MARKET SCRAMBLE: Investors Shun DoCoMo Shares
nni.nikkei.co.jp
Thursday, November 14, 2002
TOKYO (Nikkei)--Investors gave the cold shoulder to NTT DoCoMo Inc. (9437) this week, leaving Japan's leading cellular phone company out of a stock market rally that buoyed shares of its rival firms throughout the world.
Shares of Vodafone Group Plc jumped 13% in the London market Tuesday, following the U.K. cell phone giant's strong interim earnings results announced the same day.
Vodafone's earnings results far exceeded all expectations in the market, according to Merrill Lynch & Co. The results also dispelled pessimism that has long weighed on stocks of telecommunications companies worldwide.
The advance of the stock of Vodafone helped push up shares of Orange SA, an affiliate of France Telecom, by 8%. And shares of mmO2 Plc, which was spun off from BT Group Plc, climbed 6%.
In the U.S. market, shares of Sprint PCS leapt 13% the same day, and Nextel Communications Inc. gained 9%.
On the other hand, DoCoMo shares rose by only 2,000 yen, or 0.9%, in Wednesday's trading in Tokyo.
On Nov. 7, DoCoMo reported a 95% plunge in consolidated net profit for the six months ended Sept. 30 due to taking charges totaling more than 500 billion yen related to overseas investment.
A closer look at DoCoMo's financial standing tells, however, that the company's earnings structure from core operations has become strong.
DoCoMo's earnings before interest, tax, depreciation and amortization (EBITDA) as a percentage of revenue rose 4.8 percentage points from a year earlier to 41.2% at the end of September, outshining Vodafone's EBITDA margin of 37.4%.
DoCoMo, the provider of the popular i-mode Internet connection service via cell phones, has become one of the most profitable cell phone companies in the world in terms of EBITDA margin, which the company considers the most important earnings yardstick.
At the same time, DoCoMo engaged in a move that investors believe compromised its profitability. The company increased the rebates that it gives to sales agents by 5,000 yen to 10,000 yen per handset in September from an average 30,000 yen, according to a major sales agent. As a result, some sales agents offered handsets to consumers for free in late September.
By giving out a large amount of rebates to sales agents, DoCoMo ran up huge costs.
DoCoMo shares are undervalued compared with cell phone firms in Europe and the U.S. if assessed by using the ratio of market capitalization plus interest-bearing liabilities to EBITDA. This ratio for DoCoMo stands at just above 7 and is below the ratios for Nextel, Orange, Vodafone and Sprint.
Although the data suggests that DoCoMo shares have room to move upward, possibly to a ratio of around 8.5 or higher, investors are "disappointed by DoCoMo's management," says an analyst at a foreign securities firm.
There is an episode that illustrates investors' lack of interest in DoCoMo shares.
In early October, DoCoMo President Keiji Tachikawa and other executives visited U.S. major cities for investor relations activity. At a briefing for investors held in Boston, only one fund manager attended, though DoCoMo had invited many local companies, according to those familiar with the matter.
These days, "Tachikawa is not as short-tempered as he used to be," says one DoCoMo official. And Tachikawa's lack of assertiveness and confidence was conspicuous when he announced the company's interim earnings results this time.
What DoCoMo needs most now in order to regain investor interest is strong management leadership that will take advantage of the i-mode service, which has become the firm's cash cow, to realize the company's next stage of growth.
--Translated from an article by Nikkei staff writer Takeshi Kawasaki
(The Nikkei Financial Daily Thursday edition) |
