KDDI Corp
TSE:9433
Earnings Call Analysis
Q3-2024 Analysis
KDDI Corp
KDDI's third-quarter results for the fiscal year ending March 2024 indicate a healthy financial trajectory with increased revenues and income. Operating revenues were reported at JPY 4,265.5 billion, marking a 2.0% year-on-year increase, with a progress ratio of 73.5%. In parallel, the operating income saw a slight uptick by JPY 3.2 billion compared to the previous year, reaching JPY 847.9 billion, despite facing headwinds from a decrease in roaming revenue from Rakuten, which was offset by solid growth in focused business sectors.
Several key factors have influenced KDDI's operating income. The decline in group MVNO revenue and Rakuten roaming revenue, amounting to minus JPY 31 billion, was cushioned by positive contributions from DX (Digital Transformation) initiatives that added JPY 11.3 billion. Additionally, despite a temporary accounting impact in the previous fiscal year within the financial business sector, the underlying performance showed a positive increase of JPY 12.2 billion. The energy business also contributed positively with an equivalent increase, supporting the overall operating income growth.
The ARPU (Average Revenue Per User) revenues for the period remained flat year-on-year but are expected to see an increase in the fourth quarter. The telecom business has shown positive momentum with multi-brand IDs exceeding the initial target of JPY 31 million, reaching JPY 31.06 million ahead of schedule. KDDI plans to maintain this trajectory by bolstering the attractiveness of its products and improving network quality. Furthermore, positive trends in both communications and value-added ARPU highlight a progressive growth in customer engagement and service usage, with significant subscription plans for au and UQ Mobile users.
Remarkable growth was seen in the NEXT Core sector with a 30.4% year-on-year increase in operating revenue. Operating income benefited from advancements in IoT, data centers, and mobile communications revenue, with significant quarterly growth, thereby contributing to a robust profit increase. Looking forward, KDDI's commitment to continued double-digit growth is supported by its strategic advancements in 5G and corporate business, leveraging synergies in the telecommunications field, and fostering sustainable growth in finance and energy sectors by expanding its customer base and evolving the LX (Lifestyle X) area to build a robust foundation for future society.
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Thank you for waiting. We now would like to start a meeting on KDDI financial results of the third quarter for fiscal year ending March '24 questions and answer session.
Thank you so much for joining us out of your busy schedules. I'm your emcee, [ Miyakawa ] from IR Department. The meeting is broadcast live on the Internet with Japanese and English simultaneous translation. Please be advised that the meeting will be later made available on our IR website for on-demand distribution.
Let me introduce today's attendees: Executive Vice President, Executive Director, Personal Business and Global Consumer Business Sector, Amamiya; Senior Managing Executive Officer, CTO, Executive Director, Technology Sector, Yoshimura; Senior Managing Executive Officer, Executive Director, Solution Business Sector and General Manager, KDDI Group Strategy Division, Kuwahara; Executive Officer, Deputy Executive Director, Personal Business Sector and Executive Director, Business Exploration Development Division, Matsuda; Managing Executive Officer, CFO, Executive Director, Corporate Sector, Saishoji; Executive Officer, Executive Director, Corporate Management Division, Corporate Sector, Aketa.
Today, we have uploaded 3 items related to business results, one presentation, [indiscernible] detailed materials on our IR website. Please read the disclaimer in each document about what is listed in the material outperformance, including what will be shared during the Q&A, and subscription targets.
Managing Executive Officer, CFO, Saishoji will brief you on the summary of the business results followed by the questions-and-answer session. Ms. Saishoji floor is yours.
Thank you very much for joining us in the KDDI's business results meeting after your busy schedules. Before entertaining your questions, let me share with you a summary of the third quarter results of the fiscal year ending March 2024. The cumulative results at the third quarter of the fiscal year March 2024 recorded an increase in revenues and income. The left shares operating revenues, which were JPY 4,265.5 billion, up 2.0% year-on-year. The progress ratio was 73.5%. Right-hand side, year-on-year, plus 0.4%. The progress ratio was 78.5%. We'll continue to aim for full year forecast.
