Potential NTT interest in SBI Sumishin is not far-fetched
Financials
SBI Sumishin Bank shares popped 17% on reports that NTT DOCOMO could be a buyer. Kirk Boodry thinks it is an easy story to believe. DOCOMO has already said it is looking at online banking options to solidify its fintech portfolio. And SBI Holdings essentially has two online banks as recently acquired and privatised SBI Shinsei Bank has a minimal offline footprint. It is encouraging that shares of NTT (rated Buy) were up on the news and while Kirk would like to believe that represents an endorsement of higher fintech exposure, it could also reflect hope that NTT may be steering clear of any involvement in a domestic Seven & i counterbid. The price tag could be somewhat steep with SBI Sumishin valued at ¥514bn, but NTT Group has the balance sheet to support a deal.
Edition: 200
- 29 November, 2024
Communications
Shares of NTT have slumped this year as concerns on mobile performance and local exchange profitability weigh on sentiment even as regulatory and political uncertainty lingers. At the company’s recent IR day, management was able to address the former, focusing attention on improvements in mobile and its regional businesses although we will have to wait for the politicians and regulators to address the latter. Large-cap telecom peers have performed much better than NTT, which has expanded the valuation gap with NTT looking much more attractive at 11x FY24e EPS vs. KDDI (14x) and Softbank (17x). NTT has also increased its dividend 12 years in a row and Kirk Boodry does not expect it to stop now. TP ¥207 (40% upside).
Edition: 196
- 04 October, 2024
Communications
NTT shares have dramatically underperformed the overall market and peers YTD as a weak Q4 print disappointed investors. However, Kirk Boodry thinks the reaction is overdone with medium-term guidance intact, including a rebound in profitability by FY25. The shares look attractive with >40% potential upside. Kirk assumes compound annual revenue growth of 3% across his forecast period with corresponding 4% growth in operating profit and EBITDA. FCF should grow MSD. His forecasts also include a 7% EPS CAGR through 2030 as consistent share buybacks provide an extra kicker to profit growth.
Edition: 189
- 28 June, 2024
Telecoms: Valuation upgrades
Communications
FY23 has so far been a goldilocks scenario for Japanese telcos. Incumbents are moving closer to a recovery in high-margin, mobile service revenue growth with little competitive trouble from Rakuten Mobile despite it managing to grow subs by tapping under-served corporate users. While Kirk Boodry expects competitive intensity to step up in FY24, there are limits to how aggressive Rakuten can be and his positive outlook on the sector has not changed. IIJ is his top overall pick. He also moves KDDI ahead of NTT as his preferred large-cap telco.
Edition: 183
- 05 April, 2024
Generative AI: With Japanese LLMs coming online, 2024 will be more eventful
In 2023, generative AI took the world by storm but the impact in Japan was less exciting as language and heavy computing loads dampened performance. That should change with the deployment of Japanese-specific LLMs which are already performing modestly better in some tests versus larger general-purpose English LLMs and with less power intensity. Kirk Boodry lays out the basics and state of play for generative AI in Japan within his Telecom / Internet coverage. SoftBank Group and NTT have been early winners thanks to exposure at the infrastructure / platform layer, but true gen AI deployments are only just starting.
Edition: 178
- 26 January, 2024
NTT (9432), KDDI (9433), Rakuten (4755)
Communications
It is now clear that NTT and KDDI have entered a phase of faster growth, which New Street calls "The Golden Age". They expect SoftBank to enter it in 1-2 years. Stocks are not priced for this, nor for the likelihood that Rakuten scales back or exits its MNO business. New Street increases their TP to ¥5,250 for NTT (35% upside) and to ¥6,000 for KDDI (40% upside). For Rakuten, they remain bearish and cut their TP to ¥520 (20% downside).
Edition: 139
- 08 July, 2022
Communications
Entering a golden age - this under the radar $100bn telco still has 50% upside. NTT is the 4th largest owner of data centres in the world. Japan’s data centre market is immature with only 7% of the capacity of the UK or US, population-adjusted, with most Japanese data currently held in regional hubs such as Singapore. New Street expects the Japanese government to introduce data localisation laws which will drive demand. At the same time, cost cutting will lead to material EBITDA upgrades. On a single digit P/E two years out, and with profit growth accelerating to HSD and LDD EPS growth, a sharp re-rating is likely. TP ¥5,000 (18-24 months).
Edition: 131
- 18 March, 2022