SoftBank Earnings: In Line With Our Forecasts and Above Guidance

SoftBank’s 9434 first-quarter fiscal 2023 result (quarter-end June 2023) of JPY 246 billion was in line with our estimates. We believe it is on track to beat its unchanged and conservative fiscal 2023 operating profit guidance of JPY 780 billion and we retain our full-year estimate of JPY 830 billion. We also retain our fair value estimate of JPY 1,450 and narrow moat rating based on the cost advantage and efficient scale in SoftBank’s core telecom business. Our forecast for underlying average operating profit growth over the next 5 years is 7.5%, driven mainly by forecast growth in payment services, Z Holdings, and some recovery from the impact of mobile price declines. However, we can never rule out another bout of mobile price reductions given Rakuten’s customer base on its mobile network fell to 4.54 million in March 2023 from 4.91 million in December 2021 after investing a total of JPY 2.5 trillion in its mobile business; it will likely need many more customers to have a maintainable mobile business. A recent report from independent technical consultant Opensignal indicates that Rakuten’s network is now much closer to the incumbents in terms of quality and coverage. On our estimate, SoftBank is overvalued at these levels.

SoftBank reported operating profit growth of 2.1% in the first quarter and net profit growth of 15.1%, which is an improvement in underlying fiscal 2022 operating profit, which declined 21%. The decline in underlying operating profit was largely driven by a reduction in the hit to the consumer business from mobile service price reductions (new price plans and the net move of customers from the SoftBank brand to the cheaper Ymobile and Linemo brands). The impact of reduced mobile prices was estimated at JPY 90 billion in fiscal 2022, but is expected to fall to JPY 50 billion in fiscal 2023 and zero in fiscal 2024. Increased profitability from the financial businesses is also helping to drive the forecast growth in earnings.