Next, on factors for change in the consolidated operating income. Steady growth in focus areas overcame a decrease in Rakuten roaming revenue. From the left, group MVNO revenue and Rakuten roaming revenue were minus JPY 31 billion. Multi-brand communications ARPU revenues were minus JPY 70 million. DX was plus JPY 11.3 billion. For financial business, there was a temporary accounting impact in FY 2023, which was minus JPY 18.2 billion. Excluding that, the result was plus JPY 12.2 billion. Energy business was plus JPY 12.2 billion. As a result, operating income was JPY 847.9 billion, up JPY 3.2 billion year-on-year.
Next concerns multi-brand ARPU revenues. The left shows that the cumulative communications ARPU revenues from the first through the third quarter in FY March 2024 were year-on-year flat. Higher revenues are expected in the fourth quarter. The right shows total ARPU revenues, which are on the upward trend quarterly.
Next is telecom business momentum. Left side, multi-brand IDs performed well at JPY 31.06 million. The initial target of JPY 31 million was achieved ahead of schedule. New subscriptions are increasing, especially for UQ Mobile, while au to UQ mobile migration has slowed. We will continue to strengthen our initiatives to raise the attractiveness of au and improve network quality to continue to be chosen by customers.
Next is multi-brand ARPU. Both communications and value-added ARPU are maintaining an upward trend. Left side, communications ARPU reached JPY 3,990, up by JPY 30 on a quarter-on-quarter basis. au and UQ Mobile ARPU grew, thanks to increased data usage. More than 80% of au subscribers chose unlimited usage, and over 70% of UQ mobile subscribers chose medium and large capacity plans. Right side, value-added ARPU reached JPY 1,270, up by JPY 20 on a quarter-on-quarter basis. Growth was driven by an increase in product support-related needs as well as growth in credit cards and mortgage loans.
Next is business segment results. Left side, operating revenue growth was driven by NEXT Core, which grew by 30.4% year-on-year. To the right, operating income was driven by growth in IoT and data centers and increase in mobile communications revenue. Growth was 11.4% in the Q3 alone and 7.7% in Q3 year-to-date. Profit growth is steadily increasing, and we continue to aim for full year double-digit growth.
Finally, today's summary. The consolidated results were just explained. We will promote each initiative of the satellite growth strategy toward a further growth orbit. In 5G communications, KDDI will promote initiatives for sustainable ARPU revenue growth and network quality improvement. In corporate business, we will promote KDDI business and accelerate customers' DX promotion based on our strength in telecom. In finance and energy business, we will further expand our customer base by synergy with telecommunications and will further evolve LX area for sustainable growth and realization of future society.
This concludes my explanation. We will now move on to the Q&A session. Thank you very much again for today.
Ms. Saishoji, thank you. Now we would like to entertain your questions. [Operator Instructions] First question, Daiwa Securities, Ando-san. Please unmute and raise a question. Ando, can you hear me?
Yes, we can hear you. Two questions. First question, ARPU revenues. This time, it's almost flat. As for the interpretation outlook, in the fourth quarter, it's likely to increase. share with me your interpretation. As I look at the substance subscribers, they are doing okay in terms of the ARPU. Perhaps you could have done better. That's how I look at it. But this is the breakdown. What are the factors behind? And going forward, regarding those factors towards the fourth quarter, how are they going to move? What is your outlook, please?
Thank you for your questions. Multi-brand ARPU revenues-related question, Amamiya will address your question.
About ARPU, first, communications ARPU revenues. They're brisk, right on track. Looking at the third quarter, if you look at the data, third quarter alone, minus JPY 900 million year-on-year. So this is negative figure with just by several hundred millions, but -- unfortunate. But first quarter through the third quarter, year-on-year, this difference has shrunk. So in the fourth quarter, it's likely to be on the positive territory so that we can have the growth in the next fiscal year. We are making efforts.
