Telco/Internet specialist

Kirk Boodry

Redex Research

Thematic (Sector/Industry)

A new era in the Japanese telecom sector has arrived. If the Abe era was defined by better corporate governance and improved returns to shareholders, with Prime Minister Suga the focus may be shifting to national industrial policy. Reports from the <a href="https://www.nikkei.com/article/DGXMZO66833950Q0A131C2MM8000" target="_blank" rel="noopener">Nikkei</a> that DoCoMo will cut prices for high end plans by c. 50% are disruptive and deliver a political win for the current government just as NTT prepares to argue in front of the Ministry of Internal Affairs and Communications (MIC, the regulator) for deeper integration of its mobile and ICT businesses. Accelerated concerns from competitors in the wake of NTT’s acquisition of DoCoMo minorities makes a lot more sense now as the possibility that the MIC could decide cooperation with NTT to lower mobile prices is as effective as support for MVNOs and Rakuten. Winners include the government, NEC and (possibly) Apple whilst mobile operators get the short end of the stick. In particular, Rakuten looks fragile as its disruptive ¥2,980/month price point has been matched by Japan’s largest mobile operator less than a year after it launched service.

A new era in the Japanese telecom sector has arrived. If the Abe era was defined by better corporate governance and improved returns to shareholders, with Prime Minister Suga the focus may be shifting to national industrial policy. Reports from the Nikkei that DoCoMo will cut prices for high end plans by c. 50% are disruptive and deliver a political win for the current government just as NTT prepares to argue in front of the Ministry of Internal Affairs and Communications (MIC, the regulator) for deeper integration of its mobile and ICT businesses. Accelerated concerns from competitors in the wake of NTT’s acquisition of DoCoMo minorities makes a lot more sense now as the possibility that the MIC could decide cooperation with NTT to lower mobile prices is as effective as support for MVNOs and Rakuten. Winners include the government, NEC and (possibly) Apple whilst mobile operators get the short end of the stick. In particular, Rakuten looks fragile as its disruptive ¥2,980/month price point has been matched by Japan’s largest mobile operator less than a year after it launched service. 

Japan Telecom Sector: DoCoMo Move Is More than a Price Reduction

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/891/original/2020-10-01_13-26-50.png?1601526452" class="editor-image img-responsive" data-smartkarma-image-id="162891"></figure>
<div class="content-caption">Source for all charts &amp; tables unless otherwise stated: Japan Analytics</div>
SHORT TENURE - Since 1979 the average prime ministerial tenure in Japan has been 750 days. Excluding the three longest-serving Prime Ministers of the last forty years - Nakasone, Koizumi and Abe 2 - the average is 494 days. The equity market has favoured long-serving Liberal Democratic Party government (marked in light green above) and disliked periods of coalition or opposition (野党 yatō) government and also tenures of less than eighteen months.
PM SUGA - Prime Minister Suga Yoshihide succeeded former Prime Minister Abe on 16th September the latter having stepped down for health reasons. Suga had served as Chief Cabinet Secretary (内閣官房長官, Naikaku-kanbō-chōkan) for all of Abe's premiership. The continuity offered by Suga's elevation provides Japan with the prospect of an extended period of political stability. From his policy statements made during the brief prime-ministerial election campaign, Suga has bold aims for challenging Japan's economic and social ills. Given his previous role and mastery of the balance between political necessities and bureaucratic realities, the Suga era could be as impactful as those of Nakasone, Koizumi and Abe 2. We view such an outcome as bullish for the Japanese economy and stock market.
<hr>
In the DETAIL below, we shall cover the following topics:-
I: SUGA's BACKGROUND &amp; POLITICAL CAREER
II: POLICY PRIORITIES
Defence &amp; Foreign Policy
Economic Policy
Administrative Reform
The Digital Agency
Telecommunications Services
Birth-rate and Fertility Treatment
Regional Revitalisation &amp; Regional Bank Reform
SME restructuring
Carbon Neutrality &amp; A Nuclear Renaissance
III: SUGA STOCKS RECOMMENDATIONS
<hr>
WHAT'S ORIGINAL? - This Insight reviews the implications of PM Suga's policy platform for specific sectors and stocks in the Japanse equity market and concludes with five long and five short recommendations for large-cap growth and value-orientated portfolios.  
<hr>
<blockquote class="">
"Self-help, mutual help, public help, and "kizuna" (bonds) is our vision for society. With that in mind, we firmly believe, overcoming various issues, such as regional revitalization and the shrinking population, as well as the declining birth-rate and aging society, will create dynamism in Japan. To this end, we will meet the people's expectations by giving birth to a "Cabinet that works for the People," which gives its all to advance regulatory reforms without being constrained by the vested interests of the stakeholders, tearing down bureaucratic sectionalism and the notorious habit of following past precedents.
<h3>Statement of the Prime Minister</h3>
September 16th, 2020
</blockquote>


