Analyst Note| Dan Baker |
We increase our fair value estimate for NTT DoCoMo to parent company NTT Corp’s offer price of JPY 3,900 for the NTT DoCoMo minorities, from our previous fair value estimate of JPY 2,800. The NTT offer for the 33.8% of NTT DoCoMo that it does not already own is at a 39% premium to our fair value and we would not expect another bidder so would recommend NTT DoCoMo investors accept the offer. Based on each of the three main Japanese mobile operators’ own guidance for the fiscal year ending March 2021 the offer price puts NTT DoCoMo on a price/earnings ratio of 20.3 times with a 3.3% dividend yield, compared with KDDI on 9.6 times with a 4.5% yield and SoftBank Corp on 11.7 times with a 7.2% dividend yield. In our view this is a very large premium valuation for NTT DoCoMo, a business that we see as broadly comparable to KDDI and SoftBank Corp. We expect some synergies including the usual overhead costs to be taken out through delisting NTT DoCoMo, network synergies from the mobile business using some of NTT’s fixed-line core network and backhaul transmission, alignment of research and development activities and cross selling synergies, particularly as the innovative 5G services are likely to be B2B. However, we doubt these would cover such a significant takeover premium.