Analyst Note| Dan Baker |
Narrow-moat KDDI’s second-quarter fiscal 2021 result (quarter ending September 2021) was slightly below our estimates. Revenue increased 2.3% year over year, with operating income down 8.1% and net profit down 2.4%. While the revenue was OK the profit growth levels were behind those implied by the company’s unchanged full-year guidance of 0.7% revenue growth, 1.2% operating profit growth and 0.5% net profit growth. KDDI’s total mobile customers have also declined over the first half of this fiscal year by 145,000. We are seeing signs of increased competition in the core mobile business with churn having crept up to an average of 0.78% per month in 2021 from 0.5% in 2020. KDDI responded by revamping pricing for its online brand, “povo," in September and claims it has seen a turnaround in mobile customer numbers since then and retains its target to increase total mobile customer numbers by March 2022. KDDI’s financial guidance for fiscal 2021 is also retained and our fair value estimate of JPY 4,100 and USD 20 per ADR are both unchanged. At this fair value, KDDI would trade on a price/earnings ratio of 13.9 times with a 3.0% dividend yield.