KDDI CORPORATION Q2 FY2027 earnings call

• Financial Strength: Both operating revenue and profit exceeded initial plans in the first half, marking a strong start under the new midterm management plan.
• Mobile Business Stability: Smartphone subscriptions reached 33.34 million (+420,000 YoY), churn rate improved to 1.18%, and ARPU rose 1.6% to JPY 70.
• Strategic Shifts: Emphasis on long-term customer retention over short-term acquisition; migration of subscribers from UQ to au is accelerating, with combined high-tier plan penetration exceeding 4 million.
• AI and Data Center Strategy: Moving beyond scale to value layering. Two models identified: 'Connectivity Model' (high profitability per megawatt via TELEHOUSE) and 'AI Factory Model' (selling computing resources/GPUs). Sakai facility serves as the launch base for social implementation of physical AI.
• Physical AI Initiatives: Established ELYZA Robotics with targets of JPY 30 billion R&D investment, over 300 specialists, and 1,000 robots. Signed alliance with newmo for autonomous driving taxi operations in Sakai.
• Portfolio Review: Decided to sell Kakaku.com and review other portfolios to improve ROI and viability, resulting in significant one-off adjustments.
• Capital Allocation: Interim dividend increased 5% to JPY 42. Management expressed confidence in earnings stability and intends to reinvest excess cash into growth investments and share buybacks.

Telecom Core: Revenue grew 16.7% year-on-year, driven by a JPY 28 billion increase in mobile communication and a JPY 34.3 billion increase in other segments (largely due to cost structure transformation). Personal Growth: Achieved growth despite transient negative impacts from finance (due to loan-to-deposit normalization efforts) and energy (cooler summer). Business Growth: Revenue increased 18.8% year-on-year with steady profit growth across all areas.

• Operating Income Target: Confident of achieving the fiscal year's operating income target, noting that revenue from Rakuten roaming will materialize in the second half.
• Profitability Outlook: Acknowledged that reported profit is below consensus due to defense tax increases and higher interest expenses, but committed to driving stronger profit growth.
• Medium-Term Growth: Targeting 5% plus alpha organic growth in the medium term by utilizing profits and cash generated.
• Second Half Dynamics: Anticipated decline in Telecom Core adjusted operating profit year-on-year, partially offset by timing differences in Rakuten roaming profits and strategic investments.

• Portfolio Divestment Impact: Significant non-cash adjustments and potential future volatility due to the sale of Kakaku.com and other portfolio reviews.
• External Environment Sensitivity: Energy business performance is vulnerable to weather conditions (e.g., cooler summer reducing demand).
• M&A Execution Risk: Past challenges with leveraging acquired companies led to goodwill impairments; management acknowledges the need for selective M&A and structural reinforcement of the M&A department.
• Regulatory and Tax Costs: Increased pressure on profits from defense taxes and rising interest expenses.

Q: Tokunaga asked about the source of first-half overachievement and the impact of selling Kakaku.com.

A: Matsuda explained that overachievement stemmed from cost control and organic mobile growth, with tech costs delayed to H2. Katsuki noted Kakaku.com sale yields ~JPY 110 billion cash-in via TOB, with tax effects impacting H2 profit.