at mobile carriers’ revenue.

“Because of this discount scheme, revenue from SK Telecom’s communication business has fallen by 3 percent,” said Kim Hong-sik, an analyst at Hana Financial Investment. “Given the fact that the number of subscribers to this service has nearly peaked, the company’s sales are expected to recover next year.”

Earnings of its subsidiaries are also expected to improve next year, which should help boost SK Telecom’s profit. SK Telecom’s wholly owned platform business subsidiary SK Planet’s loss is projected to drop from 350 billion won this year to 270 billion won next year after its sales has steadily grown at a single-digit rate every year. If SK Planet succeeds in attracting foreign investment, that would be a big boost to SK Telecom’s share price.

Its chip making subsidiary SK Hynix has also bright outlook for next year thanks to the rising price of dynamic random access memory (DRAM) chips. With an increase in profit, SK Hynix would be able to pay higher dividends to SK Telecom, which is another positive factor that should help the mobile carrier’s stocks climb.

SK Telecom’s dividend yield ratio is 4.4 percent, much higher than its rivals KT with 2.6 percent and LG Uplus with 2.2 percent, also raising expectations for rise in its stock price.

On Wednesday, SK Telecom stocks ended at 227,500 won, up 1.79 percent or 4,000 from the previous session.

By Song Gwang-sup

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