Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

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

NTT posted solid Q2 20 results but the focus is squarely on how the acquisition of DoCoMo minorities will unfold. With the tender still open details are scarce but NTT did unveil a ¥6,000bn, mid-term debt target (2x EBITDA) driven by securitization and debt re-payment. Of more interest, the company says it can achieve this AND maintain returns to shareholders, which it emphasized by announcing a ¥250bn buyback for this year.  Management is keeping its full-year guidance as a strong first-half provides some cushion should there be changes in the operating environment, particularly overseas with a resurgence in Covid-19.

NTT posted solid Q2 20 results but the focus is squarely on how the acquisition of DoCoMo minorities will unfold. With the tender still open details are scarce but NTT did unveil a ¥6,000bn, mid-term debt target (2x EBITDA) driven by securitization and debt re-payment. Of more interest, the company says it can achieve this AND maintain returns to shareholders, which it emphasized by announcing a ¥250bn buyback for this year.  Management is keeping its full-year guidance as a strong first-half provides some cushion should there be changes in the operating environment, particularly overseas with a resurgence in Covid-19. 

NTT - Q2 20 Results: Mixed DoCoMo Update but Strong Message on Shareholder Returns

This was an interesting (and busy) report. KDDI addressed recent industry trends like new revenue streams (Toyota agreement), regulatory change (a new, eSIM focused MVNO), and new technology (all 5G handset lineup). Meanwhile, confirmation it will buy back shares (c. ¥150bn net) boosts its shareholder return profile vs NTT and signals regulatory pressure is easing. As with DoCoMo, user churn was near record lows highlighting the relatively soft impact from Rakuten’s network launch on the incumbents.

This was an interesting (and busy) report. KDDI addressed recent industry trends like new revenue streams (Toyota agreement), regulatory change (a new, eSIM focused MVNO), and new technology (all 5G handset lineup). Meanwhile, confirmation it will buy back shares (c. ¥150bn net) boosts its shareholder return profile vs NTT and signals regulatory pressure is easing. As with DoCoMo, user churn was near record lows highlighting the relatively soft impact from Rakuten’s network launch on the incumbents.  

KDDI - Q2 20 Results: Embracing the Industry’s New Look

'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.

Thematic (Sector/Industry)

<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'

NTT DoCoMo posted results ahead of consensus expectations boosted by steady improvement in mobile service revenue and record profits in its non-telco Smart Life business. The solid quarter provides some relief for parent NTT which is buying in minority shareholders at a premium although concerns on whether DoCoMo will need to aggressively respond to pressure for price reductions will linger.  Continued low churn rates read positively across to fellow incumbents Softbank and KDDI but less so for Rakuten whose impact on the industry has been muted so far.

NTT DoCoMo posted results ahead of consensus expectations boosted by steady improvement in mobile service revenue and record profits in its non-telco Smart Life business. The solid quarter provides some relief for parent NTT which is buying in minority shareholders at a premium although concerns on whether DoCoMo will need to aggressively respond to pressure for price reductions will linger.  Continued low churn rates read positively across to fellow incumbents Softbank and KDDI but less so for Rakuten whose impact on the industry has been muted so far.  

NTT DoCoMo Q2 20 Results: Last Public Report Ends on a Relative High Note

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

Japan

Nippon Telegraph and Telephone Corporation provides a variety of telecommunication services, including telephone, telegraph, leased circuits, data communication, terminal equipment sales, and related services. The Company provides both local and long distance telephone services within Japan.

NTT (Nippon Telegraph & Telephone) (9432 JP)

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NTT (Nippon Telegraph & Telephone) (9432 JP)

NTT - Q2 20 Results: Mixed DoCoMo Update but Strong Message on Shareholder Returns

NTT posted strong results and whilst details on what happens with DoCoMo remain scarce the company did unveil de-leveraging targets compatible with...

Kirk Boodry

KDDI - Q2 20 Results: Embracing the Industry’s New Look

At Q2 results, KDDI addressed recent industry trends like new revenue streams, regulatory change, and new technology. A share buyback boosts...

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

NTT DoCoMo Q2 20 Results: Last Public Report Ends on a Relative High Note

DoCoMo results were ahead of expectations in its last report as a public company. That's good for NTT and there is a positive read across to...

Kirk Boodry

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

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