KDDI Corp
TSE:9433
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KDDI Corp
Earnings Call Analysis
Q1-2025 Analysis
KDDI Corp
KDDI Corporation reported strong financial performance for the first quarter of fiscal year ending March 2025. Consolidated revenue increased to JPY 1,389.1 billion, reflecting solid progress towards their yearly goals. Operating income reached JPY 277 billion, and the profit attributable to the parent company's owners hit JPY 176.9 billion, demonstrating a healthy growth rate of 25.6%.
The main contributors to the revenue surge were the Multi-brand communications ARPU and the Financial and Energy businesses, which saw increases of JPY 2.9 billion and JPY 4.6 billion respectively. The DX and Business Services segment played a pivotal role as well, contributing an additional JPY 5.4 billion. Notably, the operating income of this segment increased by 11.2% year-on-year, setting the stage for expected full-year double-digit growth.
KDDI is heavily investing in technology to stay ahead. They have deployed 39,000 high-speed 5G Sub6 base stations, which are three times faster than 4G. They also introduced dual-frequency Massive MIMO technology for the first time in Japan. This, combined with 100 new mountain hut WiFi spots using Starlink, is part of their strategy to improve connectivity quality and customer satisfaction.
Generative AI is a focus for KDDI, with plans for large-scale computing infrastructure and Japanese Large Language Model (LLM) development with partners like ELYZA and NICT. Their investment includes a mid- to long-term CapEx of about JPY 100 billion, including the potential establishment of an AI data center at Sharp's former Sakai plant.
The Personal Services segment showed positive momentum with a significant increase in smartphone subscriptions. The overall churn rate improved by 20%, and communications ARPU saw a 10% rise. The au Money Activity Plan has been popular, with subscribers increasing their use of financial services significantly, which bodes well for sustainable growth.
In the Business Services segment, operating revenue reached JPY 333.4 billion, marking a 16.3% year-over-year growth. Growth areas within the segment saw a 39.2% year-over-year increase, driven by strong performance in IoT-related services and data centers. The company is committed to accelerating digital transformation (DX) solutions tailored to various industries.
KDDI plans to hold the KDDI SUMMIT 2024 in September to showcase their vision of communication and AI. They also entered into a TEAM JAPAN gold partnership for the Paris 2024 Olympics. Meanwhile, their collaboration with ELYZA and NRI aims to deliver high-security AI solutions for corporate use.
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We now would like to begin the results announcement of KDDI Corporation for the first quarter fiscal year ending in March 2025. I will be the moderator today. I am [ Nakoji ] of -- General Manager, Public Relations Department of KDDI.
This press conference is held in person as well as multiple stream planning services such as YouTube. And the materials for this document is posted on KDDI's website, particularly three financial-related documents available for your reference. Please check at your convenience. And those of you who are in the venue, please look at your handout.
Let me introduce the presenters for today. President, Representative Director and CEO, Makoto Takahashi; Managing Executive Officer, Director, CFO, Executive Director, Corporate sector, Saishoji Nanae; Executive Officer, Executive Director of Corporate Management division of the Corporate sector, Kenji Aketa; General Manager of Accounting Department, Shigeru Ezoe. These four are the presenters for today.
I would like to now call upon President Takahashi.
Thank you very much. Let me explain fiscal year 2025 first quarter financial results. First is consolidated results. Consolidated revenue and income increased in Q1 of FY ending March 2025. On the left, operating revenue was JPY 1,389.1 billion with progress towards full year forecast of 24.1%.
In the middle, operating income was JPY 277 billion with progress rate of 25%.
On the right, profit for the period attributable to owners of the parent was JPY 176.9 billion with progress rate of 25.6%.
Next are the factors for change in consolidated operating income. From the left, Group MVNO revenues and Rakuten roaming revenue is down JPY 6.2 billion year-on-year. Multi-brand communications ARPU revenue up JPY 2.9 billion. Financial and energy businesses, up JPY 4.6 billion. Lawson's equity method investment income, up JPY 2.2 billion. DX and Business Services segment, up JPY 5.4 billion. Communications ARPU revenues increased and focus areas such as DX are driving growth, resulting in an increase of JPY 10.3 billion.
