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Ace South Korean telecom firm SK Telecom Corp. (SKM - Analyst Report) reported first quarter 2013 results. Quarterly consolidated net income shot up 15.3% year over year to KRW 346.0 billion (approximately $311.4 million), aided by strong contributions from SK Hynix.

Consolidated operating revenue grew 3.6% to KRW 4,113.0 billion ($3.7 billion) in the first quarter, driven by positive effects of the merger of SK M&C and SK Planet, expansion of new businesses and a growing Long Term Evolution (LTE) subscriber base.

Segment Revenues

Mobile service revenues increased 4.0% year over year to KRW 2,727.0 billion (approximately $2.5 billion). Interconnection revenues declined 17.3% to KRW 210.0 billion ($189.0 million), while new business and other revenues were up 32.6% at KRW 175.0 billion ($157.5 million) from the year-ago quarter.

Operating Income & Expenses

Consolidated operating income declined 17.6% to KRW 411.0 billion (approximately $369.9 million) in the first quarter, resulting in operating margin of 10.0%. The decline was mainly due to higher marketing expenses coupled with steeper depreciation costs.

Operating expenses rose 6.7% year over year to KRW 3,702.0 billion (approximately $3.3 billion). Marketing expenses increased 25.1% year over year to KRW 907.0 billion ($816.3 million).

Subscriber, ARPU & Churn

During the quarter, subscribers increased 1.6% year over year to 26.97 million with a net addition of 68,000 customers.

Average revenue per user (ARPU) went up 3.4% year over year to KRW 40,450 (approximately $36.4), while the churn rate decreased to 2.4% from 2.5% in a year-ago period.

Liquidity

As of Mar 31, 2013, SK Telecom had KRW 1,493.0 billion (approximately $1.3 billion) of cash and marketable securities on its balance sheet compared with KRW 2,457.0 billion (approximately $2.2 billion) in the comparable quarter last year. Debt-to-equity ratio was 53.9% compared with 63.9% in the prior-year quarter. Capital expenditure decreased to KRW 351.0 billion (approximately $315.9 million) from KRW 482.0 billion (approximately $433.8 million) in first quarter 2012.

Other Stocks

Foreign stocks worth considering are China Mobile Limited (CHL - Snapshot Report), Mobile Telesystems OJSC (MBT - Snapshot Report) and Research In Motion Limited (BBRY - Analyst Report). All the three carry Zacks Rank #2 (Buy).

Our Analysis

Looking further into 2013, SK Telecom’s focus on development of the advanced LTE-Advanced technologies as well as deployment of 5G Wi-Fi hotspot routers is encouraging. Further, the introduction of new services, investment in high-speed Wi-Fi and data femtocell, forays into mobile software businesses and various collaborations are expected to boost the company’s long-term results.

However, the company’s investment in advanced wireless networks along with mobile tariff cuts will likely hamper profitability in the coming quarters. Additionally, stiff competition and regulatory issues will continue to act as headwinds for the company. SK Telecom currently retains a Zacks Rank #3 (Hold).
 

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