Regarding ARPU, regarding those where they're a bit weak as we look at the factors, voice and data. Regarding voice, was a bit weak last year. Concerning the voice, partly because of the COVID-19 the -- it was weak, but -- and we were not really able to see that. On the other hand, data has been enjoying steady growth, and we believe the data will continue to enjoy growth. So we believe that it's going to move into the favorable manner.
Communications ARPU revenues. First, through the third quarter, it enjoyed steady growth. Regarding the fourth quarter, because of the seasonal variation, every year, there's a little bit going down. But we hope that we can at least keep it flat. We even can do better. So please feel reassured.
Second question, Page 6, regarding that chart. At the very end, others, how should I interpret those others, plus JPY 16.7 billion? I think that's a cumulative number. But up to second quarter, that's plus JPY 15.5 billion. So first quarter, second quarter, as I look at this, second quarter, strong growth. First quarter, not much. So regarding the others part. To begin with, is it -- my interpretation, should I interpret that I shouldn't expect much growth or until December? Handout sales, they were really sold overwhelmingly. Maybe it's because of the IFRS impact. But the increase in the sales, that's part of the picture. And you expected it to grow a little more, but these others portion did not grow. And as a flat -- was the performance flat. How should I interpret this? That's my question.
Thank you for your question. In this material, Page 3, this is step chart. On the right-hand side, JPY 16.7 billion others. You raised that question. So allow me to address your question.
Others, JPY 16.7 billion, what are the major factors? As you can see, regarding the major ones, depreciation decrease. So the JPY 11.5 billion increase in income, we already disclosed them by quarter depreciation decrease. Regarding that size, no major changes. In the third quarter, it accumulated to JPY 11.5 billion.
Regarding others, how to use or support for configuration? Product support revenue increased. That's another positive factor regarding the numbers. I hope you will forgive me for not disclosing them. On the other hand, as you said, handset sales, device sales, as a result of the promotion, the sales support or commission, they incurred in rather large amount. So product support revenue increase was somewhat offset, especially regarding the sales promotion. There was significant activity in the third quarter. So the second to the third quarter, this positive increase was not so significant. Did I answer your question?
We will take the next question. [Operator Instructions] Next question, SMBC Nikko Securities, Mr. Kikuchi, please unmute yourself and ask the question.
This is Kikuchi speaking. I have 2 questions. First, is on the churn rate, the environment of churn rate. Third quarter compared to Q2 and on a year-on-year basis, sub-brand mix is increasing, and that is a large factor, I understand. So am I right?
And what I want to understand is the Q4, the telecom business law was revised at the end of December. And therefore, churn rate declined and the contract cost declined and sub-brand migration also slowed down. This is ideal to see that. But do you think that will happen or looking at the stores, that is unlikely? So the churn rate and your fourth quarter outlook, please. That is my first question.
Thank you for the question. So personal business question will be answered, especially on the competitiveness and churn rate. Amamiya will answer the question.
Thank you. For churn rate. As you rightly mentioned, the detail is au churn rate is improving. UQ is declining somewhat or the churn rate is increasing. But if we look further, the reason churn rate is rising is because the SIM-alone customers is -- churn rate is increasing, for customers with SIM only. If customers who buy with device, the UQ customers who buy with device, we see not much change. We don't see much change.
Going forward, telecom business law was revised. So SIM alone will also be regulated. So unlike third -- up until third quarter, we will not -- we cannot use money for -- much money for those who only go for SIM. So this part will be suppressed in the fourth quarter. So the churn rate there will move in the positive direction.
But on the other hand, with the revision of the business law, the movement of the devices up until December 26, there were some last-minute demand and sales increased. From the 27th, we see a decline, but this decline was only the first 2 weeks. After that, we're seeing a gradual recovery. And right now, it is pretty much flat year-on-year. So for the sales season in March, we will accelerate the device sales and increase ID numbers. Thank very much. I hope this answer your question.
So telecom business law revision impact in your financial results and on your competitiveness, what impact do you anticipate?
Thank you very much for the question. So the impact of the revision of telecom business law, Amamiya will answer the question.
