Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Traditionally, telecom companies in mature markets are "easy."  Infrastructure is basically built, but there is always maintenance and capex to upgrade throughput. Churn is low. Customers occasionally add on new services. They are generally cash machines. Comparing telcos is often reasonably easy. Mostly it comes down to how aggressively the company prices to customers, how it seeks non-standard revenue off its infrastructure and sales base, or how it returns capital to shareholders. <div class="content-highlight">Every now and then, a telecom company gets complicated. <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> is now one of those companies.</div>The issue is now significant enough that one should avoid using EBIT or EBITDA (or EBITDA less capex) for Softbank Corp as a comparative tool to <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> and <a href="https://www.smartkarma.com/entities/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a> without more clarity. There is recently a new kicker involved too, which means one should probably consider Softbank Corp differently than the other two for OTHER reasons too.

Traditionally, telecom companies in mature markets are "easy."  Infrastructure is basically built, but there is always maintenance and capex to upgrade throughput. Churn is low. Customers occasionally add on new services. They are generally cash machines. Comparing telcos is often reasonably easy. Mostly it comes down to how aggressively the company prices to customers, how it seeks non-standard revenue off its infrastructure and sales base, or how it returns capital to shareholders. Every now and then, a telecom company gets complicated. Softbank Corp (9434 JP) is now one of those companies.The issue is now significant enough that one should avoid using EBIT or EBITDA (or EBITDA less capex) for Softbank Corp as a comparative tool to NTT (Nippon Telegraph &amp; Telephone) (9432 JP) and KDDI Corp (9433 JP) without more clarity. There is recently a new kicker involved too, which means one should probably consider Softbank Corp differently than the other two for OTHER reasons too. 

Softbank Corp - Accounting for The Accounting Is Complicated

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. 

<a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>' merger with <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a> will create a business with 300 million domestic users and 15 million corporate accounts with vast potential to synergise data across browsing, media, chat, shopping, banking and mobile.The combined business has huge reach: in news alone, the usage rate of the Yahoo and LINE news services reaches 60% to 75% of those who use news distribution services in Japan.The first step is a new gift and group shopping experience for LINE users but Z Holdings has Rakuten in its sights, with plans to go after Rakuten's strengths, particularly loyalty points and e-commerce.

Z Holdings (4689 JP)' merger with LINE Corp (3938 JP) will create a business with 300 million domestic users and 15 million corporate accounts with vast potential to synergise data across browsing, media, chat, shopping, banking and mobile.The combined business has huge reach: in news alone, the usage rate of the Yahoo and LINE news services reaches 60% to 75% of those who use news distribution services in Japan.The first step is a new gift and group shopping experience for LINE users but Z Holdings has Rakuten in its sights, with plans to go after Rakuten's strengths, particularly loyalty points and e-commerce.

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

NTT (Nippon Telegraph & Telephone) (9432 JP)

It is mid-late April. That means it is time for my annual NTT Earnings Could Surprise To The Upside Because the Street Is Too Slack insight.Just over 6 months ago, <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 a deal to take <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a> private, spending nearly US$40bn to buy out minorities. I thought they paid too much for it, but given the purchase was entirely funded by debt, and they bought the remainder of NTT DoCoMo at a 5% earnings yield and a 6+% cashflow yield, and borrowed money at less than 1%, this is a pretty "easy" thing to accept as a shareholder but for whatever reason, NTT shares dipped after the purchase. Perhaps some thought there would be an equity offering but investors had to know that was nigh impossible as the NTT Law requires the government to hold one third of the shares and there is no way that the government was going to pony up to buy more NTT shares.But investors and Street analysts seemed to have ignored the major effect of the purchase. And we discussed that at the time. That meant an additional ¥200bn in annual net income to NTT shareholders. Six months later, the Street has almost caught up. Now what?

It is mid-late April. That means it is time for my annual NTT Earnings Could Surprise To The Upside Because the Street Is Too Slack insight.Just over 6 months ago, NTT (Nippon Telegraph &amp; Telephone) (9432 JP) announced a deal to take NTT Docomo Inc (9437 JP) private, spending nearly US$40bn to buy out minorities. I thought they paid too much for it, but given the purchase was entirely funded by debt, and they bought the remainder of NTT DoCoMo at a 5% earnings yield and a 6+% cashflow yield, and borrowed money at less than 1%, this is a pretty "easy" thing to accept as a shareholder but for whatever reason, NTT shares dipped after the purchase. Perhaps some thought there would be an equity offering but investors had to know that was nigh impossible as the NTT Law requires the government to hold one third of the shares and there is no way that the government was going to pony up to buy more NTT shares.But investors and Street analysts seemed to have ignored the major effect of the purchase. And we discussed that at the time. That meant an additional ¥200bn in annual net income to NTT shareholders. Six months later, the Street has almost caught up. Now what?

