Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

KDDI posted results that were ahead of consensus for revenue and modestly off for profitability. The revenue beat was largely driven by a rebound in handset sales after a weak (pandemic) H1 and helped by strong demand for the latest iPhone models. Financial targets for FY20 are within easy reach even as the impact of price reductions will start to be felt in Q4. As one would expect, KDDI is not ready to discuss how new mobile pricing will impact results next year although it did reassure that cost reductions and new services can offset any weakness in mobile revenue. On the aggregate, an uneventful but positive report

KDDI posted results that were ahead of consensus for revenue and modestly off for profitability. The revenue beat was largely driven by a rebound in handset sales after a weak (pandemic) H1 and helped by strong demand for the latest iPhone models. Financial targets for FY20 are within easy reach even as the impact of price reductions will start to be felt in Q4. As one would expect, KDDI is not ready to discuss how new mobile pricing will impact results next year although it did reassure that cost reductions and new services can offset any weakness in mobile revenue. On the aggregate, an uneventful but positive report

KDDI - Q3 20 Results: On-Track to Meet FY20 Targets but Details on FY21 yet to Come

Rakuten has adjusted its pricing structure to flexibly include usage tiers for the first time. This allows it to keep its original pricing of ¥2,980/month for unlimited (on-network) usage but match recent offers from the incumbents with new price points. It is a good response from Rakuten which restores itself as the price leader (when its users are on-network) whilst the flexibility itself becomes a selling point. This will lower average ARPU and service revenue going forward but management says that lower churn and customer acquisition costs should help it keep the timeline to break-even from shifting very much. A “free” tier for &lt;1GB usage is interesting but as the “first 3mn users get free service” campaign shows, price alone is not always enough.

Rakuten has adjusted its pricing structure to flexibly include usage tiers for the first time. This allows it to keep its original pricing of ¥2,980/month for unlimited (on-network) usage but match recent offers from the incumbents with new price points. It is a good response from Rakuten which restores itself as the price leader (when its users are on-network) whilst the flexibility itself becomes a selling point. This will lower average ARPU and service revenue going forward but management says that lower churn and customer acquisition costs should help it keep the timeline to break-even from shifting very much. A “free” tier for &lt;1GB usage is interesting but as the “first 3mn users get free service” campaign shows, price alone is not always enough.    

Rakuten - Pricing Response Has a Few Surprises but Coverage Remains the Issue

Thematic (Sector/Industry)

KDDI will announce industry-low pricing tomorrow with a new plan for 20GB/month data at ¥2,480/month, which is ¥500 cheaper (-17%) than plans announced by NTT DoCoMo and Softbank last month (and who will likely tweak their plans to match). For the industry overall, this clearly means modestly steeper erosion for mobile service revenue in FY21 and beyond but the good news is KDDI’s announcement should draw a line under regulatory-driven pricing pressure. It is worse news for newcomer Rakuten which has gone from a disruptive price leader in April last year to behind the curve nine months later. News this morning that a Rakuten Mobile network employee has been arrested for trade secret theft does not help.

KDDI will announce industry-low pricing tomorrow with a new plan for 20GB/month data at ¥2,480/month, which is ¥500 cheaper (-17%) than plans announced by NTT DoCoMo and Softbank last month (and who will likely tweak their plans to match). For the industry overall, this clearly means modestly steeper erosion for mobile service revenue in FY21 and beyond but the good news is KDDI’s announcement should draw a line under regulatory-driven pricing pressure. It is worse news for newcomer Rakuten which has gone from a disruptive price leader in April last year to behind the curve nine months later. News this morning that a Rakuten Mobile network employee has been arrested for trade secret theft does not help.

Japan Telecom Sector - KDDI Response to DoCoMo Pricing Increases the Pressure on Rakuten

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in <a href="https://www.smartkarma.com/insights/japan-post-insurance-update-three-reasons-to-buy-any-overhang-slightly-higher" target="_blank" data-smartkarma-citation="insights:46862" rel="noopener">Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher</a> on Friday, one of the big names to the buy side is indeed <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>.
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher on Friday, one of the big names to the buy side is indeed Japan Post Insurance (7181 JP).
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

The Delayed TOPIX FFW Rebalance: $32bn To Trade

David Blennerhassett

Last Week in Event SPACE: OFAC's Humdinger, China Mobile, NTT, Car Inc, Pressance, Tianneng Power

Japan

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

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KDDI Corp (9433 JP)

KDDI - Q3 20 Results: On-Track to Meet FY20 Targets but Details on FY21 yet to Come

KDDI posted Q3 20 results that were largely in line with a clear path to meet FY20 guidance. It is too early for hard guidance on mobile price...

Kirk Boodry

Rakuten - Pricing Response Has a Few Surprises but Coverage Remains the Issue

Rakuten has responded to incumbents with new pricing that introduces variable pricing. The magnitude of change was largely expected however and...

Kirk Boodry

Japan Telecom Sector - KDDI Response to DoCoMo Pricing Increases the Pressure on Rakuten

New data pricing from KDDI undercuts NTT/Softbank, which is bad for FY21 sales but eases regulatory worries. It is definitely bad news for Rakuten...

Kirk Boodry

The Delayed TOPIX FFW Rebalance: $32bn To Trade

The Big Annual TOPIX FFW Rebalance of October 2020 was delayed until January. The results were not terribly surprising. Nevertheless, it is a big...

Travis Lundy

Last Week in Event SPACE: OFAC's Humdinger, China Mobile, NTT, Car Inc, Pressance, Tianneng Power

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

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