Intense Global Competition Will Squeeze South Korean Telecom Margins

Key Takeaways

• Intensifying competition and regulatory pressures are undermining profitability and market share, creating sustained challenges for revenue growth and margins.
  
• Heavy network investment needs and reliance on a shrinking domestic market limit diversification opportunities and place long-term constraints on growth potential.
  
• Strong earnings growth, innovation in AI and digital services, and active shareholder returns are positioning LG Uplus for sustained profitability and competitive leadership beyond core telecom.

Catalysts

Provides various telecommunication services primarily in South Korea.

• The company's long-term growth is likely to remain constrained by increasing competition from global tech giants entering the telecommunications and digital services arena, which will undermine LG Uplus's ability to defend market share and pricing power, placing pressure on both revenue and margins for years to come.
  
• With South Korea facing an aging and shrinking population, the domestic subscriber base for wireless and home services will continue to decline, resulting in structural headwinds for top-line growth and restricting any meaningful scale benefits LG Uplus could achieve.
  
• Despite current profit improvements driven by cost controls, the need for heavy and ongoing network investments to meet future ESG and energy standards will drive capital expenditures sharply higher, squeezing long-term margins and limiting free cash flow.
  
• The company's dependency on a mature Korean market without substantial international diversification exposes it to stagnant wireless and entertainment service revenues, making it difficult to offset declining domestic demand and placing a ceiling on future earnings potential.
  
• Ongoing regulatory moves toward lower consumer prices and intensified competition among operators, especially following the repeal of handset subsidy controls, are expected to erode average revenue per user and compress profitability, creating persistent downward pressure on net margins and overall earnings growth.

LG Uplus Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on LG Uplus compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming LG Uplus's revenue will grow by 1.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.8% today to 4.5% in 3 years time.
• The bearish analysts expect earnings to reach ₩692.6 billion (and earnings per share of ₩1612.0) by about August 2028, up from ₩409.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.1x on those 2028 earnings, down from 15.3x today. This future PE is lower than the current PE for the KR Telecom industry at 21.6x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.83%, as per the Simply Wall St company report.

LG Uplus Future Earnings Per Share Growth

Risks

• Sustained revenue and net profit growth, driven by digital transformation, cost optimization, and efficiency improvements, has led LG Uplus to achieve record quarterly operating profit and an improving financial profile, suggesting continued strength in earnings and cash flow generation.
  
• Aggressive expansion in high-growth verticals such as Enterprise AI, data centers, B2B AI-powered solutions, and the Smart Home segment reflects successful diversification efforts, positioning the company for incremental revenue and higher-margin opportunities beyond traditional wireless services.
  
• Strategic participation in the government-supported sovereign AI initiative, as well as partnerships with leading technology providers like OpenAI, are enhancing LG Uplus's technological competitiveness, likely to drive future market share gains and support long-term revenue growth.
  
• Scalable and differentiated AI/AX products, anti-deepfake/voice security features, and enhanced digital safety offerings are strengthening customer loyalty, defending market position, and supporting subscriber growth, which could help protect or expand the average revenue per user and bolster top-line results.
  
• Robust shareholder return initiatives, including treasury share cancellation, ongoing share buybacks, and a stable or increasing dividend policy, not only underpin investor confidence but also directly improve value per share, supporting potential share price appreciation.

Valuation

• The assumed bearish price target for LG Uplus is ₩10000.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of LG Uplus's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩20000.0, and the most bearish reporting a price target of just ₩10000.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₩15253.0 billion, earnings will come to ₩692.6 billion, and it would be trading on a PE ratio of 6.1x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of ₩14590.0, the bearish analyst price target of ₩10000.0 is 45.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.