Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Internet Initiative Japan / Equity Bottom-Up

IIJ has fired its salvo in the pricing wars with c. 10-40% reductions in consumer mobile plans although a shift in bundle sizes could minimize the impact as subscribers are upsold. Unsurprisingly, there are no sub 1GB plans since Rakuten is giving that away but the 2GB/¥780 plan is competitive (Rak: 1-3GB for ¥980) whilst IIJ is adding tiers higher than 12GB for the first time. On the aggregate, other businesses including Enterprise Mobile are generating sufficient growth that consumer mobile erosion is unlikely to have a material impact on consolidated numbers. Meanwhile, an impending announcement of mobile wholesale rates for FY20 is meaningful especially if costs are less than expected.

IIJ has fired its salvo in the pricing wars with c. 10-40% reductions in consumer mobile plans although a shift in bundle sizes could minimize the impact as subscribers are upsold. Unsurprisingly, there are no sub 1GB plans since Rakuten is giving that away but the 2GB/¥780 plan is competitive (Rak: 1-3GB for ¥980) whilst IIJ is adding tiers higher than 12GB for the first time. On the aggregate, other businesses including Enterprise Mobile are generating sufficient growth that consumer mobile erosion is unlikely to have a material impact on consolidated numbers. Meanwhile, an impending announcement of mobile wholesale rates for FY20 is meaningful especially if costs are less than expected. 

Internet Initiative Japan - New Pricing Plans Are Competitive and Impact Is Manageable

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

With the Nikkei 225 index breaking 30k this month, we thought it pertinent to look in more detail at Japan positioning among Global fund managers.  Our data shows that Japan is underowned by Global managers versus its own history and held underweight versus the benchmark MSCI All Country World index.  Current positioning levels are towards their lowest ever levels, yet we are not seeing a sweeping reversal of sentiment in our data just yet, merely a stalling of the declines. However, the outperformance of MSCI Japan versus the AC World index over the last 6-months and the psychological breaking of 30,000 in the Nikkei 225 index are both signs that momentum is gathering steam.   We see rising ownership levels in a number of key companies, led by <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony Corp (6758 JP)</a> , <a href="https://www.smartkarma.com/entities/nintendo-co-ltd" target="_blank" data-smartkarma-citation="entities:5415:1" rel="noopener">Nintendo Co Ltd (7974 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a> and high conviction in <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1" rel="noopener">Keyence Corp (6861 JP)</a> among Global investors.  Outside of these 4 stocks, we would highlight the largest index weight, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> as a laggard and a stock that has the potential to play a much greater role in Global portfolios going forwards.Analysis taken from our Global active fund research, covering 386 managers with combined AUM of $960bn

With the Nikkei 225 index breaking 30k this month, we thought it pertinent to look in more detail at Japan positioning among Global fund managers.  Our data shows that Japan is underowned by Global managers versus its own history and held underweight versus the benchmark MSCI All Country World index.  Current positioning levels are towards their lowest ever levels, yet we are not seeing a sweeping reversal of sentiment in our data just yet, merely a stalling of the declines. However, the outperformance of MSCI Japan versus the AC World index over the last 6-months and the psychological breaking of 30,000 in the Nikkei 225 index are both signs that momentum is gathering steam.   We see rising ownership levels in a number of key companies, led by Sony Corp (6758 JP) , Nintendo Co Ltd (7974 JP) and Tokyo Electron (8035 JP) and high conviction in Keyence Corp (6861 JP) among Global investors.  Outside of these 4 stocks, we would highlight the largest index weight, Toyota Motor (7203 JP) as a laggard and a stock that has the potential to play a much greater role in Global portfolios going forwards.Analysis taken from our Global active fund research, covering 386 managers with combined AUM of $960bn 

Global Fund Positioning in Japan:  Underweight and Underowned

NTT (Nippon Telegraph & Telephone) / Equity Bottom-Up

NTT posted Q3 20 results modestly ahead of consensus and boosted the FY20 dividend by 5% in the first quarterly report since it bought out the DoCoMo minority stake. The importance of having closer ties between the mobile and fixed-line operations was highlighted by record growth in its local exchange subsidiaries (+4% for a combined NTT East/West) driven we think by telework demand. One sign of this is the sale of wholesale fiber lines outside mobile resale was the highest it has been since Q1 16. DoCoMo results were also solid with mobile service revenue flat YoY and the highest net sub growth since Q4 18.

