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By Jennifer Yousfi
Managing Editor
Shares of Korea-based SK Telecom Co. Ltd. (SKM) had a great trading day yesterday [Tuesday] based on returns from its shrewd investment in China Unicom Ltd. (CHU).
Hong Kong-listed China Unicom had a 6.6% gain after a local newspaper reported China's government had approved a restructuring plan for the country's telecom sector. SK Telecom shares reacted favorably, rising $8 (7,500 won) for the day. SK Telecom's NYSE-listed American Depositary Receipt (ADR) responded in kind, gaining $0.42 (1.63%) for the day to close at $26.13.
SK Telecom staged a remarkable coup in 2006, when it invested $1 billion in convertible bonds of China's No. 2 mobile company. The bonds were converted into company shares in August 2007, and the resulting 6.6% share stake in China Unicom is currently worth more than $2 billion.
"From the China Unicom investment, SK Telecom reaped a gain of more than [$1 billion (1 trillion won)]," Tongyang Investment Bank analyst Choi Nam-Kon told TradingMarkets.com.
SK Telecom, Korea's largest mobile phone company, also has operations in such high-growth markets as China and Vietnam. The stock is now trading about 11 times estimated earnings, with a dividend yield of just over 3% – meaning that income investors should give these shares some serious consideration, too.
Its market share in Korea is creeping up above 50%. And while the stock initially saw a 20% sell-off due to newly-elected President Lee Myung-Bak's victory, a recent reversal on the pledged 20% mobile tariffs and strong performance from China Unicom have combined to boost the stock.
SK Telecom was recently reported to be interested in acquiring a stake in the U.S.-based Sprint Nextel Corp. (S). Although its initial advances were reportedly spurned, if it comes back, and can buy all or part of that company cheap, SK Telecom will gain an excellent foothold in the U.S. market, where its cutting-edge technology can be expected to add market share. That makes this company a strong buy, as well.
News and Related Story Links:
- TradingMarkets.com:
SKorea's SK Telecom sharply higher on heavy investment gains from China Unicom - Money Morning:
Outlook 2008: The U.S. Economy Is Down – But Not Out – in the New Year