Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<p style="text-align: justify;"><strong>NTT has confirmed it is considering a bid for the 34% of DoCoMo it does not own in a deal that could be worth ¥3.9 trillion ($37bn).  Press reports cite recent regulatory pressure as a driver but a deal like this is not put together overnight and we think this is secondary to its intention to push more aggressively on 5G and IoT. NTT is paying above the odds, but the strategic rationale makes more sense than investing in ICT/cloud companies outside Japan.  DoCoMo shareholders obviously win here as the expected price is likely to be the highest in 20 years.  Concerns that DoCoMo will have flexibility to price more aggressively will be a drag on KDDI, Softbank and Rakuten although we think those worries are overdone.  Of that group, Softbank (9434) has the strongest support from returns to shareholders with a 7% dividend yield whilst KDDI currently yields 4%. </strong></p>

NTT has confirmed it is considering a bid for the 34% of DoCoMo it does not own in a deal that could be worth ¥3.9 trillion ($37bn).  Press reports cite recent regulatory pressure as a driver but a deal like this is not put together overnight and we think this is secondary to its intention to push more aggressively on 5G and IoT. NTT is paying above the odds, but the strategic rationale makes more sense than investing in ICT/cloud companies outside Japan.  DoCoMo shareholders obviously win here as the expected price is likely to be the highest in 20 years.  Concerns that DoCoMo will have flexibility to price more aggressively will be a drag on KDDI, Softbank and Rakuten although we think those worries are overdone.  Of that group, Softbank (9434) has the strongest support from returns to shareholders with a 7% dividend yield whilst KDDI currently yields 4%. 

NTT (Nippon Telegraph & Telephone) (9432 JP)

Japan Telecom Sector: NTT’s Privatization of DoCoMo Could Be a Long-Term Win

NTT Docomo Inc

Japan Telecom Sector: NTT’s Privatization of DoCoMo Could Be a Long-Term Win