Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Rakuten Q2 21 results were mixed with better revenue as core businesses did well but steeper losses as mobile spending grew. The company has not changed broad guidance that peak losses will come in FY21 but roaming costs appear to be a larger issue than we thought with an impact on both margins and the timing of new user acquisition. That makes slippage in network deployment targets slightly more problematic although there should also be some offset from good results in eCommerce which grew YoY despite lapping the very strong lockdown quarter.

Rakuten Q2 21 results were mixed with better revenue as core businesses did well but steeper losses as mobile spending grew. The company has not changed broad guidance that peak losses will come in FY21 but roaming costs appear to be a larger issue than we thought with an impact on both margins and the timing of new user acquisition. That makes slippage in network deployment targets slightly more problematic although there should also be some offset from good results in eCommerce which grew YoY despite lapping the very strong lockdown quarter.

Rakuten (Neutral) - Q2 21 Results Reaction: Roaming Costs Have Become a Big Deal

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

NTT (Nippon Telegraph & Telephone) / Event-Driven

NTT (Nippon Telegraph & Telephone) (9432 JP)

With its Q1 earnings release on Friday 6 August, NTT also announced a buyback. This is the seventh large buyback in five years. The buyback programs for on-market buyback announced from 2016-2019 were ¥150bn in size, uniformly. Since then, the two on-market buybacks have been ¥250bn. One might have expected this one to be ¥150-200bn but at ¥250bn it is likely at the high end of expectations for three reasons.<ol>
<li>In order to buy back ¥300bn next time from the government, it needs to buy back ¥250bn from the market this time. </li>
<li>This larger buyback represents continued effort at offsetting the dilution from the ¥200bn share sale to Toyota in March 2020, and </li>
<li>This larger buyback represents NTT using the additional earnings power of NTT Docomo. NTT used to buy back shares from the market and from NTT, then NTT would take that cash and capital and buy back its own shares. Now NTT Docomo doesn't have to spend any money on buybacks from minority shareholders. All of its cash can go to the parent NTT. NTT therefore has more to spend on buybacks. Given several of the recent NTT Docomo buybacks were on the order of ¥300bn, the one-third of that amount which did not accrue to NTT now does. So now it accrues to NTT shareholders. </li>
</ol>I expect a buyback size of ¥250-300bn to be the new standard.Of course, this lets us take a look at NTT vs its competitors KDDI and Softbank Corp yet again, and compare the impact on the market of the various buyback programs in place.More below the fold.

With its Q1 earnings release on Friday 6 August, NTT also announced a buyback. This is the seventh large buyback in five years. The buyback programs for on-market buyback announced from 2016-2019 were ¥150bn in size, uniformly. Since then, the two on-market buybacks have been ¥250bn. One might have expected this one to be ¥150-200bn but at ¥250bn it is likely at the high end of expectations for three reasons.
In order to buy back ¥300bn next time from the government, it needs to buy back ¥250bn from the market this time. 
This larger buyback represents continued effort at offsetting the dilution from the ¥200bn share sale to Toyota in March 2020, and 
This larger buyback represents NTT using the additional earnings power of NTT Docomo. NTT used to buy back shares from the market and from NTT, then NTT would take that cash and capital and buy back its own shares. Now NTT Docomo doesn't have to spend any money on buybacks from minority shareholders. All of its cash can go to the parent NTT. NTT therefore has more to spend on buybacks. Given several of the recent NTT Docomo buybacks were on the order of ¥300bn, the one-third of that amount which did not accrue to NTT now does. So now it accrues to NTT shareholders. 
I expect a buyback size of ¥250-300bn to be the new standard.Of course, this lets us take a look at NTT vs its competitors KDDI and Softbank Corp yet again, and compare the impact on the market of the various buyback programs in place.More below the fold.

NTT Buybacks Continue - Bigger, Better, Faster, Stronger

There are a lot of moving parts as the first full quarter of LINE integration and unique comps from last year distort comparisons. For the record, headline revenue grew 36% with corresponding EBITDA growth of 11% but the standout number for us is 20% growth in pro forma advertising revenue driven by both old (search +22%) and new (LINE +34%) businesses. And that is before a serious effort on synergies has been made. There are ups and downs in the rest of the business as eCommerce results were mixed whilst PayPay (unconsolidated but central to management plans) continues to trend favorably. Z Holdings had a good report and we remain at Buy.

