Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Rakuten provided an update on the mobile business today including the long-awaited introduction of eKYC (know your customer) and further reductions in fees but network coverage remains its largest challenge and this is unlikely to change in the near- to mid-term. The company also announced that 5G services would not be priced at a premium, in-line with campaign pricing from the incumbents and further evidence that the tech cycle upgrade is not going to generate consumer revenue growth.

Rakuten provided an update on the mobile business today including the long-awaited introduction of eKYC (know your customer) and further reductions in fees but network coverage remains its largest challenge and this is unlikely to change in the near- to mid-term. The company also announced that 5G services would not be priced at a premium, in-line with campaign pricing from the incumbents and further evidence that the tech cycle upgrade is not going to generate consumer revenue growth.   

Rakuten - Mobile Update: E-KYC Enables Faster Migration but Network Coverage Challenging

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On 30 October, <a href="https://www.smartkarma.com/entities/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a> announced its Q2 earnings and <a href="https://www.smartkarma.com/profiles/kirk-boodry" target="_blank" data-smartkarma-citation="accounts:1920" rel="noopener">Kirk Boodry</a> ably takes an initial crack at them in <a href="https://www.smartkarma.com/insights/kddi-q2-20-results-embracing-the-industry-s-new-look" target="_blank" data-smartkarma-citation="insights:44747" rel="noopener">KDDI - Q2 20 Results: Embracing the Industry’s New Look</a>.The big news of the day was that KDDI <a href="https://news.kddi.com/kddi/corporate/english/ir-news/2020/10/30/4757.html" target="_blank" rel="noopener">announced</a> a ¥200bn buyback. This is big for a couple of reasons. <ol>
<li>This is the first telco buyback in Japan announced since the administration changed. The pressure exerted by and to be exerted by the new Suga administration to lower costs to consumers (and therefore pressure returns to shareholders) is not seen as being great enough to not buy back shares. </li>
<li>Other than Softbank, which also announced buybacks (having sold significant assets) after covid-19 became a problem, this is a significantly large buyback among Japanese corporations.</li>
<li>This continues KDDI's trend of buying back large amounts of stock for a fifth year in a row.</li>
</ol>The buyback was accompanied by <a href="https://www.kddi.com/extlib/files/english/corporate/ir/library/presentation/2021/pdf/kddi_201030_e_statement_full_xzE6ba.pdf" target="_blank" rel="noopener">slightly-ahead-of-consensus earnings</a> (and no change in full-year guidance) and a planned <a href="https://news.kddi.com/kddi/corporate/english/ir-news/2020/10/30/4756.html" target="_blank" rel="noopener">share placement</a> to <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> of 18.3mm shares for ¥52.2bn to further promote the relationship, create a <a href="https://news.kddi.com/kddi/corporate/english/ir-news/2020/10/30/4755.html" target="_blank" rel="noopener">business alliance</a>, and further R&amp;D into next-gen connected cars and more, shown on p16 of the <a href="https://www.kddi.com/extlib/files/english/corporate/ir/library/presentation/2021/pdf/kddi_201030_e_main_S7bBS2.pdf" target="_blank" rel="noopener">Q2 presentation</a>. Toyota, of course, has been one of KDDI's largest shareholders since KDDI was formed from the three-way merger of KDDI, IDO, and Dai-Ni Denden twenty years ago. <div class="content-highlight">
Below I look at the share buyback dynamics. 
In this case, the buyback is about 8-9% of ADV over the expected buyback period. The impact on volume during the day, however, is different, and buyback programmes change the VWAP curve, sometimes significantly. 
As a result, it is worth understanding the impact against float and investor positioning, and it may be worth altering execution strategy during the buyback period to take advantage of the impact on the VWAP curve.
</div>

On 30 October, KDDI Corp (9433 JP) announced its Q2 earnings and Kirk Boodry ably takes an initial crack at them in KDDI - Q2 20 Results: Embracing the Industry’s New Look.The big news of the day was that KDDI announced a ¥200bn buyback. This is big for a couple of reasons. 
This is the first telco buyback in Japan announced since the administration changed. The pressure exerted by and to be exerted by the new Suga administration to lower costs to consumers (and therefore pressure returns to shareholders) is not seen as being great enough to not buy back shares. 
Other than Softbank, which also announced buybacks (having sold significant assets) after covid-19 became a problem, this is a significantly large buyback among Japanese corporations.
This continues KDDI's trend of buying back large amounts of stock for a fifth year in a row.
The buyback was accompanied by slightly-ahead-of-consensus earnings (and no change in full-year guidance) and a planned share placement to Toyota Motor (7203 JP) of 18.3mm shares for ¥52.2bn to further promote the relationship, create a business alliance, and further R&amp;D into next-gen connected cars and more, shown on p16 of the Q2 presentation. Toyota, of course, has been one of KDDI's largest shareholders since KDDI was formed from the three-way merger of KDDI, IDO, and Dai-Ni Denden twenty years ago. 
Below I look at the share buyback dynamics. 
In this case, the buyback is about 8-9% of ADV over the expected buyback period. The impact on volume during the day, however, is different, and buyback programmes change the VWAP curve, sometimes significantly. 
As a result, it is worth understanding the impact against float and investor positioning, and it may be worth altering execution strategy during the buyback period to take advantage of the impact on the VWAP curve.