So as I mentioned earlier, before and after December 27th, there were some big impact, but we are seeing a recovery after that. So going forward, we will try to achieve the last year's level, sell our device so that we can achieve last year's level and increase the number of IDs and the communication ARPU revenue. We hope that we can increase our results.
On the cost side, as you know, the acquisition cost will incur. But with IFRS, there will not be much impact on a single year basis. So we think this will be a positive.
So that was first point. And second point, at the beginning of the year, you said you will see a V-type recovery next year in the communications revenue. Does it seem likely? It doesn't really seem so. So for next year, to achieve your medium-term plan, I think you're still convinced that you will achieve the plan. If there are measures on cost side and revenue side to achieve the medium-term plan target, please share them with us.
Thank you for the question. So that question is for the consolidated basis or personal segment alone?
Overall, please, overall medium-term plan target.
For this fiscal year, financial results from third to fourth quarter, we talked about cost just earlier, we need to enhance our competitiveness in the fourth quarter. So to prepare ourselves to be more competitive, we need to invest more costs. But consolidated base -- consolidated operating income of JPY 1.080 trillion will still be pursued, the target we had at the beginning of the year and next year. I'm sorry to say this, but we want to share that with you along with the guidance when we announce the full year financial results. But we have been maintaining the operating income increase. So we want to maintain the trend and achieve profit increase. au business, we want to turn this around and no change in our stance there.
Next question, please. [Operator Instructions] Next question, Nomura Securities, Masuno-san. Please unmute yourself and raise your question.
There might be some overlapping regarding my question: number one, personal business; second, concerning the corporate business, so 2 questions. So sorry because there are a lot of follow-ups.
In the third quarter, communications ARPU year-on-year, it's not really an increase. The large capacity data increase and UQ Mobile, the relations about the mix in the fourth quarter, what's going to happen in the access charge in the fourth quarter? It's not going to go down compared with the previous year. In the fourth quarter, ARPU is likely to increase. But am I correct on sales promotion? As you mentioned already in your explanation, handset sales, there was a sales promotion with some commission. But using IFRS, I don't really think cost is incurred it -- because they are installments. And also churn rate, January and onwards, going back to year-on-year, I think you are referring to sales. What about the churn rate? Is it year-on-year? So sorry about the follow-up questions, but these are for clarification.
Thank you for your questions. Personal ARPU, churn and sales promotion cost, Amamiya will address your question.
First, about ARPU, at the risk of repeating myself, at the moment, we believe that it's recovering nicely. Regarding au, Money Activity Plan has been doing very well. And MAX plan, the unlimited plan, has seen a lot of increase. ARPU has gone up as well. As for UQ, Komi-Komi plan has been doing very well. Within UQ and meet capacity, large capacities of Komi-Komi and Toku-Toku, the ratio of these 2 have gone up. UQ, au, regarding by brand ARPU, they have been increasing nicely. So communications ARPU revenue are concerned, going forward, we believe this trend is likely to continue. So please interpret in this way.
Now about the churn. Regarding the January data, we don't have them out of hand. So we don't really know. But regarding January, because of the backlash of -- perhaps of the last-minute sales in December, churn rate seems to have increased a little, but I think it will recover.
And acquisition cost. Regarding the acquisition cost, as I said, with IFRS, it will be deferred. So in the single year basis, I don't think there's going to be a large impact. But in this fiscal year, it'll be listed. So that portion might increase a little. I hope I answered your question.
The fourth quarter, access charge will not go down so much as in the last years. So in the fourth quarter, year-on-year, ARPU perhaps is likely to go up. Am I correct? And the churn rate, compared with January March last year, it's about the same level. Could you clarify those points, please?
Sorry. Could you state your question again?
In the fourth quarter ARPU, in terms of data, it's expanding, and access charge negative portion is not so much as the fourth quarter in the previous year. So the ARPU in the fourth quarter year-on-year, it's going to go up. Am I correct in assuming that?
