February 4, 2019
By Sam Nussey
TOKYO (Reuters) – Japan’s SoftBank Corp will be under pressure to outline growth plans when it reports its first earnings as a public company on Tuesday, as concerns over a changing mobile market keep its shares well below their blockbuster IPO price.
Investors will also be looking for reassurance in the results that the telco can keep its promise of paying 85 percent of annual profit in dividends. Others will be seeking any hint of the health of majority shareholder SoftBank Group Corp, which relies on the telco’s cash to fund investments.
“Even if profits don’t grow as planned, there will be a strong focus on stable dividend growth,” Satoru Kikuchi, an analyst at SMBC Nikko Securities, said in a report.
The results cover a turbulent three months at Japan’s third-largest mobile phone network provider. In October-December, the firm suffered a network outage, fielded ongoing government calls for lower prices, and faced scrutiny over its ties to Huawei Technologies Co Ltd – a Chinese company whose telecoms equipment Western powers fear could be used for espionage.
Pressure is set to continue in 2019 as market-leader NTT Docomo Inc trumpets its annual “return” of 400 billion yen ($3.64 billion) to customers and e-commerce firm Rakuten Inc becomes the fourth major wireless carrier from October pledging low prices.
The quarter also saw SoftBank conduct Japan’s largest-ever IPO. However, the stock dropped 15 percent on its Dec. 19 debut from its 1500 yen IPO price, leaving its overwhelmingly domestic retail investors underwater and cooling broader investor sentiment, finance executives said.
(For an interactive graphic on SoftBank Corp shares, click here https://tmsnrt.rs/2sWq440)
The stock now trades about 20 percent below the 1,600 yen average target price of 13 analysts compiled by Refinitiv. Seven analysts recommend or strongly recommend buying the stock, whereas six suggest holding or selling.
Nomura Securities analyst Daisaku Masuno wrote in a report that SoftBank should be able to grow as market uncertainty fades through its strategy of appealing to heavy users through its industry-leading 50 gigabyte data plan while offering low-price plans through its Ymobile brand.
SoftBank forecasts operating profit to rise 10 percent to 700 billion yen for the year through March. That compares with the 691 billion yen average of 13 analyst estimates compiled by Refinitiv.
The firm will report third-quarter earnings at 15:00 (0600 GMT) and hold a briefing with Chief Executive Ken Miyauchi from 16:00. Refinitiv data showed just one analyst has published an estimate for third-quarter operating profit, at 167 billion yen.
The IPO furthered parent SoftBank Group’s transformation into a technology investor, raising it 2.35 trillion yen and leaving it with two-thirds of the telco. The IPO also placed a value on one of the largest parts of founder Masayoshi Son’s empire, giving the telco a market capitalization of 6.48 trillion yen ($58.99 billion).
However the valuation has done little to boost the parent’s stock price, which Son has called unreasonably low. The parent has risen 16 percent this year, but is still 27 percent below its September peak, having tumbled on concerns about financial ties to Saudi Arabia following the murder of a Saudi journalist.
(Reporting by Sam Nussey; Editing by Christopher Cushing)