EUR 850.00 For Business Accounts Only

Morningstar | SoftBank Waiting for NTT DoCoMo's Price Cuts to See if It Needs to Respond

Given its higher financial leverage and high dividend payout ratio, SoftBank will become the most leveraged way for investors to invest in the Japanese telecom market. If the Japanese mobile market can return to the cozy, stable oligopoly status that it has enjoyed for much of its history, SoftBank would likely provide investors with the highest returns of the large listed telecom companies. However, if the Government successfully reduces prices, either through influencing the incumbent operators like NTT DoCoMo to lower prices or through the introduction of the new competitor in Rakuten then SoftBank’s financial leverage may work to lower its profits and dividends more quickly than the other operators. We see few ways for the incumbent Japanese mobile operators to really differentiate themselves from each other on network coverage or service with the last period of significant market share movement caused by SoftBank’s exclusive deal to sell iPhone’s in Japan. It is difficult to forecast such an opportunity arising again, so our default setting is that market share will likely remain broadly stable with some small leakage from all operators to Rakuten. We expect some pricing pressure in the market and have therefore forecast only 1% per year revenue increases over the next five years for SoftBank with broadly flat operating profit. This drives our fair value estimate of JPY 1,100 per share for the company.