Analyst Note| Dan Baker |
Narrow-moat KDDI’s fiscal 2020 result (year ending March 2021) was broadly in line with our estimates. Revenue increased 1.4% year over year, with operating income up 1.2% and net profit up 1.8%, all slightly ahead of the flat guidance for all three lines. This was despite the energy business incurring a JPY 20.5 billion operating profit loss due to extreme volatility in wholesale energy prices in December and January. Basic telecom operating profit fell by JPY 41 billion, more than offsetting the JPY 58 billion operating income increase from growth fields, particularly the financial business, which added JPY 19 billion. We increase our forecasts slightly and our fair value estimate for KDDI to JPY 4,100 from JPY 4,000, and to USD 20 per ADR from USD 19 per ADR. At this fair value, KDDI would trade on a price/earnings ratio of 13.7 times with a 3.1% dividend yield.