KDDI’s Second Quarter Slightly Below Expectations; We Reduce Our Fair Value Estimate to JPY 4,300

Narrow-moat KDDI’s second-quarter fiscal 2022 result (quarter ending September 2022) was slightly below our expectations with operating profit down 4.5% and net profit down 5.2%. Costs associated with the two-day network outage in July and the impact of fuel price hikes cost the company JPY 14.8 billion in the first half of the fiscal year and excluding these, first-half operating profit would have been flat. However, KDDI’s first-quarter results were boosted by a temporal accounting effect in its financial business relating to home mortgages that added around JPY 18 billion to operating profit, so underlying first-half operating profit was down around 3% on our estimate. Despite this, KDDI maintained its full-year guidance of reported operating income increasing by 3.7%, which implies an 11% year-on-year operating profit increase in the second half. The company is expecting a JPY 80 billion benefit as SoftBank Corp and NTT Docomo have outlined their intentions to switch off 3G services in January 2024 and March 2026, respectively.