NTT’s Cost Reductions Drive Profit Growth Despite Mobile Price Cuts Impacting Revenue

Narrow moat rated Nippon Telegraph and Telephone Corp's, or NTT’s, third-quarter fiscal 2021 result (quarter ended December 2021) was slightly better than our expectations with revenue growth of 0.3% year on year, operating profit growth of 7.4% year on year and net profit growth of 22.4% year on year. The operating profit growth was a result of increases from mobile of JPY 15.1 billion, data communications of JPY 14.9 billion and regional communications of JPY 10.9 billion. The net profit growth was helped by the elimination of the NTT DoCoMo minorities following the takeover. Management increased its fiscal 2021 guidance to 2.0% revenue growth and 4.4% operating income growth, and 20.1% net profit growth from the previous 0.5%, 3.5% and 18.4% respectively, due to upgraded NTT Data forecasts, partially offset by downgrades from NTT Ltd. NTT also upgraded its fiscal 2021 dividend forecast to JPY 115 per share from JPY 110 per year previously. We retain our JPY 3,950 fair value estimate and our narrow moat rating for NTT based on efficient scale with the firm now earning ROIC above WACC. The stock looks mildly undervalued at current levels, in our view.