Source for all charts &amp; tables unless otherwise stated: Japan Analytics
SHORT TENURE - Since 1979 the average prime ministerial tenure in Japan has been 750 days. Excluding the three longest-serving Prime Ministers of the last forty years - Nakasone, Koizumi and Abe 2 - the average is 494 days. The equity market has favoured long-serving Liberal Democratic Party government (marked in light green above) and disliked periods of coalition or opposition (野党 yatō) government and also tenures of less than eighteen months.
PM SUGA - Prime Minister Suga Yoshihide succeeded former Prime Minister Abe on 16th September the latter having stepped down for health reasons. Suga had served as Chief Cabinet Secretary (内閣官房長官, Naikaku-kanbō-chōkan) for all of Abe's premiership. The continuity offered by Suga's elevation provides Japan with the prospect of an extended period of political stability. From his policy statements made during the brief prime-ministerial election campaign, Suga has bold aims for challenging Japan's economic and social ills. Given his previous role and mastery of the balance between political necessities and bureaucratic realities, the Suga era could be as impactful as those of Nakasone, Koizumi and Abe 2. We view such an outcome as bullish for the Japanese economy and stock market.

In the DETAIL below, we shall cover the following topics:-
I: SUGA's BACKGROUND &amp; POLITICAL CAREER
II: POLICY PRIORITIES
Defence &amp; Foreign Policy
Economic Policy
Administrative Reform
The Digital Agency
Telecommunications Services
Birth-rate and Fertility Treatment
Regional Revitalisation &amp; Regional Bank Reform
SME restructuring
Carbon Neutrality &amp; A Nuclear Renaissance
III: SUGA STOCKS RECOMMENDATIONS

WHAT'S ORIGINAL? - This Insight reviews the implications of PM Suga's policy platform for specific sectors and stocks in the Japanse equity market and concludes with five long and five short recommendations for large-cap growth and value-orientated portfolios.  


"Self-help, mutual help, public help, and "kizuna" (bonds) is our vision for society. With that in mind, we firmly believe, overcoming various issues, such as regional revitalization and the shrinking population, as well as the declining birth-rate and aging society, will create dynamism in Japan. To this end, we will meet the people's expectations by giving birth to a "Cabinet that works for the People," which gives its all to advance regulatory reforms without being constrained by the vested interests of the stakeholders, tearing down bureaucratic sectionalism and the notorious habit of following past precedents.
Statement of the Prime Minister
September 16th, 2020


🇯🇵 Japan in the Suga Era - Policy Priorities & 'Suga Stocks'

The Ministry of Internal Affairs and Communications (MIC, the regulator) should announce policy changes by the end of the month that make it easier for users to switch mobile carriers. That probably leads to modestly higher customer churn although service bundles/loyalty plans mute the impact. It is also an implicit recognition that the lower pricing levels found at MVNOs and Rakuten are acceptable and that improving the ability to change carriers is what is important. As a result, greater clarity on regulator intensions and near-term price reductions led by Softbank should be enough to ease recent political/regulatory pressure. A proposal to move to eSIMs is of special benefit to Rakuten which developed its provisioning systems with technologies like that in mind.

The Ministry of Internal Affairs and Communications (MIC, the regulator) should announce policy changes by the end of the month that make it easier for users to switch mobile carriers. That probably leads to modestly higher customer churn although service bundles/loyalty plans mute the impact. It is also an implicit recognition that the lower pricing levels found at MVNOs and Rakuten are acceptable and that improving the ability to change carriers is what is important. As a result, greater clarity on regulator intensions and near-term price reductions led by Softbank should be enough to ease recent political/regulatory pressure. A proposal to move to eSIMs is of special benefit to Rakuten which developed its provisioning systems with technologies like that in mind.  

Japan Telecom Sector: Regulator Policy Changes Address Tactics Not Price

Regulatory concerns in Japan have returned as the new Prime Minister has made mobile pricing a key talking point. And it now appears likely that Softbank will carve out a new 20-30GB data tier at ¥5,000/month to address that. We expect that DoCoMo and KDDI (to a lesser degree) will have to follow. NTT is the most exposed as DoCoMo was late to the game in moving up to offering extra-large data bundles and its Gigaho 30GB plan is priced at ¥7,150/month. On the surface, this move gives the Prime Minister a win and should ease regulatory pressure and whilst mobile revenue erosion will accelerate, tiered pricing should help manage the downside. The main issue heading into reporting season is how much of a return to customers this is and whether the political and regulatory pressure will ease.

Regulatory concerns in Japan have returned as the new Prime Minister has made mobile pricing a key talking point. And it now appears likely that Softbank will carve out a new 20-30GB data tier at ¥5,000/month to address that. We expect that DoCoMo and KDDI (to a lesser degree) will have to follow. NTT is the most exposed as DoCoMo was late to the game in moving up to offering extra-large data bundles and its Gigaho 30GB plan is priced at ¥7,150/month. On the surface, this move gives the Prime Minister a win and should ease regulatory pressure and whilst mobile revenue erosion will accelerate, tiered pricing should help manage the downside. The main issue heading into reporting season is how much of a return to customers this is and whether the political and regulatory pressure will ease. 