NTT posted Q3 20 results modestly ahead of consensus and boosted the FY20 dividend by 5% in the first quarterly report since it bought out the DoCoMo minority stake. The importance of having closer ties between the mobile and fixed-line operations was highlighted by record growth in its local exchange subsidiaries (+4% for a combined NTT East/West) driven we think by telework demand. One sign of this is the sale of wholesale fiber lines outside mobile resale was the highest it has been since Q1 16. DoCoMo results were also solid with mobile service revenue flat YoY and the highest net sub growth since Q4 18.  

NTT Q3 20 Results: Dividend Raise as Fixed-Line and Domestic Businesses Are Steady

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

When <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> announced its takeover of <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a>, the immediate market reaction was to sell. This was seen as a sign that NTT was going to "take responsibility" for giving money back to customers. I wasn't sure why. Spending ¥4trln to buyback ¥200bn of minority interest net income was the equivalent of an enormous buyback. And given that doing so did not reward the government, which still holds more than one-third of NTT, in any way, NTT had to continue to reward the government through returns to shareholders - i.e. dividends and buybacks. Some of that was going to be supported through higher EPS, allowing continued growth in dividends. However, the government counts on getting an additional few hundred billion yen through sales proceeds every few years to fund its special projects, so the buybacks needed to continue, and as discussed many times on Smartkarma in the past, that only happens if NTT buys back stock from the public first, creating room under the NTT Law to allow NTT to buy back shares from the government while still keeping the government over one-third (or over the complicated and not-exactly-one-third calculation minimum under the law). When shares fell, NTT in November made clear that it was a) going to change things around at the NTT Docomo subsidiary - the CEO was out even before the Tender Offer ended - and b) was going to continue providing returns to shareholders. It announced a buyback on 8 November which was going to have big impact.I discussed in <a href="https://www.smartkarma.com/insights/ntt-go-big-or-go-home" target="_blank" data-smartkarma-citation="insights:44964" rel="noopener">NTT - Go Big Or Go Home</a> then later in <a href="https://www.smartkarma.com/insights/ntt-still-going-big-not-going-home" target="_blank" data-smartkarma-citation="insights:46264" rel="noopener">NTT - Still Going Big, Not Going Home</a>.Yesterday, NTT announced the results of its repurchase for December. It was not subtle. NTT was 18% of volume in December. There may be more impact to come.

When NTT (Nippon Telegraph &amp; Telephone) (9432 JP) announced its takeover of NTT Docomo Inc (9437 JP), the immediate market reaction was to sell. This was seen as a sign that NTT was going to "take responsibility" for giving money back to customers. I wasn't sure why. Spending ¥4trln to buyback ¥200bn of minority interest net income was the equivalent of an enormous buyback. And given that doing so did not reward the government, which still holds more than one-third of NTT, in any way, NTT had to continue to reward the government through returns to shareholders - i.e. dividends and buybacks. Some of that was going to be supported through higher EPS, allowing continued growth in dividends. However, the government counts on getting an additional few hundred billion yen through sales proceeds every few years to fund its special projects, so the buybacks needed to continue, and as discussed many times on Smartkarma in the past, that only happens if NTT buys back stock from the public first, creating room under the NTT Law to allow NTT to buy back shares from the government while still keeping the government over one-third (or over the complicated and not-exactly-one-third calculation minimum under the law). When shares fell, NTT in November made clear that it was a) going to change things around at the NTT Docomo subsidiary - the CEO was out even before the Tender Offer ended - and b) was going to continue providing returns to shareholders. It announced a buyback on 8 November which was going to have big impact.I discussed in NTT - Go Big Or Go Home then later in NTT - Still Going Big, Not Going Home.Yesterday, NTT announced the results of its repurchase for December. It was not subtle. NTT was 18% of volume in December. There may be more impact to come.

