SoftBank Earnings: Fiscal 2023 Guidance Poor, Financial Business Promising; Lifting FVE to JPY 1,450

SoftBank’s 9434 fiscal 2022 result (year ending March 2023) was in line with our estimates, but its guidance for fiscal 2023 operating profit of JPY 780 billion is around JPY 100 billion below consensus and our previous estimate. Like many management teams, we suspect SoftBank is being conservative with this guidance, but we have still downgraded our fiscal 2023 operating profit estimate to JPY 830 billion. Despite this, we have lifted our fair value estimate to JPY 1,450 from JPY 1,400 previously as we see positive progress, particularly from its financial business, helping to lift our medium-term forecasts. We see SoftBank shares as fairly valued. Our narrow moat rating based on cost advantage and efficient scale in SoftBank’s core telecom business is retained. Our forecasts for underlying average operating profit growth over the next five years is 7.5%, driven mainly by forecast growth in payment services, Z Holdings and some recovery from the impact of mobile price declines. However, we can never rule out another bout of mobile price reductions, given that Rakuten’s customer base on its mobile network fell to 4.49 million in December 2022 from 4.91 million in December 2021, and it will likely need many more customers to have a durable mobile business.

SoftBank reported operating profit growth of 9.8% to JPY 1,060 billion in fiscal 2022 and net profit growth of 2.8% to JPY 531 billion; however, this includes a JPY 295-billion pretax, JPY 195-billion post-tax PayPay revaluation gain. Underlying fiscal 2022 operating profit declined 21% to JPY 765.4 billion, with underlying net profit declining 35% to JPY 336.1 billion. The decline in underlying operating profit was largely driven by the negative impact on the consumer business from mobile service price reductions (new price plans and the net move of customers from the premium SoftBank brand to the cheaper Ymobile and Linemo brands).