Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

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

NTT senior management will not attend the Olympic opening ceremonies and with consumer-linked product demonstrations less relevant with no spectators, NTT’s promotional activity is winding down. On balance, Olympic sponsorship does not impact the valuation or investment case – any PR spend here would have went elsewhere – but we did enjoy following their participation in the torch relay on Twitter and their 2020 Olympic website is worth a look. We have tweaked our forecasts for FY21 based on management Q4 guidance and we remain at Buy with a ¥3,600 FY21-end target price.

NTT senior management will not attend the Olympic opening ceremonies and with consumer-linked product demonstrations less relevant with no spectators, NTT’s promotional activity is winding down. On balance, Olympic sponsorship does not impact the valuation or investment case – any PR spend here would have went elsewhere – but we did enjoy following their participation in the torch relay on Twitter and their 2020 Olympic website is worth a look. We have tweaked our forecasts for FY21 based on management Q4 guidance and we remain at Buy with a ¥3,600 FY21-end target price.   

NTT (Buy) - Olympic Promotions Almost Over; Meanwhile We Have Updated Numbers

JTower will expand its infrastructure footprint with the acquisition of 71 telecom towers from NTT West. With a tenancy ratio of 2.8, it should be able to extract more value from these assets than NTT and this deal (and possibly others to follow) could provide potential revenue capacity equal to 50% of JTower’s FY20 sales. That is important because JTower trades at elevated levels (30x and 85x our FY21 forecasts for revenue and EBITDA respectively) on expectations of a larger addressable market and this deal is a step in that direction. We do not cover JTower but we track the company as part of our Japanese telecom coverage.

JTower will expand its infrastructure footprint with the acquisition of 71 telecom towers from NTT West. With a tenancy ratio of 2.8, it should be able to extract more value from these assets than NTT and this deal (and possibly others to follow) could provide potential revenue capacity equal to 50% of JTower’s FY20 sales. That is important because JTower trades at elevated levels (30x and 85x our FY21 forecasts for revenue and EBITDA respectively) on expectations of a larger addressable market and this deal is a step in that direction. We do not cover JTower but we track the company as part of our Japanese telecom coverage.

JTower Inc - NTT Tower Deal a Key Step in Expanding Its Addressable Market

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)

Japan’s retail and distribution sector has long been seen as fragmented, even to the point of being accused of inefficiency. On the surface, concentration levels do remain low, but scratch that surface and a very different picture emerges.
By format and by category sector, larger companies are taking increasing share and, over the past five years, this trend has accelerated.
Now, given the pressures of Covid, there is ample opportunity for stronger players to gain ground by buying out weaker ones, while some mid-level companies are joining together, hoping to become a fish too big to swallow.
Business tie-ups are also increasing in number, particularly as physical retailers seek to bring in and learn skills necessary to succeed in e-commerce and to build omnichannel models.
The following is a detailed review of how concentration has increased along with a map of who own who in retailing today.
There is a strong possibility that we could see some really big deals, even ones that span format and geographical borders, as many mid-sized retailers recognise that independent survival is getting hard. Acquirers will use the current environment to diversify into new areas, expand volumes and market share, or simply acquire more retail property for long-term development.

Japan’s retail and distribution sector has long been seen as fragmented, even to the point of being accused of inefficiency. On the surface, concentration levels do remain low, but scratch that surface and a very different picture emerges.
By format and by category sector, larger companies are taking increasing share and, over the past five years, this trend has accelerated.
Now, given the pressures of Covid, there is ample opportunity for stronger players to gain ground by buying out weaker ones, while some mid-level companies are joining together, hoping to become a fish too big to swallow.
Business tie-ups are also increasing in number, particularly as physical retailers seek to bring in and learn skills necessary to succeed in e-commerce and to build omnichannel models.
The following is a detailed review of how concentration has increased along with a map of who own who in retailing today.
There is a strong possibility that we could see some really big deals, even ones that span format and geographical borders, as many mid-sized retailers recognise that independent survival is getting hard. Acquirers will use the current environment to diversify into new areas, expand volumes and market share, or simply acquire more retail property for long-term development.