Next, key points of consolidated financial results for Q1 of fiscal year ending March 2025. On the left, communications ARPU revenues exceeded Q1 of fiscal year ended March 2023 level, offsetting the impact of price cuts and are trending upwards. On the right, operating income of Business Services segment increased by 11.2% year-on-year and is progressing as expected toward full year double-digit growth.
I will now explain the various topics of the Satellite Growth Strategy, starting with 5G and generative AI in the center.
Regarding connectivity quality, we focus on initiatives that connect customers every day and extraordinary. Left side, we are deploying high-speed 5G Sub6 areas in high density. We have deployed 39,000 Sub6 base stations, which is the highest in the industry, and 5G speeds are about 3x faster than 4G conversion.
In addition, dominant frequency bands will be leveraged, as shown on the right. In addition to having 2 frequency allocations in close proximity, dual-frequency Massive MIMO will be introduced for the first time in Japan. This will contribute to efficient connectivity improvement in area expansion. As Sub6 enters full scale use phase, we aim to make au the customer's choice for connectivity quality.
We are also promoting area development, connecting the extraordinary tailored to customer usage scenes. On the left, mountain hut WiFi using Starlink has been expanded to 100 locations centering on 100 famous mountains.
On the right, we provide comfortable communication environment at events such as festivals and fireworks as well as on Mount Fuji and at sea by developing WiFi environments and using mobile base stations.
Next is our generative AI initiatives. We will accelerate corporate use of generative AI to drive business transformation in 3 areas: large-scale computing infrastructure development, LLM development and solution provision, leveraging partnering as a strength. On the left, for the development of large-scale computing infrastructure, we plan for mid- to long-term CapEx of about JPY 100 billion, utilizing grants from METI, Ministry of Economy Trade and Industry. We are also discussing the construction of AI data center on Sharp's former Sakai plant.
In the middle, for LLM development, we will work with ELYZA and NICT on the development of Japanese LLM using open model and joint research on LLM enhancement.
On the right, in solution provision, we will collaborate with Altius Link, our next-generation contact centers; and with NRI, Nomura Research Institute, to promote the use of highly secure AI.
Next is our cooperation with ELYZA. Left side, our partnership with ELYZA allows us to use open model and save computational resources and time required for LLM development.
Right side, ELYZA's strength is rapid development of high-quality Japanese LLMs. In June this year, ELYZA achieved the highest accuracy Japanese LLMs equivalent to global models in about 2 months based on Meta's Llama 3. Together, we will streamline LLM development resources and aim for speedy value delivery.
We are also accelerating the social implementation of generative AI. On the left, we offer next-generation contact center. ELYZA has a track record of introducing multiple AI products, including contact centers of large corporations. In addition, au contact center use AI in the customer service and has accumulated much experience and know-how. By leveraging these achievements and strengthening group cooperation with Altius Link, we will further upgrade our contact center.
In July, we started a 3-way collaboration with NRI and ELYZA, as shown on the right. We will provide AI solutions with high security and accelerate corporate use of GenAI.
Next is Personal Services segment. First is the momentum for the Personal Services segment. On the left, smartphone subscriptions, which is the foundation of the growth, is increased. And the smartphone subscriptions, which is the foundation for the ARPU growth, is increased.
And on the right -- while on the right, churn rate for multi-brand [ ID ] is rising. Those for au, our main brand, remains small.
Next is the status by brand towards communications ARPU growth. On the left, au, UQ mobile, each of the ARPU is growing. Many subscribers choose unlimited data plan of au or medium to high capacity plans of UQ mobile.
On the right, this is the conversion from UQ mobile to au. This was about 2.2x of those of a year ago. Many customers are converging from UQ mobile to au, and the percentage for UQ mobile users who migrated to au contracts is also increasing.
This is to expand value-added services to contribute to the continued growth of the communications of the Personal Services segment. On the left, expanding value-added services through bundling with the telecom services.
On the right, among those, au Money Activity Plan, which is a combination of communications and the financial services are winning popularity, and number of users exceeded 1 million in July.
The synergy contribution to the growth of the communication is one of the example. And the churn rate has improved by about 20%, and communications ARPU is approximately 10% up. So these are the synergy between the communication and the financial services.
