Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

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

<ul>
<li>We have tweaked our numbers after Q2 results and catching up with the company.  In particular, we come away with more confidence in wireless / fintech growth</li>
<li>NTT looks cheap at 11x FY22e EPS v 12x for KDDI even as relative growth is expected to be better with ~9% EPS growth</li>
<li>Shares have outperformed TOPIX (+18% YTD v -3%) and this should continue in 2023 as solid financial performance and an attractive shareholder returns story provide support</li>
</ul>


We have tweaked our numbers after Q2 results and catching up with the company.  In particular, we come away with more confidence in wireless / fintech growth
NTT looks cheap at 11x FY22e EPS v 12x for KDDI even as relative growth is expected to be better with ~9% EPS growth
Shares have outperformed TOPIX (+18% YTD v -3%) and this should continue in 2023 as solid financial performance and an attractive shareholder returns story provide support


2023 High Conviction: NTT (Buy) - Surging DoCoMo Underappreciated as Markets Step Back from Value

<ul>
<li>Rakuten's successful junk bond sale means the Rakuten Bank IPO will happen next year and not in December as some had feared</li>
<li>More detail on mobile shows that network costs including D&amp;A are 4x that of service revenue and slightly higher QoQ. Roaming alone is higher than service revenue </li>
<li>And that means Rakuten can't aggressively go after new subscribers unless it wants operating losses to accelerate. Bad for Rakuten but good news for incumbents KDDI, NTT and Softbank. </li>
</ul>


Rakuten's successful junk bond sale means the Rakuten Bank IPO will happen next year and not in December as some had feared
More detail on mobile shows that network costs including D&amp;A are 4x that of service revenue and slightly higher QoQ. Roaming alone is higher than service revenue 
And that means Rakuten can't aggressively go after new subscribers unless it wants operating losses to accelerate. Bad for Rakuten but good news for incumbents KDDI, NTT and Softbank. 


Rakuten (Neutral) - Follow up After Results: Mobile Issues Far from Over

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>
<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> announced Q2 results today during market hours. The stock had been trading up 1.1% on the day, but fell 1% in 5 minutes.</li>
<li>It then spent the rest of the day grinding higher to end just higher than just before results. </li>
<li>NTT announced another buyback - this one on-market. It is only a little bit of a surprise.</li>
</ul>



NTT (Nippon Telegraph &amp; Telephone) (9432 JP) announced Q2 results today during market hours. The stock had been trading up 1.1% on the day, but fell 1% in 5 minutes.
It then spent the rest of the day grinding higher to end just higher than just before results. 
NTT announced another buyback - this one on-market. It is only a little bit of a surprise.


Internet Initiative Japan / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/internet-initiative-japan" target="_blank" data-smartkarma-citation="entities:10444:1" rel="noopener">Internet Initiative Japan (3774 JP)</a> posted solid Q2 results with the best quarterly revenue growth since 2016 and a 12th consecutive quarter of margin expansion</li>
<li>Results were driven by growth tailwinds for corporate digitization which was also visible in KDDI/Softbank results as well as a recovery in mobile which was not</li>
<li>The company did not raise its full-year financial guidance despite an H1 beat but forecasts looks increasingly conservative</li>
</ul>



Internet Initiative Japan (3774 JP) posted solid Q2 results with the best quarterly revenue growth since 2016 and a 12th consecutive quarter of margin expansion
Results were driven by growth tailwinds for corporate digitization which was also visible in KDDI/Softbank results as well as a recovery in mobile which was not
The company did not raise its full-year financial guidance despite an H1 beat but forecasts looks increasingly conservative


Internet Initiative Japan (Buy) - Q2 22 Results Reaction: Mobile Recovery Boosts Corporate DX Growth

<ul>
<li>This was a good print with underlying financial/operational results in line with our expectations whilst sector reads on competition (benign) and sales to corporates (positive) matching KDDI's report</li>
<li>The company raised its operating profit forecast by ¥50bn which seems low based on the announced PayPay revaluation gain but could include cover for asset retirement costs</li>
<li>An implied valuation of almost ¥1,000bn for the PayPay business overall will have bankers keen but that seems high versus our valuation and public comparables</li>
</ul>


This was a good print with underlying financial/operational results in line with our expectations whilst sector reads on competition (benign) and sales to corporates (positive) matching KDDI's report
The company raised its operating profit forecast by ¥50bn which seems low based on the announced PayPay revaluation gain but could include cover for asset retirement costs
An implied valuation of almost ¥1,000bn for the PayPay business overall will have bankers keen but that seems high versus our valuation and public comparables


Softbank Corp (Buy) - Q2 22 Results Reaction: PayPay Boost to Guidance and In-Line Results

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)

2023 High Conviction: NTT (Buy) - Surging DoCoMo Underappreciated as Markets Step Back from Value

NTT shares have fallen 10% from recent highs but improving results for mobile and fintech and a second FY22 buyback program should reassure...

Kirk Boodry

Rakuten (Neutral) - Follow up After Results: Mobile Issues Far from Over

Elevated network costs hamper Rakuten's ability to go out and get new subscribers as it could drive operating losses higher. Meanwhile, the...

Kirk Boodry

NTT Q2 Results and a New Buyback

NTT reports Q2 results, mostly OK, a little softer than some expected. But they also announce a decent add-on buyback for the last 4+ months of the...

Travis Lundy

Internet Initiative Japan (Buy) - Q2 22 Results Reaction: Mobile Recovery Boosts Corporate DX Growth

IIJ continues to financially outperform with the best revenue growth since 2016 and a twelfth consecutive quarter of YoY margin expansion. A...

Kirk Boodry

Softbank Corp (Buy) - Q2 22 Results Reaction: PayPay Boost to Guidance and In-Line Results

A guidance upgrade on the back of a robust PayPay valuation will grab most of the attention but we are also pleased with in-line results for the...

Kirk Boodry

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