Who Owns Who: Concentration Levels Accelerate in Japan Retail, with More M&A to Come

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

On Friday 11 June, the TSE published its final revisions to the Corporate Governance Code which had been undergoing review by the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code and subsequently comment for the past many months. The new Code went into effect as of 11 June. The first revision to the Guidelines for Investor and Company Engagement were published as well. The new version of Japan's Corporate Governance Code is <a href="https://www.jpx.co.jp/english/news/1020/b5b4pj0000046kxj-att/b5b4pj0000046l07.pdf" target="_blank" rel="noopener">here</a> with the tracked change version <a href="https://www.jpx.co.jp/english/news/1020/b5b4pj0000046kxj-att/b5b4pj0000046l0c.pdf" target="_blank" rel="noopener">here</a>. This is the second revision of the Code (the first revision was in 2018).The revisions to the JFSA Guidelines for Investor and Company Engagement are <a href="https://www.jpx.co.jp/english/news/1020/b5b4pj0000046kxj-att/b5b4pj0000046l3e.pdf" target="_blank" rel="noopener">here</a>. Tracked changes are <a href="https://www.jpx.co.jp/english/news/1020/b5b4pj0000046kxj-att/b5b4pj0000046l50.pdf" target="_blank" rel="noopener">here</a>.The major changes to the Code recommend enhancements to Board independence, diversity, Sustainability and ESG, and also recommend improvements to investor accessibility and voting and a small change to listed parent-listed subsidiary relationships which unfortunately will not do much to counter abuse by companies of listed sub minority shareholders. Below is more discussion of the changes and what they mean.But I remind investors, these changes are almost all box-ticking exercises. They will not improve governance for shareholders except at the margins. Companies which "get" good governance are still rare. And those which don't get it seem to abuse shareholders on a regular basis. And for that, investors still need more cowbell.

On Friday 11 June, the TSE published its final revisions to the Corporate Governance Code which had been undergoing review by the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code and subsequently comment for the past many months. The new Code went into effect as of 11 June. The first revision to the Guidelines for Investor and Company Engagement were published as well. The new version of Japan's Corporate Governance Code is here with the tracked change version here. This is the second revision of the Code (the first revision was in 2018).The revisions to the JFSA Guidelines for Investor and Company Engagement are here. Tracked changes are here.The major changes to the Code recommend enhancements to Board independence, diversity, Sustainability and ESG, and also recommend improvements to investor accessibility and voting and a small change to listed parent-listed subsidiary relationships which unfortunately will not do much to counter abuse by companies of listed sub minority shareholders. Below is more discussion of the changes and what they mean.But I remind investors, these changes are almost all box-ticking exercises. They will not improve governance for shareholders except at the margins. Companies which "get" good governance are still rare. And those which don't get it seem to abuse shareholders on a regular basis. And for that, investors still need more cowbell.

TSE Prime: Japan's Corporate Governance Code Finalized So Boxes Will Be Furiously Ticked

NTT has finished a self-review “Special Investigations Committee” after meetings with Ministry of Industry Affairs and Communications (MIC, the regulator) officials were found to have violated government ethics rules. The key takeaways: over five years, the company found 29 instances where costs were not shared equally and 8 times when dining meetings were held but costs were shared. There were no material breaches of ethics rules (no improper requests, no influence of the regulator’s judgement) but four senior members of management including CEO Sawada Jun were fined and twelve board and executive officers were reprimanded. On that basis, there are no material impacts to the company or its finances and while we believe it gives its competitors like KDDI and Softbank Corp. modestly more leverage with the regulator it is probably not material.  We remain at Buy.

NTT has finished a self-review “Special Investigations Committee” after meetings with Ministry of Industry Affairs and Communications (MIC, the regulator) officials were found to have violated government ethics rules. The key takeaways: over five years, the company found 29 instances where costs were not shared equally and 8 times when dining meetings were held but costs were shared. There were no material breaches of ethics rules (no improper requests, no influence of the regulator’s judgement) but four senior members of management including CEO Sawada Jun were fined and twelve board and executive officers were reprimanded. On that basis, there are no material impacts to the company or its finances and while we believe it gives its competitors like KDDI and Softbank Corp. modestly more leverage with the regulator it is probably not material.  We remain at Buy.

NTT - Ethics Violation Review Ends with Management Fines and Promise to Do Better

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)

NTT (Buy) - Olympic Promotions Almost Over; Meanwhile We Have Updated Numbers

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Kirk Boodry

JTower Inc - NTT Tower Deal a Key Step in Expanding Its Addressable Market

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Kirk Boodry

Who Owns Who: Concentration Levels Accelerate in Japan Retail, with More M&A to Come

Japanese retail is in the process of extensive concentration and market consolidation through M&A, organic expansion and tie-ups. Numerous...

Michael Causton

TSE Prime: Japan's Corporate Governance Code Finalized So Boxes Will Be Furiously Ticked

The TSE on Friday announced the revisions to the Governance Code. This codifies the "governance thresholds" required to join TSE Prime next year....

Travis Lundy

NTT - Ethics Violation Review Ends with Management Fines and Promise to Do Better

NTT's self review on ethics violations with the regulator is over. Some senior managers including the CEO will have their pay docked but this...

Kirk Boodry

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