Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

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

On Friday March 6, <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> announced that during the month of February it had repurchased 14.4mm shares for the sum of ¥44.78bn. That is a fair bit, and represented 16.6% of volume traded during the month and almost exactly 800,000 shares a day. January was ~500,000 shares a day.
That leaves Docomo with less than a month of buying to complete its current ¥300bn buyback, and then it is back to "Customer Return."
As shown in <a href="https://www.smartkarma.com/insights/docomo-buyback-nearly-done-ntt-docomo-cheapest-fundamentally-in-a-looooong-time" target="_blank" data-smartkarma-citation="insights:36486" rel="noopener">Docomo Buyback Nearly Done; NTT/Docomo Cheapest Fundamentally in A Looooong Time</a>, during times when one of the pair is buying back shares, there is clear bias to performance (it is not smooth, but over time it matters). 
Since this buyback started, the 3yr average forward EPS ratio of NTT vs Docomo has moved very little (slightly up) but it is at decade-plus highs today, and the non-Docomo portion of NTT OP is now at a record high and consensus forecast is for it to move higher.
And NTT is coming back to do more buybacks according to its CEO speaking three weeks ago.
The state suggests NTT is cheap. The forward flow suggests the next couple of hundred billion yen of buybacks probably favors NTT, and the if NTT repeats the last on-market buyback, it would be ¥250bn which would be

On Friday March 6, NTT Docomo Inc (9437 JP) announced that during the month of February it had repurchased 14.4mm shares for the sum of ¥44.78bn. That is a fair bit, and represented 16.6% of volume traded during the month and almost exactly 800,000 shares a day. January was ~500,000 shares a day.
That leaves Docomo with less than a month of buying to complete its current ¥300bn buyback, and then it is back to "Customer Return."
As shown in Docomo Buyback Nearly Done; NTT/Docomo Cheapest Fundamentally in A Looooong Time, during times when one of the pair is buying back shares, there is clear bias to performance (it is not smooth, but over time it matters). 
Since this buyback started, the 3yr average forward EPS ratio of NTT vs Docomo has moved very little (slightly up) but it is at decade-plus highs today, and the non-Docomo portion of NTT OP is now at a record high and consensus forecast is for it to move higher.
And NTT is coming back to do more buybacks according to its CEO speaking three weeks ago.
The state suggests NTT is cheap. The forward flow suggests the next couple of hundred billion yen of buybacks probably favors NTT, and the if NTT repeats the last on-market buyback, it would be ¥250bn which would be 

Days Left on Docomo Buyback; Completely the Wrong Price Vs NTT

Telco/Internet specialist

Kirk Boodry

Redex Research

Thematic (Sector/Industry)

<a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> said today that it would launch commercial 5G services on 27 March with two handsets.  Nominally, 5G will cost an additional ¥1,000/month although the fee is being waived for the first two years and we expect that the operators will never collect 5G surcharges. Since 2011, Japanese mobile operators have traded higher speeds or larger bundles for revenue stability and there is no reason to think that changes as 5G proliferates.  For the incumbents, adding 5G to their already high-quality networks should help them compete with Rakuten, which despite an anticipated June 2020 5G launch, is really years away from matching incumbent quality.

Softbank Corp (9434 JP) said today that it would launch commercial 5G services on 27 March with two handsets.  Nominally, 5G will cost an additional ¥1,000/month although the fee is being waived for the first two years and we expect that the operators will never collect 5G surcharges. Since 2011, Japanese mobile operators have traded higher speeds or larger bundles for revenue stability and there is no reason to think that changes as 5G proliferates.  For the incumbents, adding 5G to their already high-quality networks should help them compete with Rakuten, which despite an anticipated June 2020 5G launch, is really years away from matching incumbent quality. 

Softbank Corp: Commercial 5G in Japan Arrives Later This Month

It was worth the wait. Rakuten Mobile announced new pricing plans that are by far the simplest and cheapest (for data users) in Japan: unlimited voice and data for ¥2,980/month... and the first year is free. The catch is that it is only available on network whilst roaming usage, which will be a very wide area to start, is limited to 2GB/month. That makes the plan less useful for the most intensive (and highest ARPU) users but should generate high subscriber numbers as users take advantage of low-upfront costs to check it out without leaving their existing carrier. The end result is a race between Rakuten (network expansion) and the incumbents (moderating price declines) to provide a platform that offers lots of data cheaply.  In the near-term, today's announcement is good news for roaming provider KDDI but less so for DoCoMo and Softbank. Meanwhile, Rakuten may benefit from headlines on subscriber additions going forward but giving away a year of mobile revenue and guidance of break-even for the consolidated business may spook some investors. An unlikely loser in today's announcement could be Apple as a trend away from very expensive high-end devices in Japan gathers steam.

