Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI Corp (9433 JP)</a> posted Q4 18 results and guidance for FY19 that are largely positive. It has unveiled new pricing plans that look similar to the ones that DoCoMo announced in April and whilst new segment reporting makes it hard to see what the revenue impact could be, FY19 guidance calls for flat operating income and EBITDA growth despite new pricing and the impending market entry of Rakuten. Meanwhile, rising shareholder returns and a target for 50% growth in EPS over six years provide further support. Considering the industry outlook, this is a positive report.

KDDI Corp (9433 JP) posted Q4 18 results and guidance for FY19 that are largely positive. It has unveiled new pricing plans that look similar to the ones that DoCoMo announced in April and whilst new segment reporting makes it hard to see what the revenue impact could be, FY19 guidance calls for flat operating income and EBITDA growth despite new pricing and the impending market entry of Rakuten. Meanwhile, rising shareholder returns and a target for 50% growth in EPS over six years provide further support. Considering the industry outlook, this is a positive report. 

KDDI Q4 18 Results/Guidance: Positive Report in Light of DoCoMo Weakness and Rakuten Market Entry

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

<a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo Inc (9437 JP)</a> announced <a href="https://www.nttdocomo.co.jp/english/corporate/ir/library/presentation/index.html#190426" target="_blank">results</a> on April 26. FY18 results themselves were pretty much a sideshow. All the focus was on the future. The revenue drop and OP fall now forecast for FY2019 had been warned of last November, and then previewed earlier in April so that when the actual forecast came out, it was not a surprise, in fact one might say they managed expectations extraordinarily well. They told the story that investors and analysts had wanted to hear (because the fall was a foregone conclusion, they wanted to know it was going to be "well-managed." NTT Docomo also announced a share buyback, as expected and discussed in the insight <a href="https://www.smartkarma.com/insights/ntt-vs-docomo-where-to-from-here" target="_blank" data-smartkarma-citation="insights:29324">NTT Vs Docomo: Where To From Here?</a> published three days prior - ¥300 billion to be purchased in the market over the space of a year (7 May 2019 - 30 April 2020).  Interestingly, the results appear to have led to short-covering in NTT vs Docomo, with the ratio up 2.5% or so in short order. <a href="https://www.smartkarma.com/entities/623" target="_blank" data-smartkarma-citation="entities:623:1">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a>announced FY18 results and forecasts for FY19 on May 10 and that gave way to outperformance vs. the market but in zero excess volume, which was interesting. NTT also <a href="http://www.ntt.co.jp/news2019/1905e/190510a.html" target="_blank">announced</a> its own buyback program, spending up to ¥250 billion to repurchase up to 53 million of its own shares (2.76% of its shares outstanding), executing the buyback in the market and through ToSTNeT-3 between 13 May and the end of July 2019. On 13 May after the close, the company <a href="http://www.ntt.co.jp/news2019/1905e/190513b.html" target="_blank">announced</a> a ToSTNeT-3 buyback to buy back 15 million shares for up to ¥71.6bn pre-open on 14 May 2019. The results and forecasts and what they imply for NTT ex-Docomo ex-Data earnings do not suggest a trade any different than the one recommended most recently in <a href="https://www.smartkarma.com/insights/ntt-vs-docomo-where-to-from-here" target="_blank" data-smartkarma-citation="insights:29324">NTT Vs Docomo: Where To From Here?</a> published just a few days before Docomo earnings. All told, I expect another ¥90-100bn of ToSTNeT-3 buybacks by NTT to be completed over the next couple of months, with the balance of ¥80-90bn executed in the market by end-July. The NTT Docomo buybacks will be conducted in the market. It is possible there would be another NTT buyback announced at the time of the Q1 or H1 earnings release.A brief discussion of the two buybacks ensues.

