Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

We met <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo Inc (9437 JP)</a> today for a quick chat. Markets are focused on FY19 guidance and the magnitude of price reductions that DoCoMo plans, neither of which were on the table for discussion. We did get a little bit of color on the Q4 competitive environment (not too intense), the mobile payments effort (strategically important but less need to invest heavily like PayPay) and the impending sale of its 34% stake in Sumitomo Mitsui Card.

We met NTT Docomo Inc (9437 JP) today for a quick chat. Markets are focused on FY19 guidance and the magnitude of price reductions that DoCoMo plans, neither of which were on the table for discussion. We did get a little bit of color on the Q4 competitive environment (not too intense), the mobile payments effort (strategically important but less need to invest heavily like PayPay) and the impending sale of its 34% stake in Sumitomo Mitsui Card.  

DoCoMo Company Visit: Brief Comments on Mobile Competition and Payment Efforts

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

Astonishing as it may seem but 80% of all retail transactions in Japan are made with cash and 88% if you include the cash stored in so-called 'smart wallets' – essentially cash stored in plastic.Just like much of Japan's service sector, payments is a classic example of the sector's capacity to resist change, resist still more and finally, with much knocking of heads in Kasumigaseki, race to modernise in a very short period of time.That Japan will switch to cashless payments in the next three years is not in doubt – not least because of Japan's fear of Chinese payments systems gaining too much share – but with so many competing payments services available and still being launched, the big question is who will win. Given their deep data, consumer loyalty and brand names, it is likely that the current kings of loyalty points will take the biggest share alongside some of the biggest retailers meaning <a href="https://www.smartkarma.com/entities/31" target="_blank" data-smartkarma-citation="entities:31:1">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/27445" target="_blank" data-smartkarma-citation="entities:27445:1">Softbank (9434 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a> and the three convenience store schemes backed by banks.While the use of cash may decline, households still keep an average of ¥830,000 in cash (8% of GDP in total) under the futon and are unlikely to change that particular habit given the frequency of earthquakes and other natural disasters.

Astonishing as it may seem but 80% of all retail transactions in Japan are made with cash and 88% if you include the cash stored in so-called 'smart wallets' – essentially cash stored in plastic.Just like much of Japan's service sector, payments is a classic example of the sector's capacity to resist change, resist still more and finally, with much knocking of heads in Kasumigaseki, race to modernise in a very short period of time.That Japan will switch to cashless payments in the next three years is not in doubt – not least because of Japan's fear of Chinese payments systems gaining too much share – but with so many competing payments services available and still being launched, the big question is who will win. Given their deep data, consumer loyalty and brand names, it is likely that the current kings of loyalty points will take the biggest share alongside some of the biggest retailers meaning Rakuten (4755 JP), Softbank (9434 JP), NTT Docomo (9437 JP) and the three convenience store schemes backed by banks.While the use of cash may decline, households still keep an average of ¥830,000 in cash (8% of GDP in total) under the futon and are unlikely to change that particular habit given the frequency of earthquakes and other natural disasters.

Japan has a vast number of competing loyalty programmes and until five years ago Japanese consumers would often have as many as 10 loyalty point cards in their wallets.In recent years consumers have gradually begun to whittle down their choices and today there are clear indications of which schemes will dominate.Loyalty point schemes have always been key drivers of shopping behaviour but more recently it has become clear that the choice of e-commerce store is often driven by which loyalty point schemes can be used.At the same time, there are increasing signs that the leading loyalty schemes could take the lead in Japan's emerging cashless payment sector.

Japan has a vast number of competing loyalty programmes and until five years ago Japanese consumers would often have as many as 10 loyalty point cards in their wallets.In recent years consumers have gradually begun to whittle down their choices and today there are clear indications of which schemes will dominate.Loyalty point schemes have always been key drivers of shopping behaviour but more recently it has become clear that the choice of e-commerce store is often driven by which loyalty point schemes can be used.At the same time, there are increasing signs that the leading loyalty schemes could take the lead in Japan's emerging cashless payment sector.

Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments

'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. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/081/407/original/2019-03-09_14-25-50.png?1552109168" class="editor-image img-responsive" data-smartkarma-image-id="81407"></figure>
Source: Japan Analytics
</div>
JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous <a href="https://www.smartkarma.com/insights/japan-the-2018-q3-cash-flow-stakes-runners-riders-red-flags" target="_blank" data-smartkarma-citation="insights:26816">Insight</a> with data from all of the most recent quarterly reports. Our market composite cash flow model reformulates disclosed cash flows into four categories which sum to Change in Cash: -
<ul>
<li>Operating Cash Flow</li>
<li>
Investing Cash Flow (which includes Inventory Cash Flow) 
<ul>
<li>Free Cash Flow (Operating Cash Flow less Investing Cash Flow)</li>
</ul>
</li>
<li>Financing Cash Flow</li>
<li>Shareholder Cash Flow  (Equity Cash Flow and Dividend Cash Flow) </li>
</ul>
     =  Change in Cash (including Minorities Cash Flow)
OCF COLLAPSES - In the last three months, Japan's non-financial companies generated only ¥2.1t in Operating Cash Flow (OCF), ¥10.1t less than the previous quarter. ¥2.1t is the lowest quarterly OCF since 2016-Q2, and the quarter-on-quarter decline is the largest since 2009 and represents a substantial 'red flag' for the market.
FCF NEGATIVE - Aggregate spending on fixed assets shrunk by ¥4.5t qoq to ¥4.6t resulting in Free Cash Flow for the quarter of -¥2.5t, the first negative Free Cash Flow quarter since 2012-Q4. <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a> and <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> together generated ¥3.3t in positive Free Cash Flow for the quarter. Excluding these three companies, the aggregate total quarterly FCF was -¥5.8t, equivalent to an annualised Free Cash Flow yield of -4.3% for the universe of listed non-financial companies.
BACK TO BORROWING - To finance ¥4.5t in dividend payments, Japanese non-financial companies borrowed ¥4.8t in new debt, sold investment securities worth ¥1.9t (the most significant reduction since 2016-Q2) and raised 0.28t in new equity net of share buybacks. This increase in financing cash flow was the largest in any quarter since 2009.
SECTORS &amp; STOCKS - In the DETAIL below, we also look at sector cash flow trends and provide brief comments on some of the most significant changes in individual cash flows over the last three months including <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/13475" target="_blank" data-smartkarma-citation="entities:13475:1">Pan Pacific International (7532 JP)</a>,  <a href="https://www.smartkarma.com/entities/1040" target="_blank" data-smartkarma-citation="entities:1040:1">Lawson (2651 JP)</a>, and <a href="https://www.smartkarma.com/entities/6391" target="_blank" data-smartkarma-citation="entities:6391:1">I</a><a href="https://www.smartkarma.com/entities/6391" target="_blank" data-smartkarma-citation="entities:6391:1">DOM (7599 JP)</a>



