Executive Summary / Key Takeaways

• KT Corporation is strategically transforming into an AICT (AI-driven ICT) company, integrating AI across its core telecom, B2B IT, and media businesses, underpinned by significant partnerships with global tech leaders like Microsoft (MSFT) and Palantir (PLTR).
• The company reported robust financial performance in Q2 2025, with consolidated operating revenue up 13.5% year-over-year to KRW 7,427.4 billion and operating profit surging 105.4% to KRW 1,014.8 billion, partly due to one-time real estate gains but also reflecting strong underlying business growth.
• KT is committed to enhancing shareholder value, having declared a Q2 2025 dividend of KRW 600 per share and outlining a cumulative KRW 1 trillion share buyback and cancellation program through 2028, targeting a consolidated ROE of 9-10% by then.
• Technological differentiation through proprietary AI models like Mi:dm2.0 and specialized AI solutions for B2B, coupled with a secure public cloud offering, is central to KT's strategy to achieve double-digit AI/IT business revenue growth in 2025 and triple its 2023 AI/IT revenue by 2028.
• Despite intense domestic competition and market-specific challenges, KT aims to solidify its market position by leveraging its integrated service ecosystem, extensive network infrastructure, and strategic focus on high-growth AI and cloud segments.

A Legacy Reimagined: KT's AICT Vision

KT Corporation, a cornerstone of South Korea's telecommunications landscape, is undergoing a profound strategic evolution, shifting from a traditional communication technology (CT) provider to an AICT (AI-driven ICT) powerhouse. This transformation, formally unveiled at the Mobile World Congress in February 2024, aims to integrate artificial intelligence and information technology with its foundational CT capabilities to unlock new business opportunities and reinforce core competitiveness. The company's journey began on January 1, 1982, as a spin-off from the Korea Communications Commission, eventually privatizing in 2002. This rich history provides a robust platform for its current strategic pivot, which is designed to adapt to the rapidly evolving digital economy.

The industry landscape is currently characterized by a significant global emphasis on AI, driving substantial demand for data center operations and advanced digital infrastructure. This trend positions KT's data center operations as a key beneficiary. In this dynamic environment, KT operates within a highly competitive domestic market, primarily contending with SK Telecom (SKM) and LG Uplus, while also facing global peers like Verizon Communications (VZ) in broader contexts.

SK Telecom, a dominant player, often exhibits leadership in mobile subscriptions and network infrastructure, with a strong focus on 5G and AI integration. KT's offerings are competitive, but SK Telecom is generally perceived as having a more advanced 5G rollout, potentially offering greater network speeds and reliability. LG Uplus, another significant competitor, emphasizes consumer-oriented services and competitive pricing, often demonstrating stronger profitability margins and cash flow in shared segments due to its operational focus. KT's diversified portfolio, including financial and real estate services, provides a broader market positioning compared to LG Uplus's more targeted consumer tech approach. Globally, Verizon Communications, with its extensive 5G networks and global scale, typically surpasses KT in technological capabilities and market reach for multinational clients. KT's strength lies in its established brand, extensive service ecosystem, and integrated domestic offerings, which foster strong customer loyalty. However, its diversification, while offering resilience, can sometimes lead to higher operational costs and potentially slower innovation compared to rivals with a more streamlined focus. KT aims to differentiate itself through its integrated AICT offerings and strategic alliances, such as its partnership with Microsoft and Palantir, to gain an edge over local competitors in the AI space.

Technological Edge: The AICT Differentiator

Central to KT's AICT transformation is its commitment to developing and integrating advanced AI technologies across its operations. The company's core technological differentiation stems from its multi-model AI strategy, which includes proprietary developments, global partnerships, and leveraging open-source solutions.

A significant milestone was the launch of KT's proprietary Large Language Model (LLM), Mi:dm2.0, in July 2025. This model has already secured substantial AI platform build projects with major corporations, the Gyeonggi provincial government, and the Korea Water Resources Corporation, cementing KT's position in the public sector. The tangible benefit here is the ability to win large-scale, high-value projects, directly contributing to the company's B2B AI/IT revenue growth.

KT's strategic partnership with Microsoft is another critical component of its technological roadmap. This collaboration has already seen the integration of an AI agent, powered by Azure OpenAI-based LLM, into Genie TV in July 2025, expanding AI use cases for consumers. Looking ahead, KT plans to launch a Korea-tailored AI model, based on GPT-4 and trained on specific Korean data (history, politics, legal aspects), in the second half of 2025. Concurrently, a secure public cloud, utilizing top-notch security protocol confidential computing, is slated for launch in the latter half of 2025 to penetrate the B2B market. These initiatives aim to provide highly specialized and secure AI solutions, offering a distinct competitive advantage over generic alternatives. The "so what" for investors is clear: these technological advancements are designed to drive significant revenue expansion in the high-growth AI and cloud segments, creating a robust competitive moat.

