Steady growth in focus areas fuels FY 25 results for KDDI

KDDI released its FY 25 results on May 14, 2025, with growth in both revenue and profits. Operating revenue increased 2.8% y/y to JPY5,918bn, supported by steady growth of communications ARPU revenue and other focus areas. Increase in mobile handset sales and growth in the finance business also fueled revenue. Operating income increased 16.3% to JPY1,118.7bn, with margins expanding by 219bp to 18.9%. Net profit rose by 7.5% to JPY685.7bn.

KDDI Corporation is a telecommunications company that was established in 1984 and is headquartered in Tokyo, Japan. The company operates in two segments – Personal Services and Business Services. The Personal Services segment provides services to individual customers and aims to offer enhanced value by expanding 5G telecommunication services and other services through the group’s multi-brands ‘au’, ‘UQ mobile’, and ‘povo’. On the other hand, the Business Services segment provides corporate customers with diverse solutions encompassing smartphones and other devices, network and cloud services, and Telehouse brand data center services.

The Personal Services segment accounted for the majority - 79% - of operating income in FY 25, while Business Services segment represents the remaining 21%.

Growth in key metrics

The group aims to accelerate its communication capabilities and launch direct satellite-to-smartphone communication service covering whole of Japan. Accordingly, the group achieved up to 40,000 people use per day i.e. maximum unique connections per day during April 10, 2025, to May 6, 2025. In addition, KDDI plans to advance its multi-brand strategy and accelerate DX penetration.

As a result, total ARPU revenues posted growth in FY 25, with Communications ARPU increasing by JPY6bn y/y to JPY1,487.3bn, and Value-added ARPU jumping by JPY42bn to JPY505.9bn. Smartphone subscriptions have also increased steadily to 32.9m units.

Encouraging outlook

Going forward, KDDI wants to promote its satellite growth strategy and sustain revenue and earnings growth. In addition, the company aims to increase mobile revenues through value-added enhancement; increase Finance, Energy and Lawson businesses; and grow DX centered businesses. It anticipates operating revenue and operating income of JPY6,330 bn and JPY1,178bn in FY 26, reflecting an increase of 7% and 5.3% respectively. Net profit is expected to rise by 9.1% to JPY748bn.

To increase its new revenue base, KDDI is looking to establish a new solution base that supports the AI era and accelerate business growth. Accordingly, the group has joined hands with NEC to collaborate in the cybersecurity space and signed an MOU for collaboration on May 8, 2025.

Increase in cash position

KDDI reported modest top-line growth over FY 19-24, with 2.5% CAGR to reach JPY5,754bn in FY 24. Operating income declined 1.5% CAGR over the same period, reaching JPY935bn in FY 24, with margins contracting by 362bp to 16.2% in FY 24. Net income therefore remained almost flat, posting a CAGR of 0.7% to JPY638bn in FY 24.

Despite a flat earnings trajectory, the group reported a big increase in its cash reserves over the same time, reaching over 4.3x to JPY887bn as of
end-FY 24, from JPY205bn as of end-FY 19, helped by robust cash inflow from operating activities.

In comparison, SoftBank Group Corp., a local peer, underperformed with a revenue CAGR of negative 6.8% over FY 19-24 to reach JPY6,756bn. Operating income declined at a CAGR of 9.5% to JPY560bn in FY 24.

Progressive dividend policy

Over the past 12 months, the company's stock has delivered impressive returns of approximately 19%, reflecting a positive fundamental trajectory. In comparison, SoftBank Group’s stock has fallen by 9.2% over the same period. In addition, the company paid an annual dividend of JPY72.5 in FY 25, resulting in an attractive dividend yield of 3.1%. Moreover, analysts expect an average dividend yield of 3.1% over the next three years.

The company is trading lower compared to SoftBank Group. KDDI is currently trading at a P/E of 14.8x, which is lower than SoftBank Group’s 17.8x. However, it is trading higher than its 3-year historical average of 14x.

Likewise, in terms of EV/EBITDA, the company is currently trading at 6.4x, which is much lower than that of SoftBank Group’s valuation of 16.3x. However, it is trading higher than its 3-year historical average of 5.7x.

KDDI is largely liked by 12 analysts, with eight having ‘Buy’ ratings and four having ‘Hold’ ratings for an average target price of JPY2,582.5. However, owing to the recent rise in share prices, the stock is close to its target price, implying limited upside potential: yet, any correction in stock prices in near term could provide a decent opportunity for investors to evaluate the company.

The analysts’ views are further supported by an anticipated EBITDA CAGR of 3.2% over FY 25-27, reaching JPY1,923.1bn, with margins of 31.2% in FY 27. In addition, analysts estimate a net profit CAGR of 6.6%, reaching JPY7,79bn with margins of 12.6% in FY 27, with EPS anticipated to increase to JPY205 in FY 27 from JPY169.3 in FY 25. In contrast, analysts estimate an EBITDA CAGR of 16.0% and net profit CAGR of negative 34% for SoftBank Group.

Overall, the company has prioritized growth acceleration over the coming years, while building new revenues bases through business cooperation and strategic partnerships. In addition, KDDI is committed to enhance the value of ‘Connected Experience’ by improving Life Time Value and reducing churn rate. However, it is prone to a few risks, including carbon taxation risk, increased power consumption, regulatory and stiff competition.