NTT Docomo Inc (9437 JP) announced results on April 26. FY18 results themselves were pretty much a sideshow. All the focus was on the future. The revenue drop and OP fall now forecast for FY2019 had been warned of last November, and then previewed earlier in April so that when the actual forecast came out, it was not a surprise, in fact one might say they managed expectations extraordinarily well. They told the story that investors and analysts had wanted to hear (because the fall was a foregone conclusion, they wanted to know it was going to be "well-managed." NTT Docomo also announced a share buyback, as expected and discussed in the insight NTT Vs Docomo: Where To From Here? published three days prior - ¥300 billion to be purchased in the market over the space of a year (7 May 2019 - 30 April 2020).  Interestingly, the results appear to have led to short-covering in NTT vs Docomo, with the ratio up 2.5% or so in short order. NTT (Nippon Telegraph &amp; Telephone) (9432 JP)announced FY18 results and forecasts for FY19 on May 10 and that gave way to outperformance vs. the market but in zero excess volume, which was interesting. NTT also announced its own buyback program, spending up to ¥250 billion to repurchase up to 53 million of its own shares (2.76% of its shares outstanding), executing the buyback in the market and through ToSTNeT-3 between 13 May and the end of July 2019. On 13 May after the close, the company announced a ToSTNeT-3 buyback to buy back 15 million shares for up to ¥71.6bn pre-open on 14 May 2019. The results and forecasts and what they imply for NTT ex-Docomo ex-Data earnings do not suggest a trade any different than the one recommended most recently in NTT Vs Docomo: Where To From Here? published just a few days before Docomo earnings. All told, I expect another ¥90-100bn of ToSTNeT-3 buybacks by NTT to be completed over the next couple of months, with the balance of ¥80-90bn executed in the market by end-July. The NTT Docomo buybacks will be conducted in the market. It is possible there would be another NTT buyback announced at the time of the Q1 or H1 earnings release.A brief discussion of the two buybacks ensues.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/182/original/2019-04-29_12-24-09.png?1556508262" class="editor-image img-responsive" data-smartkarma-image-id="86182"></figure>Source: Japan Analytics
</div>EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of this 76 % have been annual results for the fiscal year ended March 2019.  Also, there have been 328 initial forecasts for the year to March 2020, 227 initial interim forecasts and 228 intra-year revisions. With the long holiday break, there will be an avalanche of announcements from the 7th May onwards. In this Insight, we shall look at the trends apparent in the results so far released.  In the last month, our Market Composite trailing-twelve-month (TTM) data series is unchanged for Operating Income, while Net Income has increased by ¥0.2t. With 13% of March-year-end companies have issued FY2020 forecasts, aggregate forecast Operating Income is ¥0.7t lower and is in line with TTM Operating Income. Forecast Net Income is ¥0.6 lower and is 4% below TTM Net Income. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/411/original/2019-04-30_13-26-24.png?1556598396" class="editor-image img-responsive" data-smartkarma-image-id="86411"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/412/original/File%202019-04-30%2013%2010%2017.jpeg?1556598417" class="editor-image img-responsive" data-smartkarma-image-id="86412"></figure><div class="content-caption">Source: Japan Analytics, Pictet Asset Management</div>MARGIN SLIPPAGE - With revenues remaining relatively robust, margins are declining fast that at any time since 2016. The forecast operating margin is now 42 basis points below the 2018 peak level, while the slippage in net margins is 78 basis points. Although the sample is not the same, to IBES consensus estimates have current downtrend bottoming out in the second half of the year with net margins recovering to 6.6% in 2021. We consider this overly optimistic. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/187/original/2019-04-29_12-32-53.png?1556508784" class="editor-image img-responsive" data-smartkarma-image-id="86187"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/190/original/2019-04-29_12-51-24.png?1556509893" class="editor-image img-responsive" data-smartkarma-image-id="86190"></figure>Source: Japan Analytics
</div>RESULTS &amp; REVISION SCORES - Our scoring methodology for results and forecasts/revisions incorporates rates of change and other momentum factors and has historically provided a better fit with changes in aggregate market value. Although the Market Composite Results Score has remained stable in the last week at 2.21, we expect the score to end this results 'season' closer to zero as indicated by the trend in the Forecast/Revision Score. The latter has declined for six quarters in a row and the current quarter will make it seven. Although our data series only covers the last forty quarters and is perhaps too short for generalisations, it would be unusual for the Forecasts/Revision Score series to have an eighth down quarter in a row. Perhaps the market's robust recovery from the Christmas Day low is anticipating such an outcome. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/193/original/2019-04-29_13-17-03.png?1556511439" class="editor-image img-responsive" data-smartkarma-image-id="86193"></figure><div class="content-caption">Source: Japan Analytics</div>USDJPY NEUTRAL - In the past, one of the principal drivers of both scores has been changes in the US dollar/Yen exchange rate. The chart above merges both scores to create a cleaner timeline, and key turning points in <a href="https://www.smartkarma.com/entities/22826" target="_blank" data-smartkarma-citation="entities:22826:1">JUSDJPY CURNCY</a> highlighted. With the currency cross trading in a narrow range, there is little support or stimulus in the next six months. However, any sustained weakness in the Yen, such as occurred from September 2016, will be another confirmation that a cycle low has been reached. <div class="content-highlight">In the DETAIL section below, we update our  Sector Results &amp; Revision Scores and look at the best and worst large-cap company results over the seven trading days.</div>


