We downgrade our recommendation for Nippon Telegraph & Telephone Corp. (NTT) to Neutral, which means the stock will perform in line with the broader market. Overall performance has been impacted by less-than-anticipated sales of mobile handsets due to weak economic conditions in Japan together with significant declines in average revenue per user (ARPU) as subscribers migrate to discounted service plans.
The company faces intense pricing pressure from smaller telecom service providers. Nippon Telegraph & Telephone’s leveraged balance sheet may limit higher valuation levels over the near-term.
Nippon Telegraph & Telephone is one of the largest phone companies in the world, mostly serving Japan, with approximately 54 million fixed-line customers and 54.16 million wireless subscribers. However, the wireless subscriber market in Japan is nearing saturation.
Lower service pricing, as part of the competitive environment, will lead to lower revenue per user and tighter margins, unless new offerings can be marketed effectively. The potential for added revenue from new data services is limited relative to other markets, as wireless data services, partially pioneered in Japan, have been available longer than in any other market.
Management has taken various measures, including selected international opportunities, to drive future growth. The company is continuously upgrading its product offerings. Recently, Nippon announced that the company has developed a new transmission system that will enable in-built video quality monitoring. However, lingering economic weakness in Japan together with a severely competitive wireless market is putting pressure on the top-line of the company. International ventures have yet to provide any meaningful contribution.
Read the full analyst report on “NTT”
Zacks Investment Research
