Telco/Internet specialist

Kirk Boodry

Redex Research

Thematic (Sector/Industry)

<ul>
<li>The Japan telecom and Internet companies in our coverage universe held ¥1,253bn in public equities as of Q2(Sep) largely built through capital alliances tied to business collaboration</li>
<li>NTT has the largest portfolio at c. ¥958bn (7% of market cap) followed by KDDI. Toyota (¥354bn) and JTower (three strategic telcos) are the largest and most widely held </li>
<li>The P&amp;L impact of valuation changes in Q2 should be muted. We have included tables for all the companies in our coverage</li>
</ul>


The Japan telecom and Internet companies in our coverage universe held ¥1,253bn in public equities as of Q2(Sep) largely built through capital alliances tied to business collaboration
NTT has the largest portfolio at c. ¥958bn (7% of market cap) followed by KDDI. Toyota (¥354bn) and JTower (three strategic telcos) are the largest and most widely held 
The P&amp;L impact of valuation changes in Q2 should be muted. We have included tables for all the companies in our coverage


Japan Telecoms/Internet - A Quick Look at Public Equity Portfolios

Equity Bottom-Up

<ul>
<li>Q4 and FY21 results released Thursday were largely in-line with forecasts although guidance for FY22 missed consensus as upfront costs for entering the tower business ramp up</li>
<li>For FY22, JTower will compete the transfer of 2,000 DoCoMo towers (c. one-third) and 90% of NTT East/West towers with the handover starting in Q3 </li>
<li>By FY26, JTower expects annual revenue of ¥30bn (+51% CAGR from ¥6bn in FY22) and EBITDA margins of 60% (¥18bn in EBITDA v ¥ 1.6bn)</li>
</ul>


Q4 and FY21 results released Thursday were largely in-line with forecasts although guidance for FY22 missed consensus as upfront costs for entering the tower business ramp up
For FY22, JTower will compete the transfer of 2,000 DoCoMo towers (c. one-third) and 90% of NTT East/West towers with the handover starting in Q3 
By FY26, JTower expects annual revenue of ¥30bn (+51% CAGR from ¥6bn in FY22) and EBITDA margins of 60% (¥18bn in EBITDA v ¥ 1.6bn)


JTower Q4 21 Results Reaction: Impact of Tower Deals Encouraging

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

<ul>
<li>The TSE launched its new cash equity market structure earlier this week. The TOPIX Index changes include a one-off FFW Methodology Review, where results were announced today. </li>
<li>The changes announced today go part-way to fixing float issues, but there will be follow-on changes in October, and one should expect companies to react with share cancellations.</li>
<li>The big gainer in this TOPIX rebal is <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>. There are a fair number of "losers." The 3-month total trade is about ¥2.3trln one-way.</li>
</ul>


The TSE launched its new cash equity market structure earlier this week. The TOPIX Index changes include a one-off FFW Methodology Review, where results were announced today. 
The changes announced today go part-way to fixing float issues, but there will be follow-on changes in October, and one should expect companies to react with share cancellations.
The big gainer in this TOPIX rebal is NTT (Nippon Telegraph &amp; Telephone) (9432 JP). There are a fair number of "losers." The 3-month total trade is about ¥2.3trln one-way.


The BIGLY TOPIX April 2022 Rebalance - $20bn One-Way Split Over 3 Months

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

<ul>
<li>
<a href="https://www.smartkarma.com/entities/jtower-inc" target="_blank" data-smartkarma-citation="entities:31042:1" rel="noopener">JTower (4485 JP)</a> has signed a deal to buy 6,002 DoCoMo towers for ¥106bn validating its long term growth potential and its central position as Japan's infrastructure-sharing company</li>
<li>The headline numbers are maximums and could take years to realize as JTower grows to the scale required</li>
<li>Conversely it is not a large deal for DoCoMo but the first mobile tower sale/leaseback transaction in Japan highlights an industry shift towards more efficient capital deployment</li>
</ul>



JTower (4485 JP) has signed a deal to buy 6,002 DoCoMo towers for ¥106bn validating its long term growth potential and its central position as Japan's infrastructure-sharing company
The headline numbers are maximums and could take years to realize as JTower grows to the scale required
Conversely it is not a large deal for DoCoMo but the first mobile tower sale/leaseback transaction in Japan highlights an industry shift towards more efficient capital deployment


JTower Inc - DoCoMo Tower Agreement Is a Milestone

<p>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.</p>

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

Japan

JTOWER Inc. provides wireless telecom services. The Company offers mobile telecommunication network designing, in building mobile infrastructure sharing, information platform designing, and other services. JTOWER provides its services throughout Japan.

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JTower (4485 JP)

Japan Telecoms/Internet - A Quick Look at Public Equity Portfolios

Public equity portfolios in our coverage represent 3% of total market cap, driven by capital alliances tied to business collaboration. We thought...

Kirk Boodry

JTower Q4 21 Results Reaction: Impact of Tower Deals Encouraging

At its Q4 results last week, JTower defined the magnitude of potential growth expected from tower carve-out deals announced with NTT last year. By...

Kirk Boodry

The BIGLY TOPIX April 2022 Rebalance - $20bn One-Way Split Over 3 Months

The BIG TOPIX April 2022 Rebalance. Concurrent with the move to new structure, the TSE changed the FFW methodology to exclude cross-holdings. The...

Travis Lundy

JTower Inc - DoCoMo Tower Agreement Is a Milestone

Japan is a latecomer to infrastructure sharing but DoCoMo's tower sale to JTower changes that. Considering the latter's scale, this could take a...

Kirk Boodry

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

The purchase of NTT towers provides revenue capacity equal to 50% of FY20 sales and confirms expansion plans highlighted at Q4. That is key for a...

Kirk Boodry

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