Japan Wireless Profits Head to Gain, Skip Abenomics Doldrums

  • Cuts in handset subsidies boosting mobile phone earnings
  • Gains contrast with Japan Inc. stalwarts hurt by strong yen

Japan’s largest mobile phone carriers are poised to report the highest quarterly profit in at least a decade, a rare bright spot as aggregate earnings at the nation’s largest companies slump under a stronger yen and weak consumer confidence.

Operating income at the three largest carriers will probably rise 6 percent in aggregate to 858 billion yen ($8 billion) for the three months ended June 30, according to analyst estimates compiled by Bloomberg. That’s the most since at least 2006, when SoftBank Group Corp. entered the mobile phone business by buying Vodafone Group Plc’s Japan unit.

NTT Docomo Inc., KDDI Corp. and SoftBank are benefiting after the government prompted wireless carriers to eliminate handset subsidies, a marketing cost that had crimped profit as providers used cheap or free phones to lure new customers. The companies have also reversed a decline in per-user revenue as customers upgrade to smartphones and are spending less on improving networks before beginning to upgrade to 5G, expected to be introduced after 2020.

“Profit at the Big Three carriers will continue to increase until 5G network investments occur around 2021 or 2022,” said Jun Tanabe, an analyst at JPMorgan Securities Japan Co. Revenue from streaming video and other contents will keep increasing as more customers use smartphones, he said.

Docomo shares rose 1.4 percent as of the close in Tokyo Wednesday. KDDI added 2.3 percent, and SoftBank advanced 0.4 percent. The Topix fell 0.5 percent.

Investors have pushed up the operators’ shares this fiscal year as well, while Japan Inc.’s biggest manufacturers have dropped as the Japanese currency’s 5.8 percent surge versus the dollar has eroded the value of overseas income. Toyota Motor Corp., for example, has declined 3 percent, compared with a 14 percent gain for Docomo, which reports second-quarter earnings July 29. SoftBank is scheduled to announce its results a day earlier, while KDDI gives its earnings on Aug. 2.

Shares Outlook

The majority of analysts tracked by Bloomberg see further gains for the shares. Docomo has 13 buys, 7 holds and 1 sell recommendation. Tanabe rates the shares overweight, with a price target of 3,400 yen, 17 percent higher than the company’s closing price Wednesday in Tokyo.

KDDI, Japan’s largest mobile carrier after Docomo, has 11 buy and 8 hold recommendations. Tanabe has a neutral rating on KDDI with a price target at 3,100 yen, 5 percent below Wednesday’s close.

SoftBank’s likely profit increase in the quarter comes despite the poor performance of its Sprint Corp. unit in the U.S. The U.S. mobile carrier will probably report at a $1.2 billion net loss for the year to March 2017, based on the average of analyst estimates, after reporting an almost $2 billion deficit for the previous 12 months.

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