Furthermore, KT is proactively strengthening its information security posture, planning a cumulative investment of KRW 1 trillion over five years. This investment underscores the company's commitment to ensuring customer safety and trust in its telecom services, a critical factor for retaining and attracting enterprise clients in the AICT era. The company's AI strategy also extends to enhancing operational efficiency within its core telecom business, such as improving 5G base station management, and innovating media services through new UX/UIs based on user viewing patterns. This comprehensive approach to AI integration is expected to translate into higher efficiency, better service quality, and ultimately, improved financial performance.

Financial Momentum and Strategic Allocation

KT Corporation has demonstrated compelling financial momentum, particularly in its recent performance, reflecting the early successes of its AICT transformation and strategic initiatives. For the second quarter of 2025, consolidated operating revenue increased 13.5% year-over-year, reaching KRW 7,427.4 billion. This growth was accompanied by a remarkable 105.4% surge in consolidated operating profit, which hit KRW 1,014.8 billion. While this significant profit increase was partly driven by one-time gains from real estate sales, underlying business growth also contributed. Consolidated net income for the quarter rose 78.6% year-over-year to KRW 733.3 billion, and consolidated EBITDA was up 36.3% to KRW 1,990.7 billion.

Looking at the broader picture, for the six-month period ended June 30, 2025, consolidated operating revenues stood at W14,272,454 million, an increase from W13,200,973 million in the same period of 2024. In 2024, KT achieved a historical record consolidated revenue of KRW 26,431.2 billion since its public listing in 1998. Despite a 50.9% year-over-year decline in Q4 2024 operating profit due to one-off labor costs, excluding this impact, operating profit increased 9.8% year-over-year, indicating stronger underlying fundamentals.

Profitability metrics highlight the company's operational effectiveness. KT's TTM Gross Profit Margin stands at 49.88%, with an Operating Profit Margin of 5.48% and a Net Profit Margin of 3.64%. The TTM EBITDA Margin is 18.52%. These figures, while reflecting a diversified business model, also underscore the ongoing efforts to enhance profitability.

Cash flow generation remains robust, with an annual operating cash flow of 5.07 trillion won. However, the quarterly free cash flow was -1.05 trillion won, indicating significant investment activities. The company's liquidity position shows a debt-to-equity ratio of 123.5% as of June end 2025, and a net debt ratio of 36.8%. Total CapEx for KT and its major affiliates reached KRW 1,364.3 billion on a cumulative basis as of Q2 2025. Management plans to maintain CapEx at 2024 levels for the group, with B2C investments potentially decreasing, offset by growth in AICT businesses and IT scaling.

Segment performance further illustrates KT's strategic direction. The ICT segment, encompassing core telecom and B2B services, reported operating revenues of W 4.77M million and operating profit of W 468,735 million for the three-month period ended June 30, 2025. B2B service revenue within ICT grew 4.5% year-on-year in Q2 2025, with AI/IT business revenue seeing a 13.8% year-over-year increase, driven by design and build projects and cloud business expansion. Wireless revenue increased 0.9% year-on-year to KRW 1,781.7 billion in Q2 2025, with 5G subscribers accounting for 79.5% of total handset subscribers. Broadband revenue grew 2.1% year-over-year to KRW 631.4 billion, fueled by GiGA Internet subscriber growth. The media business posted 0.8% growth, benefiting from IPTV subscriber additions and premium plan uptake.

In the Finance segment, BC Card revenue fell 6.9% year-on-year in Q2 2025 due to declining acquiring volume, but operating profit remained flat through diligent risk management. Content subsidiaries recorded 6% year-on-year revenue growth in Q2 2025, driven by production and distribution expansion. KT Cloud's revenue surged 23% year-on-year, propelled by increasing data center usage by global customers and expanded DBO project wins. KT Estate, the real estate arm, saw revenue increase 2.0% year-on-year, primarily from rental income from offices and hotels.

Outlook and Shareholder Value Enhancement

KT's management has articulated a clear forward-looking strategy, underpinned by ambitious financial targets and a robust commitment to shareholder returns. For 2025, the company has set a consolidated revenue target exceeding KRW 28 trillion. This growth is expected to be fueled by the ongoing AICT transformation, particularly the expansion of AI and IT businesses, which are projected to achieve double-digit revenue growth in 2025. KT Cloud, a key growth driver, is specifically targeted for approximately 26% revenue growth and 51% profit growth in 2024, reflecting strong demand for its services.

