Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

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

NTT has had a good couple of weeks. The company followed up its mid-term EPS target upgrade last week with Q2 results ahead of consensus and announced the cancellation of treasury shares that provide indirect confirmation that share buyback volumes of c. ¥200-300bn will continue.  Operationally, the Q2 beat was driven by results for NTT Data that were announced yesterday but the company also posted a fifth straight quarter of fixed-line growth whilst the mobile business posted healthier results than peers. We remain at Buy.

NTT has had a good couple of weeks. The company followed up its mid-term EPS target upgrade last week with Q2 results ahead of consensus and announced the cancellation of treasury shares that provide indirect confirmation that share buyback volumes of c. ¥200-300bn will continue.  Operationally, the Q2 beat was driven by results for NTT Data that were announced yesterday but the company also posted a fifth straight quarter of fixed-line growth whilst the mobile business posted healthier results than peers. We remain at Buy.

NTT (Buy) - Q2 21 Results Reaction: Profit Beat with Good News in Fixed and Mobile

Softbank Corp. results were mixed with revenue in line but operating profit (-7% in Q2) below consensus. Some of that is timing related as it laps a record-high quarter even as H2 comps get easier on tailwinds from ¥50bn in one-time expenses last year. On the telecom side, enterprise revenue growth of 4% including double-digit growth for solutions revenue is encouraging. Management remains confident of meeting full-year targets but as we saw with KDDI last week, mobile price reductions are starting to make their presence felt.

Softbank Corp. results were mixed with revenue in line but operating profit (-7% in Q2) below consensus. Some of that is timing related as it laps a record-high quarter even as H2 comps get easier on tailwinds from ¥50bn in one-time expenses last year. On the telecom side, enterprise revenue growth of 4% including double-digit growth for solutions revenue is encouraging. Management remains confident of meeting full-year targets but as we saw with KDDI last week, mobile price reductions are starting to make their presence felt.

Softbank Corp (Buy) - Q2 21 Results Reaction: Consumer Mobile Weakness Accelerates

Results were for the quarter were mixed with accelerating erosion in consumer mobile outpacing offsetting growth from new services (VAS and corporate sales). The bad news is mobile service revenue declines were modestly steeper than we expected and on a run-rate basis are now higher than management targets for the full year. But business services growth remains healthy and improvements in user retention could provide some support for consumer mobile. KDDI is on track to meet full-year targets although the margin for error has narrowed. We remain at Buy.

Results were for the quarter were mixed with accelerating erosion in consumer mobile outpacing offsetting growth from new services (VAS and corporate sales). The bad news is mobile service revenue declines were modestly steeper than we expected and on a run-rate basis are now higher than management targets for the full year. But business services growth remains healthy and improvements in user retention could provide some support for consumer mobile. KDDI is on track to meet full-year targets although the margin for error has narrowed. We remain at Buy.  

KDDI (Buy) - Q2 21 Results Reaction: Mobile Declines Outpace New Growth Drivers

NTT has unveiled its plan to integrate ICT subsidiaries under wireless unit DoCoMo and boosted FY23 EPS guidance from ¥320 to ¥370. NTT was already running well-ahead of pace to reach the former but the new target is 6% above consensus forecasts as cost reductions/synergies from the DoCoMo acquisition are fully factored in. Other notable targets include a 25% increase in enterprise revenue from ¥1,600bn to ¥2,000bn ($18bn) over five years which seems achievable considering double-digit sector growth reported by competitors.  NTT trades at a discount to peers despite setting growth targets that are more than 2x higher. We remain at Buy.

NTT has unveiled its plan to integrate ICT subsidiaries under wireless unit DoCoMo and boosted FY23 EPS guidance from ¥320 to ¥370. NTT was already running well-ahead of pace to reach the former but the new target is 6% above consensus forecasts as cost reductions/synergies from the DoCoMo acquisition are fully factored in. Other notable targets include a 25% increase in enterprise revenue from ¥1,600bn to ¥2,000bn ($18bn) over five years which seems achievable considering double-digit sector growth reported by competitors.  NTT trades at a discount to peers despite setting growth targets that are more than 2x higher. We remain at Buy. 

NTT (Buy) - Mid-Term EPS Guidance Boost as a Fully Integrated DoCoMo Drives Growth

Thematic (Sector/Industry)

The Nikkei reports the Ministry of Industry Affairs and Communications (MIC, the regulator) will not allow NTT’s local exchange companies to give a wholly owned DoCoMo preferential treatment. This is not surprising and whilst it may modestly impact sentiment in the near-term, the real issue is competition in selling integrated fixed-wireless services to corporate users and that will develop no matter how NTT is regulated.  Meanwhile, a shift in political and regulatory focus away from mobile pricing is good news for everyone and we remain overweight with NTT as our top pick.

The Nikkei reports the Ministry of Industry Affairs and Communications (MIC, the regulator) will not allow NTT’s local exchange companies to give a wholly owned DoCoMo preferential treatment. This is not surprising and whilst it may modestly impact sentiment in the near-term, the real issue is competition in selling integrated fixed-wireless services to corporate users and that will develop no matter how NTT is regulated.  Meanwhile, a shift in political and regulatory focus away from mobile pricing is good news for everyone and we remain overweight with NTT as our top pick.

Japan Telecom Sector - Regulator to Signal Level Playing Field for DoCoMo

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)

NTT (Buy) - Q2 21 Results Reaction: Profit Beat with Good News in Fixed and Mobile

NTT followed up on its mid-term EPS guidance upgrade last week with a solid set of results driven by fixed-line growth and a return to mobile...

Kirk Boodry

Softbank Corp (Buy) - Q2 21 Results Reaction: Consumer Mobile Weakness Accelerates

Q2 results were mixed with revenue in line but operating profit weaker despite Yahoo Japan upside. Internet exposure helps but mobile pricing...

Kirk Boodry

KDDI (Buy) - Q2 21 Results Reaction: Mobile Declines Outpace New Growth Drivers

Q2 results were mixed with accelerating erosion in consumer mobile outpacing growth from VAS and corporate sales. But management appears confident...

Kirk Boodry

NTT (Buy) - Mid-Term EPS Guidance Boost as a Fully Integrated DoCoMo Drives Growth

NTT management says DoCoMo synergies can drive FY23 EPS to ¥370 (Redex ¥355, consensus ¥348) which implies 19% growth over two years for a stock...

Kirk Boodry

Japan Telecom Sector - Regulator to Signal Level Playing Field for DoCoMo

The regulator will block preferential pricing for DoCoMo within NTT. This is not surprising. The real issue is competition for enterprise users...

Kirk Boodry

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