Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Z Holdings Q4 results are largely as expected but a meaningful reduction in market expectations (shares down 12% YTD and 31% from recent highs) means that should be taken positively. Underlying performance was strong as online retail demand expanded with the re-introduction of emergency measures (merchandise GMV +26%) even as advertising sales grew better than expected (+5% v mgmt guidance flat YoY). The outlook for FY21 is slightly better than Redex forecasts for revenue and adjusted EBITDA although the corresponding operating income is in-line so our outlook probably won’t change much. We remain at Buy

Z Holdings Q4 results are largely as expected but a meaningful reduction in market expectations (shares down 12% YTD and 31% from recent highs) means that should be taken positively. Underlying performance was strong as online retail demand expanded with the re-introduction of emergency measures (merchandise GMV +26%) even as advertising sales grew better than expected (+5% v mgmt guidance flat YoY). The outlook for FY21 is slightly better than Redex forecasts for revenue and adjusted EBITDA although the corresponding operating income is in-line so our outlook probably won’t change much. We remain at Buy

Z Holdings Q4 20 Results: Good Numbers as LINE Era Kicks Off

Z Holdings shares have sold off on disappointment over mid-term profitability targets that remain unchanged despite the addition of Line and possible synergies (and equity dilution). But management believes investments will pay off with stronger top-line growth. Some of its aspirational targets (like eCommerce leadership) seem to be a stretch but we do think that the merger gives it the resources to compete with heavyweights like Google (online ads), Facebook (social media), Amazon (eCommerce) and Rakuten (fintech). We are initiating coverage at Buy with a <a target="_blank">¥680 </a>FY21 (Mar-22) target price.

Z Holdings shares have sold off on disappointment over mid-term profitability targets that remain unchanged despite the addition of Line and possible synergies (and equity dilution). But management believes investments will pay off with stronger top-line growth. Some of its aspirational targets (like eCommerce leadership) seem to be a stretch but we do think that the merger gives it the resources to compete with heavyweights like Google (online ads), Facebook (social media), Amazon (eCommerce) and Rakuten (fintech). We are initiating coverage at Buy with a ¥680 FY21 (Mar-22) target price.

Z Holdings - Great Expectations On (The) LINE (Initiation of Coverage)

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

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

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

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.

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LY (4689 JP)

Z Holdings Q4 20 Results: Good Numbers as LINE Era Kicks Off

Z Holdings Q4 results are largely as expected but a meaningful reduction in market expectations (shares down 12% YTD and 31% from recent highs)...

Kirk Boodry

Z Holdings - Great Expectations On (The) LINE (Initiation of Coverage)

Z Holdings has sold off on disappointment over profitability targets that remain unchanged despite the addition of Line but near-term investments...

Kirk Boodry

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

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