This was an interesting (and busy) report. KDDI addressed recent industry trends like new revenue streams (Toyota agreement), regulatory change (a new, eSIM focused MVNO), and new technology (all 5G handset lineup). Meanwhile, confirmation it will buy back shares (c. ¥150bn net) boosts its shareholder return profile vs NTT and signals regulatory pressure is easing. As with DoCoMo, user churn was near record lows highlighting the relatively soft impact from Rakuten’s network launch on the incumbents.

This was an interesting (and busy) report. KDDI addressed recent industry trends like new revenue streams (Toyota agreement), regulatory change (a new, eSIM focused MVNO), and new technology (all 5G handset lineup). Meanwhile, confirmation it will buy back shares (c. ¥150bn net) boosts its shareholder return profile vs NTT and signals regulatory pressure is easing. As with DoCoMo, user churn was near record lows highlighting the relatively soft impact from Rakuten’s network launch on the incumbents.  

KDDI - Q2 20 Results: Embracing the Industry’s New Look

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/891/original/2020-10-01_13-26-50.png?1601526452" class="editor-image img-responsive" data-smartkarma-image-id="162891"></figure>
<div class="content-caption">Source for all charts &amp; tables unless otherwise stated: Japan Analytics</div>
SHORT TENURE - Since 1979 the average prime ministerial tenure in Japan has been 750 days. Excluding the three longest-serving Prime Ministers of the last forty years - Nakasone, Koizumi and Abe 2 - the average is 494 days. The equity market has favoured long-serving Liberal Democratic Party government (marked in light green above) and disliked periods of coalition or opposition (野党 yatō) government and also tenures of less than eighteen months.
PM SUGA - Prime Minister Suga Yoshihide succeeded former Prime Minister Abe on 16th September the latter having stepped down for health reasons. Suga had served as Chief Cabinet Secretary (内閣官房長官, Naikaku-kanbō-chōkan) for all of Abe's premiership. The continuity offered by Suga's elevation provides Japan with the prospect of an extended period of political stability. From his policy statements made during the brief prime-ministerial election campaign, Suga has bold aims for challenging Japan's economic and social ills. Given his previous role and mastery of the balance between political necessities and bureaucratic realities, the Suga era could be as impactful as those of Nakasone, Koizumi and Abe 2. We view such an outcome as bullish for the Japanese economy and stock market.
<hr>
In the DETAIL below, we shall cover the following topics:-
I: SUGA's BACKGROUND &amp; POLITICAL CAREER
II: POLICY PRIORITIES
Defence &amp; Foreign Policy
Economic Policy
Administrative Reform
The Digital Agency
Telecommunications Services
Birth-rate and Fertility Treatment
Regional Revitalisation &amp; Regional Bank Reform
SME restructuring
Carbon Neutrality &amp; A Nuclear Renaissance
III: SUGA STOCKS RECOMMENDATIONS
<hr>
WHAT'S ORIGINAL? - This Insight reviews the implications of PM Suga's policy platform for specific sectors and stocks in the Japanse equity market and concludes with five long and five short recommendations for large-cap growth and value-orientated portfolios.  
<hr>
<blockquote class="">
"Self-help, mutual help, public help, and "kizuna" (bonds) is our vision for society. With that in mind, we firmly believe, overcoming various issues, such as regional revitalization and the shrinking population, as well as the declining birth-rate and aging society, will create dynamism in Japan. To this end, we will meet the people's expectations by giving birth to a "Cabinet that works for the People," which gives its all to advance regulatory reforms without being constrained by the vested interests of the stakeholders, tearing down bureaucratic sectionalism and the notorious habit of following past precedents.
<h3>Statement of the Prime Minister</h3>
September 16th, 2020
</blockquote>


