Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a>  posted results for Q4 ahead of Redex / consensus expectations with FY21 guidance that is better than our forecasts but worse than consensus. Importantly, the company is targeting flat operating income YoY despite meaningful mobile price reductions as profit growth from Enterprise sales, Distribution, and Internet offset consumer erosion. The only disappointment in the results may be an unchanged dividend and whilst the company did not close the door on increases later in the year, there was not much enthusiasm either. Still, with results and guidance that are largely better than our expectations, we remain at Buy.

Softbank Corp (9434 JP)  posted results for Q4 ahead of Redex / consensus expectations with FY21 guidance that is better than our forecasts but worse than consensus. Importantly, the company is targeting flat operating income YoY despite meaningful mobile price reductions as profit growth from Enterprise sales, Distribution, and Internet offset consumer erosion. The only disappointment in the results may be an unchanged dividend and whilst the company did not close the door on increases later in the year, there was not much enthusiasm either. Still, with results and guidance that are largely better than our expectations, we remain at Buy. 

Softbank Corp Q4 20 Results/FY21 Guidance – Holding the Line on Mobile Pricing Changes

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE:  Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

Thematic (Sector/Industry)

The past nine months have been a wild ride. The industry has largely avoided the disruption of Covid-19 but NTT’s ¥4 trillion DoCoMo restructuring and regulatory-driven price reductions have shaken things up whilst competition from Rakuten is likely to heat up as it raises cash and accelerates investment. Mobile revenues will be down but that can be made up in other areas and whilst profitability in FY21 is flat at best and likely down modestly, shareholder returns are stable to growing.  NTT and KDDI are top picks with Softbank offering modest upside whilst we are more cautious on Rakuten after a 46% YTD run which largely captures the upside potential a more competitive mobile service offers.

The past nine months have been a wild ride. The industry has largely avoided the disruption of Covid-19 but NTT’s ¥4 trillion DoCoMo restructuring and regulatory-driven price reductions have shaken things up whilst competition from Rakuten is likely to heat up as it raises cash and accelerates investment. Mobile revenues will be down but that can be made up in other areas and whilst profitability in FY21 is flat at best and likely down modestly, shareholder returns are stable to growing.  NTT and KDDI are top picks with Softbank offering modest upside whilst we are more cautious on Rakuten after a 46% YTD run which largely captures the upside potential a more competitive mobile service offers.

Japan Telecom Sector: FY21 Will Be Tougher and More Competitive but Returns Can Still Rise

Travis Lundy

Traditionally, telecom companies in mature markets are "easy."  Infrastructure is basically built, but there is always maintenance and capex to upgrade throughput. Churn is low. Customers occasionally add on new services. They are generally cash machines. Comparing telcos is often reasonably easy. Mostly it comes down to how aggressively the company prices to customers, how it seeks non-standard revenue off its infrastructure and sales base, or how it returns capital to shareholders. <div class="content-highlight">Every now and then, a telecom company gets complicated. <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 now one of those companies.</div>The issue is now significant enough that one should avoid using EBIT or EBITDA (or EBITDA less capex) for Softbank Corp as a comparative tool to <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/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a> without more clarity. There is recently a new kicker involved too, which means one should probably consider Softbank Corp differently than the other two for OTHER reasons too.

Traditionally, telecom companies in mature markets are "easy."  Infrastructure is basically built, but there is always maintenance and capex to upgrade throughput. Churn is low. Customers occasionally add on new services. They are generally cash machines. Comparing telcos is often reasonably easy. Mostly it comes down to how aggressively the company prices to customers, how it seeks non-standard revenue off its infrastructure and sales base, or how it returns capital to shareholders. Every now and then, a telecom company gets complicated. Softbank Corp (9434 JP) is now one of those companies.The issue is now significant enough that one should avoid using EBIT or EBITDA (or EBITDA less capex) for Softbank Corp as a comparative tool to NTT (Nippon Telegraph &amp; Telephone) (9432 JP) and KDDI Corp (9433 JP) without more clarity. There is recently a new kicker involved too, which means one should probably consider Softbank Corp differently than the other two for OTHER reasons too. 

Softbank Corp - Accounting for The Accounting Is Complicated

Sky Perfect JSAT operates Japan’s only direct-to-home (DTH) video service and is Asia’s largest satellite operator. As a well-known consumer-facing service, the former is better known and has often driven sentiment but the key to unlock value may be in the latter as the space industry expands. An increase in space industry investment brings new opportunities but also heightened competition from low-earth satellite fleets albeit at less intensity than its global peers. On balance, we think the changes are positive and we initiate coverage at Buy with a ¥640 FY21-end target price.

Sky Perfect JSAT operates Japan’s only direct-to-home (DTH) video service and is Asia’s largest satellite operator. As a well-known consumer-facing service, the former is better known and has often driven sentiment but the key to unlock value may be in the latter as the space industry expands. An increase in space industry investment brings new opportunities but also heightened competition from low-earth satellite fleets albeit at less intensity than its global peers. On balance, we think the changes are positive and we initiate coverage at Buy with a ¥640 FY21-end target price.

Sky Perfect JSAT - Upside Potential in Space Business (Initiation of Coverage)

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 Q4 20 Results/FY21 Guidance – Holding the Line on Mobile Pricing Changes

Softbank Corp says it will maintain profitability despite regulatory-driven mobile price cuts. The dividend will also be unchanged although...

Kirk Boodry

Last Week in Event SPACE: Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

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

Japan Telecom Sector: FY21 Will Be Tougher and More Competitive but Returns Can Still Rise

FY21 will be a tough year for mobile with 5% service revenue erosion but new services provide some offset and returns to shareholders can still...

Kirk Boodry

Softbank Corp - Accounting for The Accounting Is Complicated

Softbank Corporation is more expensive than it appears when one uses traditional telco metrics such as EV/EBITDA or EV/OP multiples. It's all in...

Travis Lundy

Sky Perfect JSAT - Upside Potential in Space Business (Initiation of Coverage)

Sky Perfect JSAT is better known for its direct broadcast satellite (DBS) video business but the space business represents more value and has been...

Kirk Boodry

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