Source: Japan Analytics

JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous Insight with data from all of the most recent quarterly reports. Our market composite cash flow model reformulates disclosed cash flows into four categories which sum to Change in Cash: -

Operating Cash Flow

Investing Cash Flow (which includes Inventory Cash Flow) 

Free Cash Flow (Operating Cash Flow less Investing Cash Flow)


Financing Cash Flow
Shareholder Cash Flow  (Equity Cash Flow and Dividend Cash Flow) 

     =  Change in Cash (including Minorities Cash Flow)
OCF COLLAPSES - In the last three months, Japan's non-financial companies generated only ¥2.1t in Operating Cash Flow (OCF), ¥10.1t less than the previous quarter. ¥2.1t is the lowest quarterly OCF since 2016-Q2, and the quarter-on-quarter decline is the largest since 2009 and represents a substantial 'red flag' for the market.
FCF NEGATIVE - Aggregate spending on fixed assets shrunk by ¥4.5t qoq to ¥4.6t resulting in Free Cash Flow for the quarter of -¥2.5t, the first negative Free Cash Flow quarter since 2012-Q4. Softbank Group (9984 JP), NTT Docomo (9437 JP) and Fast Retailing (9983 JP) together generated ¥3.3t in positive Free Cash Flow for the quarter. Excluding these three companies, the aggregate total quarterly FCF was -¥5.8t, equivalent to an annualised Free Cash Flow yield of -4.3% for the universe of listed non-financial companies.
BACK TO BORROWING - To finance ¥4.5t in dividend payments, Japanese non-financial companies borrowed ¥4.8t in new debt, sold investment securities worth ¥1.9t (the most significant reduction since 2016-Q2) and raised 0.28t in new equity net of share buybacks. This increase in financing cash flow was the largest in any quarter since 2009.
SECTORS &amp; STOCKS - In the DETAIL below, we also look at sector cash flow trends and provide brief comments on some of the most significant changes in individual cash flows over the last three months including Toyota Motor (7203 JP), Softbank Group (9984 JP), Pan Pacific International (7532 JP),  Lawson (2651 JP), and IDOM (7599 JP)

🇯🇵 Japan • Largest QoQ Decline in Operating Cash Flow in a Decade - Free Cash Flow Turns Negative

We expect the Q4 18 report in mid-May will be pivotal for sentiment on <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI Corp (9433 JP)</a> as the results for its current mid-term plan are announced and new targets for the next three years are set. This plays against a backdrop of moderately higher competitive intensity both in the near-term on cheap handsets and longer-term with <a href="https://www.smartkarma.com/entities/31" target="_blank" data-smartkarma-citation="entities:31:1">Rakuten Inc (4755 JP)</a>  market entry. Shares are down 15% from highs in September 2018 as markets have factored in the new state of affairs but coming out of our meeting with the company today we feel more confident in how they are positioned.

We expect the Q4 18 report in mid-May will be pivotal for sentiment on KDDI Corp (9433 JP) as the results for its current mid-term plan are announced and new targets for the next three years are set. This plays against a backdrop of moderately higher competitive intensity both in the near-term on cheap handsets and longer-term with Rakuten Inc (4755 JP)  market entry. Shares are down 15% from highs in September 2018 as markets have factored in the new state of affairs but coming out of our meeting with the company today we feel more confident in how they are positioned. 

KDDI: Key Takeaways from Company Visit Are Mostly Positive

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

NTT Docomo Inc (9437 JP)

DoCoMo Company Visit: Brief Comments on Mobile Competition and Payment Efforts

We met NTT Docomo Inc (9437 JP) today for a quick chat. Markets are focused on FY19 guidance and the magnitude of price reductions that DoCoMo...

Kirk Boodry

Who Will Win the Cashless Wars in Japan?

Astonishing as it may seem but 80% of all retail transactions in Japan are made with cash and 88% if you include the cash stored in so-called...

Michael Causton

Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments

Japan has a vast number of competing loyalty programmes and until five years ago Japanese consumers would often have as many as 10 loyalty point...

Michael Causton

🇯🇵 Japan • Largest QoQ Decline in Operating Cash Flow in a Decade - Free Cash Flow Turns Negative

JAPAN CORPORATE CASH FLOW UPDATE - This insight updates our previous Insight with data from all of the most recent quarterly reports. Our market...

Campbell Gunn

KDDI: Key Takeaways from Company Visit Are Mostly Positive

We expect the Q4 18 report in mid-May will be pivotal for sentiment on KDDI Corp (9433 JP) as the results for its current mid-term plan are...

Kirk Boodry

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)