Source for all charts &amp; tables unless otherwise stated: Japan Analytics
SHORT TENURE - Since 1979 the average prime ministerial tenure in Japan has been 750 days. Excluding the three longest-serving Prime Ministers of the last forty years - Nakasone, Koizumi and Abe 2 - the average is 494 days. The equity market has favoured long-serving Liberal Democratic Party government (marked in light green above) and disliked periods of coalition or opposition (野党 yatō) government and also tenures of less than eighteen months.
PM SUGA - Prime Minister Suga Yoshihide succeeded former Prime Minister Abe on 16th September the latter having stepped down for health reasons. Suga had served as Chief Cabinet Secretary (内閣官房長官, Naikaku-kanbō-chōkan) for all of Abe's premiership. The continuity offered by Suga's elevation provides Japan with the prospect of an extended period of political stability. From his policy statements made during the brief prime-ministerial election campaign, Suga has bold aims for challenging Japan's economic and social ills. Given his previous role and mastery of the balance between political necessities and bureaucratic realities, the Suga era could be as impactful as those of Nakasone, Koizumi and Abe 2. We view such an outcome as bullish for the Japanese economy and stock market.

In the DETAIL below, we shall cover the following topics:-
I: SUGA's BACKGROUND &amp; POLITICAL CAREER
II: POLICY PRIORITIES
Defence &amp; Foreign Policy
Economic Policy
Administrative Reform
The Digital Agency
Telecommunications Services
Birth-rate and Fertility Treatment
Regional Revitalisation &amp; Regional Bank Reform
SME restructuring
Carbon Neutrality &amp; A Nuclear Renaissance
III: SUGA STOCKS RECOMMENDATIONS

WHAT'S ORIGINAL? - This Insight reviews the implications of PM Suga's policy platform for specific sectors and stocks in the Japanse equity market and concludes with five long and five short recommendations for large-cap growth and value-orientated portfolios.  


"Self-help, mutual help, public help, and "kizuna" (bonds) is our vision for society. With that in mind, we firmly believe, overcoming various issues, such as regional revitalization and the shrinking population, as well as the declining birth-rate and aging society, will create dynamism in Japan. To this end, we will meet the people's expectations by giving birth to a "Cabinet that works for the People," which gives its all to advance regulatory reforms without being constrained by the vested interests of the stakeholders, tearing down bureaucratic sectionalism and the notorious habit of following past precedents.
Statement of the Prime Minister
September 16th, 2020


🇯🇵 Japan in the Suga Era - Policy Priorities & 'Suga Stocks'

NTT DoCoMo posted results ahead of consensus expectations boosted by steady improvement in mobile service revenue and record profits in its non-telco Smart Life business. The solid quarter provides some relief for parent NTT which is buying in minority shareholders at a premium although concerns on whether DoCoMo will need to aggressively respond to pressure for price reductions will linger.  Continued low churn rates read positively across to fellow incumbents Softbank and KDDI but less so for Rakuten whose impact on the industry has been muted so far.

NTT DoCoMo posted results ahead of consensus expectations boosted by steady improvement in mobile service revenue and record profits in its non-telco Smart Life business. The solid quarter provides some relief for parent NTT which is buying in minority shareholders at a premium although concerns on whether DoCoMo will need to aggressively respond to pressure for price reductions will linger.  Continued low churn rates read positively across to fellow incumbents Softbank and KDDI but less so for Rakuten whose impact on the industry has been muted so far.  

NTT DoCoMo Q2 20 Results: Last Public Report Ends on a Relative High Note

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)

Rakuten - Mobile Update: E-KYC Enables Faster Migration but Network Coverage Challenging

Rakuten provided an update on the mobile business including the launch of eKYC functionality but comments on network coverage clearly show this...

Kirk Boodry

New KDDI (9433 JP) Buyback Dynamics

KDDI has announced earnings, a new strategic tieup with Toyota, and a buyback to continue its now 5-year tradition. It is 8% of ADV for 7 months,...

Travis Lundy

KDDI - Q2 20 Results: Embracing the Industry’s New Look

At Q2 results, KDDI addressed recent industry trends like new revenue streams, regulatory change, and new technology. A share buyback boosts...

Kirk Boodry

🇯🇵 Japan in the Suga Era - Policy Priorities & 'Suga Stocks'

We believe the Suga era could be as impactful as those of Nakasone, Koizumi and Abe 2. We view such an outcome as bullish for the Japanese economy...

Campbell Gunn

NTT DoCoMo Q2 20 Results: Last Public Report Ends on a Relative High Note

DoCoMo results were ahead of expectations in its last report as a public company. That's good for NTT and there is a positive read across to...

Kirk Boodry

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