Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<ul>
<li>This was a good print with underlying financial/operational results in line with our expectations whilst sector reads on competition (benign) and sales to corporates (positive) matching KDDI's report</li>
<li>The company raised its operating profit forecast by ¥50bn which seems low based on the announced PayPay revaluation gain but could include cover for asset retirement costs</li>
<li>An implied valuation of almost ¥1,000bn for the PayPay business overall will have bankers keen but that seems high versus our valuation and public comparables</li>
</ul>


This was a good print with underlying financial/operational results in line with our expectations whilst sector reads on competition (benign) and sales to corporates (positive) matching KDDI's report
The company raised its operating profit forecast by ¥50bn which seems low based on the announced PayPay revaluation gain but could include cover for asset retirement costs
An implied valuation of almost ¥1,000bn for the PayPay business overall will have bankers keen but that seems high versus our valuation and public comparables


Softbank Corp (Buy) - Q2 22 Results Reaction: PayPay Boost to Guidance and In-Line Results

<ul>
<li>KDDI posted its best revenue growth since 2019 but an acceleration in power costs and expenses associated with the July network outage kept a lid on margins</li>
<li>On balance, the print is positive and management remains confident on full-year targets</li>
<li>There are sector reads from corporate sales (good), higher power costs (bad), and stable competitive intensity whilst modest erosion in roaming revenue indicates Rakuten's rebound from peak losses is modest</li>
</ul>


KDDI posted its best revenue growth since 2019 but an acceleration in power costs and expenses associated with the July network outage kept a lid on margins
On balance, the print is positive and management remains confident on full-year targets
There are sector reads from corporate sales (good), higher power costs (bad), and stable competitive intensity whilst modest erosion in roaming revenue indicates Rakuten's rebound from peak losses is modest


KDDI (Buy) - Q2 22 Results Reaction: Mixed Quarter as Power Costs Accelerate

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>As a follow-on to <a href="https://www.smartkarma.com/insights/topix-october-2022-rebal-big-names-with-big-flows" target="_blank" data-smartkarma-citation="insights:81835" rel="noopener">TOPIX October 2022 Rebal - BIG Names with BIG Flows</a> which discussed ¥2.1trln a side flows overall, this insight analyses and proposes intra-sector baskets.</li>
<li>In general, the sector-neutral BUYs vs SELLs baskets of all names where Index Shares change by 10% or more have seen BUYs sharply outperform SELLs in the past three weeks.</li>
<li>Look for pre-positioning unwinds so trading BUY vs SELL baskets which have bucked the trend, banks and chemicals - might be worthwhile. Otherwise, pick your spots. Use the flow.</li>
</ul>


As a follow-on to TOPIX October 2022 Rebal - BIG Names with BIG Flows which discussed ¥2.1trln a side flows overall, this insight analyses and proposes intra-sector baskets.
In general, the sector-neutral BUYs vs SELLs baskets of all names where Index Shares change by 10% or more have seen BUYs sharply outperform SELLs in the past three weeks.
Look for pre-positioning unwinds so trading BUY vs SELL baskets which have bucked the trend, banks and chemicals - might be worthwhile. Otherwise, pick your spots. Use the flow.


TOPIX October 2022 Rebal - Buy/Sell Baskets (May the Flow Be Ever In Your Favour)

Thematic (Sector/Industry)

<ul>
<li>The Japan telecom and Internet companies in our coverage universe held ¥1,253bn in public equities as of Q2(Sep) largely built through capital alliances tied to business collaboration</li>
<li>NTT has the largest portfolio at c. ¥958bn (7% of market cap) followed by KDDI. Toyota (¥354bn) and JTower (three strategic telcos) are the largest and most widely held </li>
<li>The P&amp;L impact of valuation changes in Q2 should be muted. We have included tables for all the companies in our coverage</li>
</ul>


The Japan telecom and Internet companies in our coverage universe held ¥1,253bn in public equities as of Q2(Sep) largely built through capital alliances tied to business collaboration
NTT has the largest portfolio at c. ¥958bn (7% of market cap) followed by KDDI. Toyota (¥354bn) and JTower (three strategic telcos) are the largest and most widely held 
The P&amp;L impact of valuation changes in Q2 should be muted. We have included tables for all the companies in our coverage


Japan Telecoms/Internet - A Quick Look at Public Equity Portfolios

<ul>
<li>Japan's telecom regulator has raised the issue of mobile spectrum auctions and is now soliciting public comments</li>
<li>We think this conflicts with national policies to boost ICT exports after years of trade deficits whilst new entrant Rakuten, which MIC supports to promote competition, would suffer</li>
<li>The proposals are for new spectrum only and current licenses and associated annual payments would not be affected. We remain overweight JP telcos, particularly NTT and KDDI</li>
</ul>


Japan's telecom regulator has raised the issue of mobile spectrum auctions and is now soliciting public comments
We think this conflicts with national policies to boost ICT exports after years of trade deficits whilst new entrant Rakuten, which MIC supports to promote competition, would suffer
The proposals are for new spectrum only and current licenses and associated annual payments would not be affected. We remain overweight JP telcos, particularly NTT and KDDI


Japan Telecoms - There Are Hurdles to the Introduction of Mobile Spectrum Auctions

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)

Softbank Corp (Buy) - Q2 22 Results Reaction: PayPay Boost to Guidance and In-Line Results

A guidance upgrade on the back of a robust PayPay valuation will grab most of the attention but we are also pleased with in-line results for the...

Kirk Boodry

KDDI (Buy) - Q2 22 Results Reaction: Mixed Quarter as Power Costs Accelerate

KDDI results were mostly positive as solid revenue growth offsets a jump in power costs. Growth in corporate sales was particularly robust although...

Kirk Boodry

TOPIX October 2022 Rebal - Buy/Sell Baskets (May the Flow Be Ever In Your Favour)

This companion piece to the first October 2022 FFW Rebalance piece shows both large (>¥5bn) and small (¥1-5bn) intra-sector flows. Using the flows...

Travis Lundy

Japan Telecoms/Internet - A Quick Look at Public Equity Portfolios

Public equity portfolios in our coverage represent 3% of total market cap, driven by capital alliances tied to business collaboration. We thought...

Kirk Boodry

Japan Telecoms - There Are Hurdles to the Introduction of Mobile Spectrum Auctions

The regulator has taken up the issue of mobile spectrum auctions again but we think a focus on ICT export and concerns on competition stand in the way

Kirk Boodry

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