Bloomberg on KDDI Profits and Subscriber Growth
11/05 10:01
KDDI's First-Half Profit Probably Doubled on Subscriber Gains
By Miki Anzai
Tokyo, Nov. 6 (Bloomberg) -- KDDI Corp.'s first-half profit probably more than doubled as Japan's second-largest cell-phone company attracted more subscribers with handsets that allow users to take and swap photos, analysts and investors said.
KDDI's group net income probably rose to 14.5 billion yen ($119 million), or 3,419.1 yen a share, in the six months ended Sept. 30 from 6.7 billion yen, or 1,578.55 yen, a year ago, according to Toyo Keizai, which compiles earnings forecasts. Sales probably fell 3.1 percent to 1.42 trillion yen. The Tokyo-based company reports earnings Friday.
Led by President Tadashi Onodera, KDDI has lured users and retained existing customers with phone models that can take and share snapshots on its high-speed CDMA2000 1x wireless service. The service has eclipsed those of rivals such as NTT DoCoMo Inc. with wider coverage and cheaper handsets, investors said.
``Onodera's efforts to revive the company seem to have finally borne fruit,'' said Shoji Hiraga, who manages 10 billion yen in Japanese equities, including KDDI shares, at Resona Asset Management Co.
KDDI's mobile phone unit, au Corp., which had 16.8 million subscribers as of the end of September, accounted for more than half of KDDI's 2.83 trillion yen of group sales last fiscal year.
The company doesn't provide a half-year earnings forecast.
Onodera said on Oct. 16 that the company will ``probably meet'' its earnings target for the full year. KDDI expects net income in the year ending March 31 to more than triple to 49 billion yen from 13 billion yen a year earlier. Sales will probably rise 0.9 percent to 2.86 trillion yen.
Monthly Sales
While the new models helped the company sign up clients, average monthly revenue per user is declining, analysts said.
``My biggest concern with KDDI is that CDMA2000 1x subscribers are not spending any more,'' said Kirk Boodry, an analyst at Dresdner Kleinwort Wasserstein (Japan) Ltd., who has a ``hold'' rating on the shares.
Average monthly revenue per user fell to 7,560 yen in the three months ended June 30, 4.3 percent lower than the company's full-year target. It fell further in the second quarter, Onodera said. Last year, average monthly revenue per user was 8,089 yen.
KDDI doesn't provide nationwide monthly revenue figures for its high-speed wireless service. Total spending on au Corp.'s services fell in the first quarter ended June.
Subsidies
To make up for the decline in revenue, KDDI is focusing on increasing the volume of subscribers by subsidizing the price of its phones for consumers. KDDI needs to pay about 25,000 yen to retailers in order to sell a handset, which it buys from suppliers for about 45,000 yen, according to an estimate by Deutsche Securities Ltd. analyst Tetsuro Tsusaka.
``We should focus on how much KDDI can balance out the costs it spends to acquire new customers and revenue it can get,'' said Mizuho Securities Co. analyst Atsuo Takahashi, who has a ``hold'' rating on KDDI's shares.
The company added more than a fifth more users to its au unit in June compared with the year-earlier period, the only Japanese mobile-phone company to add subscribers at a faster pace.
Cancellations also slowed by a quarter to 1.8 percent in June from 2.4 percent in April even as economic growth stalled.
A 0.1 percent improvement indicates that ``about 13,000 fewer subscribers leave each month, and that the average lifespan of each subscriber improves by about 2 months,'' said Bruce Kirk, director of equity research at KBC Securities (Japan).
``When you're paying 40,000 to 50,000 yen to acquire a customer in the first place, even a 0.1 percent change is very important,'' Kirk said.
Pay Off?
Some investors say the initial costs will probably pay off. Other operators are struggling amid slowing growth in the country's $70 billion mobile-phone market, where about 60 percent of the population owns a handset.
By providing wider network coverage and lower priced handsets with more battery life, KDDI has eclipsed DoCoMo, whose high-speed wireless Internet service, based on a different technology, has attracted only 135,700 users.
Based on technology developed by San Diego-based Qualcomm Inc., the high-speed service, which debuted in April, allows KDDI users to access the Internet and download games and video clips at about double the speed of older services. KDDI had 2.65 million CDMA2000 1X users at the end of September.
KDDI shares have surged 52 percent this year, making it the best-performing stock in the Topix Communications Index, which tracks the performance of Japan's six largest telecommunications shares.
The shares of DoCoMo, the world's largest mobile-phone company, have tumbled 20 percent, touching a 3 1/2-year low on Sept. 25. The shares of Japan Telecom Holdings, the parent of rival J-Phone Co., have tumbled 14 percent.
`Harvesting'
``Although I doubt any carriers can achieve strong growth in this matured market, KDDI's profitability will be fairly strong next year,'' said Deutsche Securities's Tsusaka, who has a ``buy'' rating on the shares of KDDI. ``Spending a whole lot to get customers this year is like the rice-planting time, so next year would be harvesting time.''
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