NTT DoCoMo (
DCM), the largest mobile service provider in Japan, announced third quarter (ended December 31) fiscal 2009 financial results below our estimates. Performance was impacted by higher depreciation charges and other operating expenses.
The company currently maintains over 50% share of the Japanese wireless market. DCM's discount-priced service plans, together with installment-based systems for selling handsets, progressed as customer churn rates improved significantly. Stronger foreign currency rates, with respect to the Yen against Dollar, have also raised valuation levels of DCM ADR shares. Operationally, the company upgraded 98% of its total coverage area with 3G HSDPA technologies, and its emerging 4G LTE network is likely to be installed by 2010.
We reiterate our Buy recommendation and the same valuation target as our assessment indicates improved financial performance due to technological superiority.
Total revenue in the reported quarter was approximately ?1.1 trillion ($11.5 billion), down 7.2% year-over-year. Operating profit was ?170 billion, down 22% year-over-year. On a GAAP basis, net income in the 3rd quarter was ?91 billion, down 30% from the year-ago quarter. Categorizing revenue in terms of service offerings during the reported quarter, wireless services accounted for ?962.6 billion, down 7.8% year-over-year.
Equipment sales accounted for ?148.4 billion of revenue, up 28.7% year-over-year.? During the third quarter of fiscal 2009, DCM generated ?219.8 billion of cash from operations and used ?113.1 billion for capital expenditures, resulting in a positive free cash flow of approximately ?106.6 billion. DCM ended the reporting period with ?679.8 billion (US $7.5 billion) in cash, cash equivalents and marketable securities, and ?641.8 billion (US $7.1 billion) of debt outstanding on its balance sheet.
Management provided guidance that operating revenue for fiscal 2009 is expected to approximate ?4,597 billion. Operating income is expected near ?830 billion, with net income representing ?495 billion. EPS is approximated at ?11,786.08.
