NTT Corp.: Fiscal 2024 Guidance for Earnings Declines; Fair Value Estimate Decreased

We reduced our fair value estimate for Nippon Telegraph and Telephone Corp. to JPY 162 per share from JPY 172 following a fiscal 2023 result (fiscal year ended March 2024) and guidance that were below our expectations. Our narrow moat rating for NTT based on efficient scale is also retained, with the firm still earning returns on invested capital above its weighted average cost of capital. We see the shares as undervalued at these levels. Fiscal-year revenue was up 1.8% year on year, with operating profit up 5.1% and net profit up 5.5%. However, revenue was boosted to the tune of JPY 200 billion because of weakness in the Japanese yen, and there were also increased asset sales. Guidance for fiscal 2024 is for revenue increasing 0.6%, operating profit declining 5.9%, and net profit declining 14%. Guidance for dividends is for an increase to JPY 5.20 in fiscal 2024 from JPY 5.10 in fiscal 2023, implying an increase in the dividend payout ratio, which we believe NTT can easily afford given the new dividend payout ratio will still only be 38%.