Communications plus value-added synergy improve the growth of the value-added services. On the left, au Money Activity Plan increases the use of financial services. au Jibun Bank account holder rate of Money Activity Plan subscribers is approximately 4.8x of the total au subscribers.
On the right, synergy is positive. Bank business is growing in a well-balanced manner, both deposit as well as loan, which are growing over 50% year-over-year for each. In particular, housing loan is performing quite well. The total loans disbursed exceeded JPY 4.5 trillion.
Next, let me present on the Business Services segment. By promoting communications plus value-added strategy, growth area grows in a steadfast manner. On the left is the operating revenue, which was JPY 333.4 billion, which was 16.3% year-over-year. In particular, growth area drives double-digit growth at 39.2% year-over-year.
Of a strong area, IoT-related services, data center and digital GPPO marked a double-digit growth.
On the right, IoT questions grew 29.8% at CAGR, expanding the customer contact points for data collection and utilization.
Next is about WAKONX. Our company is providing our business platform, which fits to the AI era, which we are accelerating customer's DX through industry-by-industry approach.
On the right, by promoting DX solutions for industry's common challenges, customer's burden of digital investment is reduced, and thus, customers can enhance investment for their own competitiveness. And KDDI provides connection points and data or AI to assist customers to improve competitiveness and enhance their added value. We are poised to continue to upgrade our platform so that customers find it easier to use and KDDI can innovate with customers.
These are the cases for logistics DX by industries. Working with partners to create solutions for industry challenges, we are providing solutions. On the left, we've started discussion and opened joint delivery with ITOCHU Corporation using digital technology.
On the right, as for warehouse automation, a company named Nexa Ware was established with Tsubaki, utilizing strength of each. Nexa Ware will provide one-stop warehouse DX services for warehouse operation and manpower optimization.
In digital BPO, leveraging data and AI to solve customer needs and improve customer experience around Altius ONE.
On the left, which is the value co-creation platform services called Altius ONE. This will be promoted to help support customers for their data-driven business transformation.
And on the right, our group company, ELYZA, as well as FLYWHEEL, are fully cooperating with us. And we'd like to utilize the strengths of holding the support resources of Microsoft Copilot, which is the top in the industry, and we would like to further sophisticate the digital BPO services going forward.
In order to showcase our vision of communication and AI, next month on the 3rd and 4th of September, we will hold the KDDI SUMMIT 2024. The WAKONX that we present earlier and sports, entertainment and other, latest examples are going to be presented. On the first day, President Nagasaki of OpenAI Japan is invited to talk about the potential of telecommunication and AI.
On the right, KDDI entered into a TEAM JAPAN gold partnership agreement with Japan Olympic Committee and supporting TEAM JAPAN, which is the Japan's national athletic team for Paris 2024 Olympics with the power to connect. We also provide international media transmission services to deliver exciting moment to Japan. We are seeing a great momentum, so we'd like to fully support this event. We will further advance power to connect via latest technology, telecom and AI, and we are aspired to become a company continuously producing excitement.
Next is regarding status of Lawson shares acquisition. Lawson shares are delisted in July and smooth progress focusing on acquisition of shares are expected towards the end of September. Lower half completion of squeeze out, actions and strategies are being discussed among Lawson, Mitsubishi Corporation, KDDI. We'd like to make the further efforts in this regard.
This is the summary for today's discussion. Revenue and income increased for the first quarter for fiscal year ending in March '25 and this is completely in line with the full year forecast. And communications ARPU revenue increased, and focus areas such as DX are driving the growth.
Satellite Growth Strategy. Core is the telecommunication, #1 in Sub6 base stations with high-speed 5G making au the customer's choice for connectivity quality.
Through partnering as strengths, we promote the use of generative AI in companies and business transformation.
In the Personal segment, steady growth and positive momentum in each brand's ARPU. And aim for sustainable ARPU revenue growth through communications plus value-added synergies.
For the Business segment, growth area drives the growth of Business Services segment. And we are accelerating the initiatives of WAKONX, which is the business platform for AI era.
Thank you very much for your kind attention. We will have Q&A.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]