Looking further ahead to 2028, KT aims to achieve a consolidated Return on Equity (ROE) of 9% to 10%. To reach this, the company plans to triple its AI and IT business revenue (on a separate basis) compared to 2023 levels, targeting an absolute figure of approximately KRW 3 trillion. A consolidated operating profit margin of 9% is also targeted by 2028, alongside initiatives to liquidate non-core assets and enhance asset efficiency.

Shareholder return is a cornerstone of KT's value-up program. For Q2 2025, a dividend of KRW 600 per share was declared, exceeding the company's policy of distributing 50% of adjusted net profit. Management expresses confidence in sustaining strong performance through Q3 and Q4 2025, which is expected to support continued market-aligned dividend decisions. Furthermore, KT has committed to a cumulative KRW 1 trillion share buyback and cancellation program from 2025 to 2028. The initial phase involves a KRW 250 billion buyback and cancellation in 2025, with a strong possibility of similar annual amounts thereafter, contingent on the company's growth and profit generation. This progressive approach to shareholder returns, coupled with a focus on bottom-line improvements from workforce rationalization and unprofitable business streamlining, signals a strong commitment to enhancing corporate value.

CapEx is expected to be maintained at 2024 levels for the group, with declining B2C investments being offset by growth in AICT and IT scaling. Management does not foresee significant CapEx increases for 6G networks in the immediate 2-3 years, as technical standards are still being developed, nor does it view additional 5G spectrum allocation as an immediate CapEx risk.

Risks and Competitive Dynamics

While KT's strategic pivot to an AICT company presents significant opportunities, it also entails navigating a complex risk landscape and intense competitive dynamics. The wireless market, a core segment, remains susceptible to competitive pressures, particularly with the introduction of new flagship smartphone models. However, management believes any such competition will not be long-lasting, citing high 5G penetration (above 80%), longer handset replacement cycles, and the industry's collective focus on AI and IT investments. This strategic shift by telcos towards new business areas is a key factor in mitigating prolonged wireless market competition.

Operational risks include potential concerns regarding commissions and selling-related expenses. However, these are viewed as manageable, given their linkage to overall earnings performance. Broader market conditions also pose challenges; the content market is currently contracting, impacting revenue for content subsidiaries, and economic slowdowns have affected segments like BC Card's acquiring volume. The conservative IT expenditure by companies during economic slumps could also temper growth in KT's AI/IT segments.

Legal and contractual obligations represent another layer of risk. KT is a defendant in 165 lawsuits with a total claimed amount of W 155918 million as of June 30, 2025, with the final outcomes remaining uncertain. The company also has derivative obligations stemming from Drag-Along Rights granted to financial investors in K Bank Inc. and Epsilon Global Communications Pte. Ltd., which could trigger future liabilities if certain conditions are not met. In the burgeoning cloud business, while the finance sector is seeing more relaxed regulations, the public sector may take longer to open up to external cloud providers, potentially affecting the pace of market penetration for KT's secure public cloud offerings.

Despite these challenges, KT strategically positions itself by leveraging its integrated service ecosystem and extensive network infrastructure. Its partnerships with global tech giants like Microsoft and Palantir provide a competitive edge in the AI space, enabling it to offer differentiated technical consulting and specialized AI solutions. This focus on high-expertise services, such as the AX specializing subsidiary being developed with Microsoft, aims to differentiate KT from competitors who may offer more conceptual consulting. While direct quantitative comparisons with all competitors' financial performance are not always publicly detailed, KT's strategic investments in AI and cloud are designed to enhance its growth rates and profitability, aiming to close any gaps with rivals who have historically demonstrated stronger margins or faster innovation in specific areas.

Conclusion

KT Corporation is in the midst of a transformative journey, strategically pivoting to become a leading AICT company. This narrative is driven by significant investments in proprietary AI technologies like Mi:dm2.0, robust partnerships with global tech leaders such as Microsoft and Palantir, and a clear roadmap for integrating AI across its diverse business segments. The company's strong financial performance in Q2 2025, marked by substantial revenue and profit growth, underscores the initial success of these initiatives, even with the benefit of one-time gains.

The commitment to shareholder value is evident through its progressive dividend policy and a substantial share buyback program, signaling confidence in future profitability. While facing an intensely competitive landscape and market-specific risks, KT's differentiated technological offerings, particularly in specialized AI models and secure cloud services, are poised to enhance its competitive standing. The company's ability to execute its AICT vision and achieve its ambitious 2028 targets for ROE and AI/IT revenue will be paramount for sustained growth and value creation for investors.