Japan Telecom Sector: Softbank Moves First on Pricing

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and incentive data related to the board of directors, management, and employees across major economies in Asia and picked top 10 companies of each country in terms of market capitalization. We chose to exclude major companies listed in exchanges of other economies such as Tencent and Alibaba to limit our sample size.
Then we devised diversity and incentive scores to assign to those companies and compare those scores against a 5-year trend of their return on shareholders’ equity (ROE) ratios and 1-year stock performance from 1-July-19 to 30-June-20 over its corresponding exchange indices.
The report covers diversity vs. incentives in Asia, diversity score vs. 1-year stock performance and ROE trend, incentives vs. 1-year stock performance and ROE trend, diversity + incentives scores vs. 1-year stock performance and ROE trend, companies with top and bottom diversity + incentive scores, countries with top and bottom average diversity + incentive scores, and incentive score vs. staffing cost trend. 
The results show that companies with high diversity scores do perform well. A high diversity score also has a positive impact on the ROE trend, based on our regression analysis at 95% confidence level. We found that employee incentives are not significant as staff diversity but they can still have an influence on company performances at a lower 90% confidence level.
We note that this study is at the preliminary stage and stock performance is a function of many factors, not only the diversity scores that we concluded. Needless to say, our diversity and incentive scores also reflect the level of disclosures by selected companies, not necessarily the actual practice within each company. Our diversity and incentive scores are also not a credit rating or ranking with peers and, hence, do not reflect default probability of selected companies.
We caution that in Asia, many diversity trends in the West may not apply. The fact that many Asian business communities may remain less sensitive to equal opportunities for females, disabled persons, or LGBTQ communities could make returns of Asian companies less correlated to diversity than in the West. Likewise, additional incentives in some countries in Asia may not be necessary as employees’ strong performance (i.e. in Japan) is a norm, according to the prevalent work culture.
Bondcritic is developing a scoring model, which includes environment, social development, and corporate governance; the last of which cover diversity and incentives. This report is the first of the series to uncover shenanigans in the Asian corporate sector.

In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and incentive data related to the board of directors, management, and employees across major economies in Asia and picked top 10 companies of each country in terms of market capitalization. We chose to exclude major companies listed in exchanges of other economies such as Tencent and Alibaba to limit our sample size.
Then we devised diversity and incentive scores to assign to those companies and compare those scores against a 5-year trend of their return on shareholders’ equity (ROE) ratios and 1-year stock performance from 1-July-19 to 30-June-20 over its corresponding exchange indices.
The report covers diversity vs. incentives in Asia, diversity score vs. 1-year stock performance and ROE trend, incentives vs. 1-year stock performance and ROE trend, diversity + incentives scores vs. 1-year stock performance and ROE trend, companies with top and bottom diversity + incentive scores, countries with top and bottom average diversity + incentive scores, and incentive score vs. staffing cost trend. 
The results show that companies with high diversity scores do perform well. A high diversity score also has a positive impact on the ROE trend, based on our regression analysis at 95% confidence level. We found that employee incentives are not significant as staff diversity but they can still have an influence on company performances at a lower 90% confidence level.
We note that this study is at the preliminary stage and stock performance is a function of many factors, not only the diversity scores that we concluded. Needless to say, our diversity and incentive scores also reflect the level of disclosures by selected companies, not necessarily the actual practice within each company. Our diversity and incentive scores are also not a credit rating or ranking with peers and, hence, do not reflect default probability of selected companies.
We caution that in Asia, many diversity trends in the West may not apply. The fact that many Asian business communities may remain less sensitive to equal opportunities for females, disabled persons, or LGBTQ communities could make returns of Asian companies less correlated to diversity than in the West. Likewise, additional incentives in some countries in Asia may not be necessary as employees’ strong performance (i.e. in Japan) is a norm, according to the prevalent work culture.
Bondcritic is developing a scoring model, which includes environment, social development, and corporate governance; the last of which cover diversity and incentives. This report is the first of the series to uncover shenanigans in the Asian corporate sector.

Asian Governance: Diversity & Incentives Through the Cultural Lens

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)

Japan Telecom Sector: DoCoMo Move Is More than a Price Reduction

If the Abe era for telcos was defined by better corporate governance and improved returns to shareholders, with Prime Minister Suga the focus may...

Kirk Boodry

🇯🇵 Japan in the Suga Era - Policy Priorities & 'Suga Stocks'

We believe the Suga era could be as impactful as those of Nakasone, Koizumi and Abe 2. We view such an outcome as bullish for the Japanese economy...

Campbell Gunn

Japan Telecom Sector: Regulator Policy Changes Address Tactics Not Price

The regulatory is expected to announce policy updates that address how users change to cheaper priced options. Churn could rise but service bundles...

Kirk Boodry

Japan Telecom Sector: Softbank Moves First on Pricing

Softbank's response to regulatory pressure should be enough if sector follows suit. NTT is most exposed after announcing a premium bid for DoCoMo

Kirk Boodry

Asian Governance: Diversity & Incentives Through the Cultural Lens

In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and...

Bondcritic

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