Yes, you are correct in assuming that. Regarding the impacts of access charge, without that, we believe that we can recover to the positive territory in terms of access charge. I think it's moving nicely. So year-on-year, we believe it is going to be in the positive territory.
But the churn rate, 4Q as -- fourth quarter as a whole, regarding that, we don't really know the outlook. We estimate -- it's difficult for me to say. Probably because of the revised telecom business law, I don't think the liquidity goes down. The liquidity should be raised to, year-on-year, almost comparable to the last year's results. That's what we are looking at. Thank you.
Next concerns corporate business, third quarter, fourth quarter, contact center business integration, Canada data center acquisition. There are M&A integration. There is an impact from those. So going forward, how the income will be increased? It's difficult to see it on the extension of the existing business. But looking at the next fiscal year, they may actually make a contribution, and there might be some organic increase. But in terms of operating income, double-digit growth is pursued, organic or including all these measures in the next fiscal year. No changes to that goal or objective. Am I correct in assuming that? Could you revisit to that again?
Thank you for your question. On that, Kuwahara would address your question.
Thank you. First of all, this fiscal year's income from the quarter 1 -- first quarter to the third quarter, first quarter and second quarter, there was no impact from M&A. So starting from the second half of the year that's been added, Canada data center and call center I'm talking about. And also the higher fuel cost compared with the previous year, there was some impact in the first half. But in the second half, that's gone. So starting from the third quarter, the income level has expanded. This -- regarding this fiscal year, since the beginning of the term, double-digit income growth is something we have been stating. So towards that goal, we would like to move steadily.
As for going forward, this data center, call center integration, the income from them, that will be felt on a full year basis in the next fiscal year. And NEXT Core business, steadily, they are enjoying growth. There are 3 areas, and each is enjoying growth. So in the next fiscal year, we believe that we can have that robust growth. I hope I answered your question.
We will take the next question. [Operator Instructions] Next question, Okasan Securities, Mr. Okumura, please unmute yourself.
Okumura from Okasan Securities. I have 2 questions, overlapping questions, one is the corporate and mobile competitive landscape. So towards the end of the year, Rakuten Mobile net add increase accelerated, I saw in the release. In corporate, I think it's the pure net add, so maybe not much impact on you. But is that the correct understanding? And January-March quarter, given this situation in this quarter, what is the business environment against peers? Any changes in the competitive landscape?
Thank you for the question. So corporate business, mobile situation, so mobile -- including corporate and mobile, Amamiya will answer that question.
So competitive landscape, especially vis-a-vis Rakuten, as you rightly said, corporate new subscribers is increasing. But on consumer side and the business side, corporate side, we do not see much impact. So 6 million mark was exceeded -- 6 million connections. But vis-a-vis MNP, no big difference. And we look at the roaming traffic and there's not much change there either. So no notable change. Did I answer your question?
And my second question is on next year's view, the operating income guidance, not numbers, but I want to ask you for the image. The roaming will decline, roaming revenue will decline, but ARPU will -- revenue will increase. And the focus area will increase, and cost efficiency can be -- can bear fruit. And so we think the profit, the income will jump up next year. Were there risks that you did not anticipate or any cost increase that you anticipate? Just the general direction is fine.
Thank you for the question. So let me answer your question. Right now, we are taking various measures for next year. And depending on how this builds up, our starting line will be determined. So in order to increase our income, we are taking thorough measures, our medium-term plan target. The revenue and operating income are now being revisited. So we will start discussing the plan for next year and then fix it and announce it in May. So the numbers and the breakdown will be in May. I hope you could wait until May.
But our general thinking is that we will continue pursuing for growth. So the focus areas are business segment, energy and finance businesses. So the increase -- income increased trend, this is what I would like you to take a look at going forward. I'm sorry for a very ballpark rough view. Does this answer your question?
Next question, please. [Operator Instructions] There seems to be no one who would like to raise a question.
With this, we would like to conclude the meeting on the fiscal year for -- ending March 31, 2024, KDDI's Q3 financial results. Thank you so much for joining us. [Statements in English on this transcript were spoken by an interpreter present on the live call]