KDDI Earnings: Revenue Beat on Business Service Segment, but Operating Profit in Line

Narrow-moat KDDI’s first-quarter fiscal 2024 result (ending June 2024) was ahead of our estimates on revenue, but broadly in line at the operating profit level. We retain our fair value estimate for KDDI at JPY 4,500 and see KDDI shares as fairly valued. First-quarter revenue increased 4.2% year on year driven mainly by the business services segment, which grew 19.6% year on year. In the business services segment, digital business process outsourcing revenue was up 90% year on year to JPY 59 billion, Internet of Things revenue up 27% to JPY 38 billion, and data center revenue up 18% to JPY 33 billion. These are growth areas for telecom companies that we see across most telcos in the Asian region. Consolidated operating profit was up 3.9% driven by the financial and energy business, Lawson, and BPO. Net profit was broadly flat and the company made no change to its full-year guidance of revenue to grow 0.3%, operating profit to grow 2.7% from the underlying fiscal 2023 level, and net profit to grow 1.2% from the underlying fiscal 2023 level.