It was worth the wait. Rakuten Mobile announced new pricing plans that are by far the simplest and cheapest (for data users) in Japan: unlimited voice and data for ¥2,980/month... and the first year is free. The catch is that it is only available on network whilst roaming usage, which will be a very wide area to start, is limited to 2GB/month. That makes the plan less useful for the most intensive (and highest ARPU) users but should generate high subscriber numbers as users take advantage of low-upfront costs to check it out without leaving their existing carrier. The end result is a race between Rakuten (network expansion) and the incumbents (moderating price declines) to provide a platform that offers lots of data cheaply.  In the near-term, today's announcement is good news for roaming provider KDDI but less so for DoCoMo and Softbank. Meanwhile, Rakuten may benefit from headlines on subscriber additions going forward but giving away a year of mobile revenue and guidance of break-even for the consolidated business may spook some investors. An unlikely loser in today's announcement could be Apple as a trend away from very expensive high-end devices in Japan gathers steam.

Rakuten: Mobile Pricing Disruptive with a Catch

Rakuten will unveil pricing plans for its facilities-based mobile service on 3 March, with reservations to start on 4 March and the actual service launch sometime in early April.  The current MVNO service offers a starting point on how to evaluate Rakuten's approach whilst incumbent promotional strategies also offer some ideas on what to expect. As we have discussed before, the company's relatively small coverage footprint will constrain discounting as it needs to balance market share expansion with operating losses.  We think Rakuten pricing will focus on simplicity and offer effective discounts of 20-30% over the incumbents today which should be manageable for the incumbents.

Rakuten will unveil pricing plans for its facilities-based mobile service on 3 March, with reservations to start on 4 March and the actual service launch sometime in early April.  The current MVNO service offers a starting point on how to evaluate Rakuten's approach whilst incumbent promotional strategies also offer some ideas on what to expect. As we have discussed before, the company's relatively small coverage footprint will constrain discounting as it needs to balance market share expansion with operating losses.  We think Rakuten pricing will focus on simplicity and offer effective discounts of 20-30% over the incumbents today which should be manageable for the incumbents. 

Japan Mobile: What We Expect when Rakuten Unveils Pricing Next Week

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/963/original/2020-02-15_09-46-55.png?1581796265" class="editor-image img-responsive" data-smartkarma-image-id="117963"></figure><div class="content-caption">Source • Japan Analytics</div>A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/966/original/2020-02-16_05-32-51.png?1581798783" class="editor-image img-responsive" data-smartkarma-image-id="117966"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/967/original/2020-02-16_05-28-20.png?1581798803" class="editor-image img-responsive" data-smartkarma-image-id="117967"></figure><div class="content-caption">Source • Japan Analytics</div>ACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.<div class="content-highlight">In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.</div>

Source • Japan AnalyticsA YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.Source • Japan AnalyticsACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

Japan

NTT DOCOMO, INC. provides various types of telecommunication services including cellular phones, satellite mobile communication, and wireless LAN Network. The Company also sells cellular phones, and other equipment.

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NTT Docomo Inc (9437 JP)

Days Left on Docomo Buyback; Completely the Wrong Price Vs NTT

On Friday March 6, NTT Docomo Inc (9437 JP) announced that during the month of February it had repurchased 14.4mm shares for the sum of ¥44.78bn....

Travis Lundy

Softbank Corp: Commercial 5G in Japan Arrives Later This Month

Softbank Corp (9434 JP) said today that it would launch commercial 5G services on 27 March with two handsets. Nominally, 5G will cost an...

Kirk Boodry

Rakuten: Mobile Pricing Disruptive with a Catch

It was worth the wait. Rakuten Mobile announced new pricing plans that are by far the simplest and cheapest (for data users) in Japan: unlimited...

Kirk Boodry

Japan Mobile: What We Expect when Rakuten Unveils Pricing Next Week

Rakuten will unveil pricing plans for its facilities-based mobile service on 3 March, with reservations to start on 4 March and the actual service...

Kirk Boodry

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined...

Campbell Gunn

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