Telco/Internet specialist

Kirk Boodry

Redex Research

Thematic (Sector/Industry)

<ul>
<li>Japan trails global peers in the proportion of payments that are cashless but it is starting to close the gap led by Internet and telecom companies</li>
<li>Rakuten is a fintech leader in Japan (15% of cashless payments) but PayPay is closing the gap as it ramps up cashless app users</li>
<li>We expect compound annual growth in the mid-teens but margin expansion will be limited by competitive intensity</li>
</ul>


Japan trails global peers in the proportion of payments that are cashless but it is starting to close the gap led by Internet and telecom companies
Rakuten is a fintech leader in Japan (15% of cashless payments) but PayPay is closing the gap as it ramps up cashless app users
We expect compound annual growth in the mid-teens but margin expansion will be limited by competitive intensity


Japan Fintech - Cashless Payments Competition Is Heating Up

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Stay long <a href="https://www.smartkarma.com/entities/ntt-data-corp" target="_blank" data-smartkarma-citation="entities:11232:1" rel="noopener">NTT Data Corp (9613 JP)</a> through mid-January. Then sell. </li>
<li>
<a href="https://www.smartkarma.com/entities/origin-energy-ltd" target="_blank" data-smartkarma-citation="entities:797:1" rel="noopener">Origin Energy (ORG AU)</a> may drift lower as the street crunches numbers, in tandem with a vacuum of news as Brookfield undertakes its due diligence.</li>
<li>
<a href="https://www.smartkarma.com/entities/toyo-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:1176:1" rel="noopener">Toyo Construction (1890 JP)</a> is now upset that YFO has decided to release the reason why Toyo management didn't.</li>
</ul>


Stay long NTT Data Corp (9613 JP) through mid-January. Then sell. 

Origin Energy (ORG AU) may drift lower as the street crunches numbers, in tandem with a vacuum of news as Brookfield undertakes its due diligence.

Toyo Construction (1890 JP) is now upset that YFO has decided to release the reason why Toyo management didn't.


Last Week in Event SPACE: NTT Data, Origin Energy, Toyo Construction, Haidilao, Toshiba

Travis Lundy

<ul>
<li>
<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> and <a href="https://www.smartkarma.com/entities/ntt-data-corp" target="_blank" data-smartkarma-citation="entities:11232:1" rel="noopener">NTT Data Corp (9613 JP)</a> did a deal earlier this year to sell NTT's global data business to NTT Data. Discussed <a href="https://www.smartkarma.com/insights/ntt-and-ntt-data-reshuffle-the-deckchairs-and-everyone-wins" target="_blank" rel="noopener">here</a>.</li>
<li>NTT sold 55% of its current overseas business in NTT Communications, Dimension Data, and NTT Security Group, in return getting 45% of NTT Data's current global business, plus ¥112bn. </li>
<li>NTT would then spend ¥100bn of the ¥112bn increasing its stake. So far it has spent ¥58.39bn buying 18% of volume every day since Oct 1.</li>
</ul>



NTT (Nippon Telegraph &amp; Telephone) (9432 JP) and NTT Data Corp (9613 JP) did a deal earlier this year to sell NTT's global data business to NTT Data. Discussed here.
NTT sold 55% of its current overseas business in NTT Communications, Dimension Data, and NTT Security Group, in return getting 45% of NTT Data's current global business, plus ¥112bn. 
NTT would then spend ¥100bn of the ¥112bn increasing its stake. So far it has spent ¥58.39bn buying 18% of volume every day since Oct 1.


NTT Buying NTT Data Shares - ¥40bn to Go

Equity Bottom-Up

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

<ul>
<li>We have tweaked our numbers after Q2 results and catching up with the company.  In particular, we come away with more confidence in wireless / fintech growth</li>
<li>NTT looks cheap at 11x FY22e EPS v 12x for KDDI even as relative growth is expected to be better with ~9% EPS growth</li>
<li>Shares have outperformed TOPIX (+18% YTD v -3%) and this should continue in 2023 as solid financial performance and an attractive shareholder returns story provide support</li>
</ul>


We have tweaked our numbers after Q2 results and catching up with the company.  In particular, we come away with more confidence in wireless / fintech growth
NTT looks cheap at 11x FY22e EPS v 12x for KDDI even as relative growth is expected to be better with ~9% EPS growth
Shares have outperformed TOPIX (+18% YTD v -3%) and this should continue in 2023 as solid financial performance and an attractive shareholder returns story provide support


2023 High Conviction: NTT (Buy) - Surging DoCoMo Underappreciated as Markets Step Back from Value

<ul>
<li>Rakuten's successful junk bond sale means the Rakuten Bank IPO will happen next year and not in December as some had feared</li>
<li>More detail on mobile shows that network costs including D&amp;A are 4x that of service revenue and slightly higher QoQ. Roaming alone is higher than service revenue </li>
<li>And that means Rakuten can't aggressively go after new subscribers unless it wants operating losses to accelerate. Bad for Rakuten but good news for incumbents KDDI, NTT and Softbank. </li>
</ul>


Rakuten's successful junk bond sale means the Rakuten Bank IPO will happen next year and not in December as some had feared
More detail on mobile shows that network costs including D&amp;A are 4x that of service revenue and slightly higher QoQ. Roaming alone is higher than service revenue 
And that means Rakuten can't aggressively go after new subscribers unless it wants operating losses to accelerate. Bad for Rakuten but good news for incumbents KDDI, NTT and Softbank. 