NTT 2022 Consensus Has *almost* Caught Up To Pro-Forma - But It's Still Probably Low

The war between <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a>/<a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a> and Rakuten for leadership in digital ecosystems has seen Z Holdings acquire new partners and subsidiaries, and take leadership in cashless payments and then messaging through its merger with <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a>.Now <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a> is fighting back with a truly game changing deal with <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post Holdings (6178 JP)</a> that could provide the reach and finance to develop new synergies in e-commerce, logistics, cashless payments and points, banking, insurance and mobile.This is a major reset in the rivalry in digital commerce, making Rakuten almost like a state-backed enterprise – with all the benefits that implies. Z Holdings should be worried.

The war between Softbank Corp (9434 JP)/Z Holdings (4689 JP) and Rakuten for leadership in digital ecosystems has seen Z Holdings acquire new partners and subsidiaries, and take leadership in cashless payments and then messaging through its merger with LINE Corp (3938 JP).Now Rakuten Inc (4755 JP) is fighting back with a truly game changing deal with Japan Post Holdings (6178 JP) that could provide the reach and finance to develop new synergies in e-commerce, logistics, cashless payments and points, banking, insurance and mobile.This is a major reset in the rivalry in digital commerce, making Rakuten almost like a state-backed enterprise – with all the benefits that implies. Z Holdings should be worried.

Gamechanger: Rakuten’s Win-Win Alliance with Japan Post

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<div>
<a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">Freee (4478 JP)</a> (freee) is looking to raise around US$400m via selling a mix of primary and secondary shares. 
We had looked at the company at the time of listing, links to our previous notes are below: 
</div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/freee-pre-ipo-has-been-growing-fast-but-missing-data-points-leave-quite-a-few-niggling-doubts" target="_blank" rel="noopener">freee K.K. pre-IPO - Has been growing fast but missing data points leave quite a few niggling doubts,</a></li>
<li><a href="https://www.smartkarma.com/insights/freee-k-k-pre-ipo-the-battle-is-far-from-over" target="_blank" rel="noopener">Freee K. K. Pre-IPO - The Battle Is Far from Over,</a></li>
<li>
<a href="https://www.smartkarma.com/insights/free-k-k-ipo-it-s-not-exactly-freee-but-looks-ok-at-the-lower-end" target="_blank" rel="noopener">Freee K.K. IPO - It’s Not Exactly Free but Looks Ok at the Lower-End</a>, and</li>
<li><a href="https://www.smartkarma.com/insights/freee-ipo-trading-priced-at-par-to-comp-it-now-boils-down-to-how-much-premium-it-can-trade-at" target="_blank" rel="noopener">Freee IPO Trading - Priced at Par to Comp, It Now Boils Down to How Much Premium It Can Trade At</a></li>
</ul></div><div>In this note, we'll run the deal through our ECM framework and talk about deal dynamics.</div>


Freee (4478 JP) (freee) is looking to raise around US$400m via selling a mix of primary and secondary shares. 
We had looked at the company at the time of listing, links to our previous notes are below: 

freee K.K. pre-IPO - Has been growing fast but missing data points leave quite a few niggling doubts,
Freee K. K. Pre-IPO - The Battle Is Far from Over,

Freee K.K. IPO - It’s Not Exactly Free but Looks Ok at the Lower-End, and
Freee IPO Trading - Priced at Par to Comp, It Now Boils Down to How Much Premium It Can Trade At
In this note, we'll run the deal through our ECM framework and talk about deal dynamics.

Freee Placement - Needs to Correct by a Whole Lot More

Japan

A Holdings Corporation develops and operates the LINE application for smartphones. The Company offers games distribution, music distribution, advertisements, and other services. A Holdings serves clients across worldwide.

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A Holdings (3938 JP)

Softbank Corp - Accounting for The Accounting Is Complicated

Softbank Corporation is more expensive than it appears when one uses traditional telco metrics such as EV/EBITDA or EV/OP multiples. It's all in...

Travis Lundy

Z Holdings Begins LINE Leverage

Z Holding's is beginning to lay out its plans for exploiting LINE's potential. ZHD/LINE has massive reach which will help it tackle previous weak...

Michael Causton

NTT 2022 Consensus Has almost Caught Up To Pro-Forma - But It's Still Probably Low

NTT Street Consensus for FY21-23 should have had a jump shift at the end of September last year. It did not. It slowly drifted higher. I expect a...

Travis Lundy

Gamechanger: Rakuten’s Win-Win Alliance with Japan Post

Japan Post's investment in Rakuten is a genuinely seismic shift in the balance of power in digital ecosystems in Japan, bolstering Rakuten where it...

Michael Causton

Freee Placement - Needs to Correct by a Whole Lot More

Freee (4478 JP) (freee) is looking to raise around US$400m via selling a mix of primary and secondary shares. In this note, we'll run the deal...

Sumeet Singh

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