QCOM--=DJ Hikari Tsushin Slashes Outlook Again; Disappoints Market
04/24/2000
Dow Jones News Services
(Copyright ¸ 2000 Dow Jones & Company, Inc.)
By Yumiko Nishitani
TOKYO (Dow Jones)--Hikari Tsushin Inc. (J.HKR or 9435) issued another profit warning Monday, and said it planned to reverse its expansion strategy.
The mobile phone distributor and Internet investor now projects a parent operating loss of Y11.6 billion for the current fiscal year ending Aug. 31, compared with an earlier projection of a parent operating profit of Y8.0 billion.
The outlook for the company's mobile phone sales and subscriptions has deteriorated due to falling fresh demand for mobile phones, adverse rumors surrounding Hikari, and the success of a new line of Internet-capable mobile phones made by NTT DoCoMo, Hikari said. Hikari doesn't have a marketing contract for NTT DoCoMo phones.
"The mobile phone market has fully matured, even to the extent (of leaving no room for growth). We can't survive as a mobile phone distributor. We will shift our focus more toward venture incubation and business-to-business mobile Internet businesses, partly through joint ventures," Hikari Tsushin President Yasumitsu Shigeta told a press conference.
"We failed to correctly judge prospects for the market and for the market shares of each carrier," he said.
To cope with the deteriorated environment for its mobile phone sales business, Hikari announced an end to the aggressive expansion of its flagship distribution business.
The stock market, which had been looking to Monday's press conference for possible buying incentives, was disappointed by the lack of strong measures to revamp Hikari's operations and by the second profit warning in less than a month.
Hikari shares ended Monday's session limit down at Y19,800, a 92% decline from the issue's Feb. 25 high, on disappointment over the announcement.
Analysts and traders say Hikari shares may fall towards Y5,000 to Y10,000 in the near term unless Hikari can somehow recoup its credibility in the market.
Briefly before the company's press conference, Hikari shares traded in a session for the first time since March 30 amid rumors that the company was poised to unveil one of a number of drastic moves, such as a capital-involved tie-up with a mobile phone carrier, traders said.
Since March 31, Hikari shares have been unable to attract bids within the daily limit, and have traded only at the market's close in proportional allotment conducted by the Tokyo Stock Exchange.
Proportional allotment is conducted on a limited amount of shares when there is broad imbalance of buy and sell orders.
"Speculators turned buyers of Hikari shares on the rumors. However, when they found out that the buyers were (mostly) foreigners (who were said to be relatively bullish on Hikari despite its recent falls), they rushed to sell off their holdings" in anticipation of strong selling in the near term, said a trader at a local mid-sized brokerage firm.
Foreign investors generally maintained their sell orders, even during the Easter break, while many local institutional investors suspended their sell orders ahead of the press conference only to renew them afterwards, traders said.
"The company betrayed the stock market with its now-collapsed myth of growth. It earlier mapped a business expansion plan with the target of 3,000 hit shops, and now it plans to cut the number to 900," said an equities manager who requested anonymity due to his company's underwriting role.
Hikari scrapped its plan Monday to raise the number of "hit shops" for its mobile phones to 3,000. The plan had been a major factor spurring investors to chase the company's shares to as high as Y241,000, or a price-to-earnings ratio of 721.
Hikari now plans to shut 545 of its 1,445 hit shops by August because of the mobile phone market's slim growth prospects, as well as the growing popularity of NTT DoCoMo phones.
Hikari is negotiating in a bid to obtain a distribution contract for NTT DoCoMo handsets. However, NTT Mobile Communications Network Inc. (J.NTX or 9437), the carrier of NTT DoCoMo phones, has not responded positively, Shigeta said.
Masatoshi Sato, investment information manager at Kankaku Securities, said, "the crucial weakness (in Hikari's mobile phone business strategies) is that it can't sell NTT DoCoMo handsets. In the past, mobile phones had only the telecom function, so Hikari enjoyed the advantage of its big sales network.
"Now that NTT DoCoMo phones have introduced the i-mode Internet-connection device, Hikari's mobile phone business without it would just shrink... Amid fears its become a growth stock that doesn't grow, Hikari shares will be left mainly in the hands of speculators who simply want to play a money game," he said.
Hikari is aiming to secure a full-year parent pretax profit of Y28.0 billion by offsetting the likely operating loss with capital gains from the sale of shares - the same method it used to report a pretax profit in the first half.
Hikari has already locked in Y23.9 billion of capital gains by selling its holdings in Qualcomm Inc. (QCOM), Cisco Systems Inc. (CSCO) and Mobilephone Telecommunications International Ltd. (J.MTI or 9438) in March and earlier this month.
The prospects for Hikari's venture investment business are unclear due to the current shaky sentiment globally on Internet stocks and Hikari's injured credibility, analysts said.
"Unrealized profits in the company's investment portfolio are clearly being eroded by the recent falls and cancellation of an initial public offering. It is a question how much in capital gains they can generate in the future," Kankaku's Sato said.
Japan Rating & Investment Information downgraded its rating on Hikari on April 12, claiming that the company's credibility may fall below those levels it needs in order to finance its investment business with fixed-term borrowings.
Hikari Monday returned a total of Y48.5 billion of short-term and long-term loans and canceled a credit commitment line to prepare for a possible further ratings cut, Managing Director Ko Gido said at Monday's press conference.
"Because the ratings agency kept its rating (on Hikari) under watch for possible further downgrade, we made the repayment to prepare for the possibility of a further downgrade and consequent request for early repayment," he said.
Hikari returned all of the Y24 billion 5-year, syndicate loans which it had held since November 1999. It returned Y24.5 billion of its short-term loans and canceled the commitment line which came with loans from Industrial Bank of Japan Ltd. (J.IBJ or 8302), Hikari said.
In turn, Shigeta provided Hikari with Y25.0 billion of loans through his wholly owned company with no collateral, he said. The funds come from the sale of Shigeta's holdings in Hikari when the company made its debut on the Tokyo Stock Exchange in October, he said.
(END) DOW JONES NEWS 04-24-00 |