Rakuten (Neutral) - Follow up After Results: Mobile Issues Far from Over

Japan

USEN-NEXT HOLDINGS Co.,Ltd. provides network information services. The Company provides video contents distribution, music contents distribution, and other services. USEN-NEXT HOLDINGS also provides internet agency, mobile communication, and other services.

SoftBank Group Corp. provides telecommunication services. The Company also operates ADSL (Asymmetric Digital Subscriber Line) and fiber optic high-speed Internet connection, e-Commerce businesses, and Internet based advertising and auction businesses.

KDDI CORPORATION provides mobile communication services and sells mobile devices.  The Company also is a broadband provider.

Softbank Corporation provides mobile phone telecommunication and networking services. The Company offers mobile communication opening, short messaging function opening, video function opening, and other services. Softbank also provides mobile phones.

ARTERIA Networks Corporation provides telecommunication services. The Company offers internet connection, virtual private network construction, colocation, mobile connection, mobile device management, optical fiber network construction, and other services.

Vision Inc. provides a variety of telecommunication services, including fixed-line telecom, wireless telecom and wifi services. The company also provides distribution and lease service of office equipments and communications equipments.

FreeBit Co., Ltd. provides Internet connectivity outsourcing services for Internet service providers.  The Company also offers ubiquitous networking environment.  FreeBit provides consulting services for Internet related businesses as well.

Broadmedia Corporation provides broadband service, CDN (contents delivery network), and media contents belonging to Softbank broadcasting. Broadmedia also markets game on demand service.

Nintendo Co., Ltd. globally develops, manufactures and sells home-use video game hardware and software in home entertainment business.  The company also produces home-game products including cards.

OKINAWA CELLULAR TELEPHONE COMPANY provides cellular and car phone services in Okinawa Prefecture.  The Company also sells cellular phones and accessories.

China Telecom Corporation Limited, through its subsidiaries, provides wireline telephone, data, and Internet, as well as leased line services in China.

Deutsche Telekom AG offers telecommunications services.  The Company offers a full range of fixed-line telephone services, mobile communications services, Internet access, and combined information technology and telecommunications services for businesses.

Singapore Telecommunications Limited wireless telecommunication services. The Company offers diverse range of services including fixed, mobile, data, internet, TV,  and digital solutions. Singapore Telecommunications serves customers worldwide.

Telstra Corporation Limited is a full service domestic and international telecommunications provider for Australia.  The Company provides telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. Telstra also provides data, internet, on-line services and directory services.

AT&T Inc. is a communications holding company. The Company, through its subsidiaries and affiliates, provides local and long-distance phone service, wireless and data communications, Internet access and messaging, IP-based and satellite television, security services, telecommunications equipment, and directory advertising and publishing.

China Unicom (Hong Kong) Limited, through its subsidiaries, provides telecommunications services in the People's Republic of China.  The Company's services include cellular, paging, long distance, data, and Internet services.

Chunghwa Telecom Co., Ltd. provides local, domestic, and international long distance services. The Company also offers wireless telecommunication, paging, and Internet services.

Cellnex Telecom S.A.U. is an independent operator of wireless telecommunications infrastructure and broadcast infrastructure. The Company's sites are located in Spain and Italy.

Telefonica S.A. provides telecommunications services mainly to countries in Europe and Latin America.  The Company offers fixed-line and mobile telephone, Internet, and data transmission services to residential and corporate customers.

Orange SA provides telecommunications services to residential, professional, and large business customers. The Company offers public fixed-line telephone, leased lines and data transmission, mobile telecommunications, cable television, Internet and wireless applications, and broadcasting services, and telecommunications equipment sales and rentals.

Nippon Telegraph and Telephone Corporation provides a variety of telecommunication services, including telephone, telegraph, leased circuits, data communication, terminal equipment sales, and related services. The Company provides both local and long distance telephone services within Japan.

NTT (Nippon Telegraph & Telephone) (9432 JP)

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NTT (Nippon Telegraph & Telephone) (9432 JP)

Japan Fintech - Cashless Payments Competition Is Heating Up

Japan telecom and Internet companies are driving growth in cashless payments led by Rakuten in credit cards and PayPay in cashless apps. This is a...

Kirk Boodry

Last Week in Event SPACE: NTT Data, Origin Energy, Toyo Construction, Haidilao, Toshiba

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

NTT Buying NTT Data Shares - ¥40bn to Go

NTT's business swap plan with NTT Data entailed NTT buying JPY 100bn of NTT Data shares. They've bought 60bn. There's more impact to go, then there...

Travis Lundy

2023 High Conviction: NTT (Buy) - Surging DoCoMo Underappreciated as Markets Step Back from Value

NTT shares have fallen 10% from recent highs but improving results for mobile and fintech and a second FY22 buyback program should reassure...

Kirk Boodry

Rakuten (Neutral) - Follow up After Results: Mobile Issues Far from Over

Elevated network costs hamper Rakuten's ability to go out and get new subscribers as it could drive operating losses higher. Meanwhile, the...

Kirk Boodry

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