"Just the Beginning" Why Securities Analysts See More Upside for Telecom Stocks [Weekend Money]

"This is just the beginning." Shares of telecom companies, which have long been considered typical defensive stocks, are starting to show signs of movement. As both the telecommunications equipment and telecommunications services sectors rise, some are expressing concerns that these stocks may now be overvalued. However, analysts in the securities industry hold a different view. They believe this could be only the beginning of an upward cycle.

On February 27, Hongshik Kim, a research analyst at Hana Securities, stated this in his weekly report titled "The Rise of Telecom Stocks Has Only Just Begun." He noted, "For telecom equipment companies, the price-to-book ratios (PBR) of companies whose earnings have started to improve in earnest have exceeded 3, and even in the telecom services sector, the expected dividend yield has already fallen to around 4%." However, he pointed out that investors should recall the time when LTE and 5G were introduced.

Kim explained, "It is necessary to consider how the multiples and dividend yield bands of the telecommunications service and equipment sectors were formed at that time," adding, "There were times when the dividend yield band for telecom services fell below 3%, and the telecom equipment sector's average PBR exceeded 10." This suggests that it is difficult to conclude that current valuations are at their peak.

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The key factor underpinning this outlook is 5G SA (standalone mode). Global IT companies have been increasingly emphasizing the need for its full-scale adoption after the end of 2025, and regulatory agencies in various countries are also expediting related policy initiatives to activate physical artificial intelligence (AI). Discussions on frequency reallocation and new allocations are becoming more concrete.

Signals are already appearing in global markets. Kim said, "The share price of Lumentum Holdings has risen significantly due to expectations for optical investment, and stock price surges have also been observed for Ericsson and Nokia on the back of expectations for increased 5G SA investment. In addition, Verizon and AT&T are also joining the upward stock price trend," noting that "In the U.S. market alone, the outperformance of telecom service and equipment stocks relative to the overall market is substantial."

He also evaluated that "the improvement in telecom equipment companies’ earnings is currently limited to a few companies, and considering that discussions on 5G SA pricing plan reforms are just beginning, there is still a long way to go." He recommended, "For companies whose earnings have already started to improve, it is advisable to continue buying as long as the earnings surprises persist, even if their multiples are high. For companies waiting for an earnings turnaround, buy on price dips."

The upcoming Mobile World Congress (MWC) 2026, the world's largest telecom exhibition to be held in Barcelona, Spain next week, is also a point of interest. At this event, the importance of 5G SA is expected to be highlighted, alongside issues such as 5G Advanced, AI base stations (AI-RAN), network APIs, automation technology, and the introduction of 5G SA pricing plans.

Kim explained, "Ultimately, as measures to activate physical AI are explored, various ideas for network support to ensure AI success are likely to emerge. By the end of 2025, as regulatory agencies in many countries introduce a variety of support measures to foster 5G SA, telecom operators are expected to accelerate their activities."

There are also other investment points to consider. SK Telecom is moving to introduce tax-exempt dividends. At the regular general meeting of shareholders on March 26, the company plans to put forward an agenda to reduce its capital reserve by 1.7 trillion won and transfer it to retained earnings. Kim said, "Since this is an agenda item that shareholders will welcome, it is likely to pass at the meeting. If that is the case, SK Telecom will enjoy even greater supply and demand advantages going forward."

Based on an after-tax dividend per share (DPS) of 3,600 won, the after-tax dividend yield reaches 4.5%. With the foreign ownership ratio having dropped significantly to 38%, the move to introduce tax-exempt dividends could stimulate inflows of wealthy investors' funds. He diagnosed, "Even if the stock price rises to 100,000 won, the after-tax dividend yield would still be 3.6%. Considering the growing momentum around 5G SA adoption, there is a high possibility that the stock price will surpass 100,000 won within the first half of the year."

Accordingly, SK Telecom was selected as the top pick in the telecom services sector for next week. Investment attractiveness was ranked in the order of SK Telecom, LG Uplus, and KT. Kim explained, "Even when considering only dividend incomes less than 20 million won, SK Telecom's after-tax dividend yield is 4.5%, followed by LG Uplus and KT, both at 3.4%. SK Telecom not only has the highest dividend yield among the three, but also shows the highest earnings growth rate and DPS growth rate."

In the telecom equipment sector, RFHIC, KMW, Innowireless, Solid, RF Materials, and ICTK were presented as recommended stocks. Kim noted, "As the performance of optical communication equipment companies becomes more pronounced, expectations are rising for the benefits to spread into the wireless sector as well. Recently, there has also been a sharp increase in interest in quantum cryptography communication."

This content was produced with the assistance of AI translation services.