Source: Japan Analytics
EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of this 76 % have been annual results for the fiscal year ended March 2019.  Also, there have been 328 initial forecasts for the year to March 2020, 227 initial interim forecasts and 228 intra-year revisions. With the long holiday break, there will be an avalanche of announcements from the 7th May onwards. In this Insight, we shall look at the trends apparent in the results so far released.  In the last month, our Market Composite trailing-twelve-month (TTM) data series is unchanged for Operating Income, while Net Income has increased by ¥0.2t. With 13% of March-year-end companies have issued FY2020 forecasts, aggregate forecast Operating Income is ¥0.7t lower and is in line with TTM Operating Income. Forecast Net Income is ¥0.6 lower and is 4% below TTM Net Income. Source: Japan Analytics, Pictet Asset ManagementMARGIN SLIPPAGE - With revenues remaining relatively robust, margins are declining fast that at any time since 2016. The forecast operating margin is now 42 basis points below the 2018 peak level, while the slippage in net margins is 78 basis points. Although the sample is not the same, to IBES consensus estimates have current downtrend bottoming out in the second half of the year with net margins recovering to 6.6% in 2021. We consider this overly optimistic. 
Source: Japan Analytics
RESULTS &amp; REVISION SCORES - Our scoring methodology for results and forecasts/revisions incorporates rates of change and other momentum factors and has historically provided a better fit with changes in aggregate market value. Although the Market Composite Results Score has remained stable in the last week at 2.21, we expect the score to end this results 'season' closer to zero as indicated by the trend in the Forecast/Revision Score. The latter has declined for six quarters in a row and the current quarter will make it seven. Although our data series only covers the last forty quarters and is perhaps too short for generalisations, it would be unusual for the Forecasts/Revision Score series to have an eighth down quarter in a row. Perhaps the market's robust recovery from the Christmas Day low is anticipating such an outcome. Source: Japan AnalyticsUSDJPY NEUTRAL - In the past, one of the principal drivers of both scores has been changes in the US dollar/Yen exchange rate. The chart above merges both scores to create a cleaner timeline, and key turning points in JUSDJPY CURNCY highlighted. With the currency cross trading in a narrow range, there is little support or stimulus in the next six months. However, any sustained weakness in the Yen, such as occurred from September 2016, will be another confirmation that a cycle low has been reached. In the DETAIL section below, we update our  Sector Results &amp; Revision Scores and look at the best and worst large-cap company results over the seven trading days.

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

Behind DoCoMo's major headlines from the FY18 results on Friday, there were a few more items to be gleaned from the analyst meeting. Importantly, the company says that the 18% drop in operating income for FY19 should be the bottom and we run through some of these numbers they gave out in the insight below.

Behind DoCoMo's major headlines from the FY18 results on Friday, there were a few more items to be gleaned from the analyst meeting. Importantly, the company says that the 18% drop in operating income for FY19 should be the bottom and we run through some of these numbers they gave out in the insight below.  

