Global Experts Calls up Nippon Telegraph and Telephone

03/11/2019 5:00 am EST

Focus: TELECOM

Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

When the Japanese government called for a big cut in wireless rates last year, NTT DoCoMo (DCMYY) was first to respond. Investors immediately assumed the worst, selling off its shares as well as those of its parent and 56.52% owner Nippon Telegraph & Telephone Corporation (NTTYY), explains Roger Conrad, editor of Conrad’s Utility Investor.

Most ignored the other side of NTT’s strategy: First, new marketing plans would increase traffic and assure customer loyalty as DoCoMo rolls out its 5-G wireless network.

This will potentially generate far more revenue than 4-G does currently, combined with the development and launch of numerous Internet of Things applications.

Second, NTT and DoCoMo are already enjoying rapid growth in advanced services that promise to at least mostly offset any near-term revenue shortfall caused by price-cutting.

And finally, the companies have aggressive cost reduction plans in place to preserve cash flow, allowing them to maintain their AA- credit ratings and at the same time ramp up dividends.

These strengths were abundantly in evidence in both companies’ fiscal third quarter results for the three months ending December 31.

DoCoMo earnings handily topped the highest analyst estimates and included an increase in average revenue per user as well as a 6% boost in total smartphone and tablet users. The company also saw a 1.6 fold increase in use of its d POINT CARD service and realized JPY24 billion in cost efficiencies.

NTT’s 8.3% increase in 9-months operating income got a big boost from DoCoMo’s results, as well as increased scale of overseas operations. That enabled the company to announce a dividend increase of 30% this year while buying back JPY150 billion in stock.

Judging from the analyst questions on the company’s earnings call, there’s still concern about potential revenue reduction at DoCoMo, and some doubts that sales of advanced services and cost cutting can offset it.

We expect management will have to continue proving its case. But from a share price of 10 times expected 12 months earnings, there’s no hype in this stock and a lot of upside as company plans pan out.

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