NTT's Big Beautiful Buyback Is Not The Only Reason to Own

In <a href="https://www.smartkarma.com/insights/ntt-go-big-or-go-home" target="_blank" data-smartkarma-citation="insights:44964" rel="noopener">NTT - Go Big Or Go Home</a> five weeks ago, I suggested that investors really needed to look at the internal arithmetic of the <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> buyout of subsidiary <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a>, which was subsequently completed, and will see the squeezeout take place early. The occasion for that insight was the announcement of a large buyback program by NTT. There had been a fear that the buy-in of Docomo was a "sign" that NTT was being pressured to fund lower Docomo pricing at the expense of NTT shareholder returns. NTT, however, made VERY clear that the company would look to continue its shareholder return policy AND pay down the ¥4+ trillion debt to be incurred buying out the Docomo minorities. The first buyback report came at the beginning of December and the data is interesting. Since I wrote that NTT shares are up 13.4% while <a href="https://www.smartkarma.com/entities/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a> is down slightly and <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> is up about 8% (though 6% of that has happened in the last few days as news of a "slow-burn" minority buy-in pushes <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> shares.It is worth re-iterating the dynamics here and thinking about the timing of buyback pressure, the timing of comp buyback pressure, and when investors will see newsflow on fundamentals.

In NTT - Go Big Or Go Home five weeks ago, I suggested that investors really needed to look at the internal arithmetic of the NTT (Nippon Telegraph &amp; Telephone) (9432 JP) buyout of subsidiary NTT Docomo Inc (9437 JP), which was subsequently completed, and will see the squeezeout take place early. The occasion for that insight was the announcement of a large buyback program by NTT. There had been a fear that the buy-in of Docomo was a "sign" that NTT was being pressured to fund lower Docomo pricing at the expense of NTT shareholder returns. NTT, however, made VERY clear that the company would look to continue its shareholder return policy AND pay down the ¥4+ trillion debt to be incurred buying out the Docomo minorities. The first buyback report came at the beginning of December and the data is interesting. Since I wrote that NTT shares are up 13.4% while KDDI Corp (9433 JP) is down slightly and Softbank Corp (9434 JP) is up about 8% (though 6% of that has happened in the last few days as news of a "slow-burn" minority buy-in pushes Softbank Group (9984 JP) shares.It is worth re-iterating the dynamics here and thinking about the timing of buyback pressure, the timing of comp buyback pressure, and when investors will see newsflow on fundamentals.

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)

Internet Initiative Japan - New Pricing Plans Are Competitive and Impact Is Manageable

IIJ's new consumer mobile pricing plans are competitive with Rakuten and the financial impact on consolidated results should be immaterial

Kirk Boodry

Global Fund Positioning in Japan: Underweight and Underowned

With the Nikkei 225 index breaking 30k this month, Global managers remain under-invested and underweight Japan versus the benchmark MSCI All...

Steven Holden

NTT Q3 20 Results: Dividend Raise as Fixed-Line and Domestic Businesses Are Steady

NTT posted steady Q3 results with evidence of progress on the fixed line from higher demand for telework solutions. It kept full-year guidance...

Kirk Boodry

NTT's Big Beautiful Buyback Is Not The Only Reason to Own

NTT's Buyback is big and beautiful, but it is not the only reason to own. There are two other good reasons. But the buyback will still have impact...

Travis Lundy

NTT - Still Going Big, Not Going Home

NTT is under-appreciated - March 2022 forecasts still do not include accretion of the NTT Docomo minority into EPS. The company has responded to...

Travis Lundy

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