DoCoMo: Key Takeaways from the Analyst Meeting

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

<a href="https://www.smartkarma.com/insights/japan-fashion-e-commerce-review-more-competition-coming-for-zozo-and-rakuten" target="_blank">As reported in a separate Insight</a> today, fashion is already the largest single category online, but it also a sector that is developing rapidly.Around 55% of this nearly ¥2 trillion market is controlled by online malls rather than fashion retailers.As well as <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com Inc (AMZN US)</a>, <a href="https://www.smartkarma.com/entities/31" target="_blank" data-smartkarma-citation="entities:31:1">Rakuten (4755 JP)</a>, and <a href="https://www.smartkarma.com/entities/19603" target="_blank" data-smartkarma-citation="entities:19603:1">Yahoo Japan (4689 JP)</a> the key specialist online malls are <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO Inc (3092 JP)</a>, Magaseek (<a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo Inc (9437 JP)</a>) , Shop-List (<a href="https://www.smartkarma.com/entities/7790" target="_blank" data-smartkarma-citation="entities:7790:1">Crooz Inc (2138 JP)</a>), <a href="https://www.smartkarma.com/entities/26993" target="_blank" data-smartkarma-citation="entities:26993:1">Locondo (3558 JP)</a>, Fashionwalker, Buyma (<a href="https://www.smartkarma.com/entities/7036" target="_blank" data-smartkarma-citation="entities:7036:1">Enigmo Inc (3665 JP)</a>), and Qoo10 (<a href="https://www.smartkarma.com/entities/1291" target="_blank" data-smartkarma-citation="entities:1291:1">Ebay Inc (EBAY US)</a>).Until around 2012, Zozo largely had the market to itself but the last few years have seen significant strides by both the biggest malls like Rakuten and Amazon and the smaller firms to improve their service, marketing and range to attract more of Zozo's customers – they also offer a more cooperative working relationship with their merchants.Some, such as Ebay's Japanese subsidiary and KDDI's Wowma!, have also slashed take-rates for merchants to as little as 4-6%, putting significant pressure on Zozo's main source of profits.

As reported in a separate Insight today, fashion is already the largest single category online, but it also a sector that is developing rapidly.Around 55% of this nearly ¥2 trillion market is controlled by online malls rather than fashion retailers.As well as Amazon.com Inc (AMZN US), Rakuten (4755 JP), and Yahoo Japan (4689 JP) the key specialist online malls are ZOZO Inc (3092 JP), Magaseek (NTT Docomo Inc (9437 JP)) , Shop-List (Crooz Inc (2138 JP)), Locondo (3558 JP), Fashionwalker, Buyma (Enigmo Inc (3665 JP)), and Qoo10 (Ebay Inc (EBAY US)).Until around 2012, Zozo largely had the market to itself but the last few years have seen significant strides by both the biggest malls like Rakuten and Amazon and the smaller firms to improve their service, marketing and range to attract more of Zozo's customers – they also offer a more cooperative working relationship with their merchants.Some, such as Ebay's Japanese subsidiary and KDDI's Wowma!, have also slashed take-rates for merchants to as little as 4-6%, putting significant pressure on Zozo's main source of profits.

ZOZO's Competitors: A Review of Japanese Online Malls Selling Fashion

Japan

NTT DOCOMO, INC. provides various types of telecommunication services including cellular phones, satellite mobile communication, and wireless LAN Network. The Company also sells cellular phones, and other equipment.

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NTT Docomo Inc (9437 JP)

KDDI Q4 18 Results/Guidance: Positive Report in Light of DoCoMo Weakness and Rakuten Market Entry

KDDI Corp (9433 JP) posted Q4 18 results and guidance for FY19 that are largely positive. It has unveiled new pricing plans that look similar to...

Kirk Boodry

NTT & Docomo Buybacks To Start FY19

NTT Docomo Inc (9437 JP) announced results on April 26. FY18 results themselves were pretty much a sideshow. All the focus was on the future. The...

Travis Lundy

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of...

Campbell Gunn

DoCoMo: Key Takeaways from the Analyst Meeting

Behind DoCoMo's major headlines from the FY18 results on Friday, there were a few more items to be gleaned from the analyst meeting. Importantly,...

Kirk Boodry

ZOZO's Competitors: A Review of Japanese Online Malls Selling Fashion

As reported in a separate Insight today, fashion is already the largest single category online, but it also a sector that is developing...

Michael Causton

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