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KDDI Slightly Below-Par Result but Energy Business Should Help Second Half

Dan Baker Senior Equity Analyst

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.

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Company Profile

Business Description

KDDI is Japan's second-largest wireless operator (31% market share), the largest pay-TV operator (53% market share) and the second-largest provider of fibre-to-the-home broadband (12% market share). It has grown through acquisition and is focusing on increasing the number of customers who subscribe to more than one telecommunication service. It is also looking to grow its Life Design business which includes commerce, energy, and finance and had over 18 million IOT connections by the end of March 2021.

Garden Air Tower, 10-10, Iidabashi 3-chome
Tokyo, 102-8460, Japan
T +81 333470077
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Sep 30, 2021
Fiscal Year End Mar 31, 2020
Stock Type
Employees 82,560