Hopes for Rakuten Mobile Turnaround With Possible Platinum Band Reallocation; Cut FVE To JPY 1,000

Rakuten’s third-quarter results were below expectations, mainly due to a slower-than-expected improvement in the mobile segment’s profitability, as a result of lower retention of paid customers and higher-than-expected network costs (including roaming costs). Based on this, we cut Rakuten’s fair value estimate to JPY 1,000 from JPY 1,100 after toning down the operating income projections of the mobile segment in the next two years. Although the prospect of acquiring rights to use the platinum band is positive for Rakuten, it will still take some time before the network quality actually improves. Therefore, we are concerned that the capital expenditure burden on building base stations and marketing costs will continue to put pressure on Rakuten’s earnings for the time being. While we retain our view that Rakuten’s shares are undervalued, we will keep a close eye on the company’s fundraising strategy.