Steady First-Quarter Result From NTT With Mobile Competition Heating Up

Narrow-moat Nippon Telegraph and Telephone Corporation's, or NTT’s, first-quarter fiscal 2021 result (quarter ended March 2022) was broadly in line with our expectations with revenue growth of 4.6%, operating profit decline of 2.3% and net profit growth of 24.7%. The reduced operating profit was broadly spread with mobile declining JPY 36.1 billion, and long distance and international declining JPY 11.5 billion. Management retained its fiscal 2021 guidance for 0.5% revenue growth and 3.5% operating income growth, but increased its forecast EPS to JPY 302 per share from JPY 300 previously due to the announced buyback of up to JPY 250 billion, or 2.8% of outstanding shares, in the period from Aug. 10, 2021 to March 31, 2022. We had already factored buybacks of this magnitude into our forecasts for the next five years given NTT’s consistent history of buybacks. The forecast JPY 110 dividend was retained despite the slight EPS forecast increase. Management retained its fiscal 2021 forecast for capital expenditure to increase to JPY 1.75 trillion from JPY 1.73 trillion last year with the increase largely coming from the 35% increase in mobile capital expenditure as a result of 5G. We retain our fair value estimate for NTT at JPY 3,000 and narrow moat rating. The stock still looks fairly valued in our view.