There are a lot of moving parts as the first full quarter of LINE integration and unique comps from last year distort comparisons. For the record, headline revenue grew 36% with corresponding EBITDA growth of 11% but the standout number for us is 20% growth in pro forma advertising revenue driven by both old (search +22%) and new (LINE +34%) businesses. And that is before a serious effort on synergies has been made. There are ups and downs in the rest of the business as eCommerce results were mixed whilst PayPay (unconsolidated but central to management plans) continues to trend favorably. Z Holdings had a good report and we remain at Buy.  

Z Holdings (Buy) Q1 21 Results Reaction: Ad Revenue Growth Stands Out

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. 

In 2002, Seiyu was saved by the foreign might of Walmart. Today it is about 25% smaller but over the same 20 years, it has gone from a ¥90 billion loss to an estimated ¥40 billion operating profit last year. Now, with the backing of its new majority owners, <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a>, Seiyu has announced ambitious plans to become Japan’s largest online supermarket by 2025. This is increasingly likely thanks to Rakuten's new reach through its new joint venture 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> Right now, online food retailing is a two horse race between Amazon and Rakuten, with Z Holdings nowhere in sight.

In 2002, Seiyu was saved by the foreign might of Walmart. Today it is about 25% smaller but over the same 20 years, it has gone from a ¥90 billion loss to an estimated ¥40 billion operating profit last year. Now, with the backing of its new majority owners, KKR &amp; Co Inc (KKR US) and Rakuten Inc (4755 JP), Seiyu has announced ambitious plans to become Japan’s largest online supermarket by 2025. This is increasingly likely thanks to Rakuten's new reach through its new joint venture with Japan Post Holdings (6178 JP). Right now, online food retailing is a two horse race between Amazon and Rakuten, with Z Holdings nowhere in sight.

Seiyu: Back in the Mainstream Thanks to Rakuten

By year-end we expect there will be two newly minted public fintech companies in Asia as IPOs for Kakao Pay (August) and PayTM (Q4-ish) move ahead. These are both potential comparables for Softbank Group’s PayPay of which Z Holdings is the leading shareholder. Comparatively, proposed valuations for Kakao Pay ($7-11bn) and PayTM ($24-25bn) are much higher but these are also later stage businesses with established track records and offer some insight into what PayPay can turn into over time. We currently value PayPay at its carry value of $500mn but as monetization starts, we expect management aspirations for a unicorn valuation can be reached. This report includes forecasts updated for Q4 results, guidance, and the acquisition of Yahoo trademark rights from Verizon.

By year-end we expect there will be two newly minted public fintech companies in Asia as IPOs for Kakao Pay (August) and PayTM (Q4-ish) move ahead. These are both potential comparables for Softbank Group’s PayPay of which Z Holdings is the leading shareholder. Comparatively, proposed valuations for Kakao Pay ($7-11bn) and PayTM ($24-25bn) are much higher but these are also later stage businesses with established track records and offer some insight into what PayPay can turn into over time. We currently value PayPay at its carry value of $500mn but as monetization starts, we expect management aspirations for a unicorn valuation can be reached. This report includes forecasts updated for Q4 results, guidance, and the acquisition of Yahoo trademark rights from Verizon.

Z Holdings (Buy) - Asian Fintech App IPOs Highlight Potential PayPay Upside

Japan

LY Corporation operates as an internet search engine "Yahoo! JAPAN". The Company provides electronic commerce and settlement finance services for small medium enterprises and individuals. LY also operates media business including search linked advertising and display advertising services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

LY (4689 JP)

Rakuten (Neutral) - Q2 21 Results Reaction: Roaming Costs Have Become a Big Deal

Rakuten posted solid eCommerce/Fintech results but these are overshadowed by mobile operating losses. The good news is peak losses should fall in...

Kirk Boodry

NTT Buybacks Continue - Bigger, Better, Faster, Stronger

NTT Announces good earnings and a big buyback. Buybacks are normal but this buyback is the new normal, delivering NTT Docomo's earnings to NTT...

Travis Lundy

Z Holdings (Buy) Q1 21 Results Reaction: Ad Revenue Growth Stands Out

There are a lot of moving parts as the first full quarter of LINE integration and unique comps from last year distort comparisons but the standout...

Kirk Boodry

Seiyu: Back in the Mainstream Thanks to Rakuten

Online is only 3% of food retail in Japan but this is about to change fast. Amazon leads in this race but Rakuten is about to catch up through...

Michael Causton

Z Holdings (Buy) - Asian Fintech App IPOs Highlight Potential PayPay Upside

Upcoming IPOs for two Asian fintech companies provide some insight on what Z Holdings PayPay can become once it starts to monetize its business....

Kirk Boodry

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)