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NTT DoCoMo DCM reported fiscal year-end results that were generally in line with our expectations, but margin guidance for this year was lower than we anticipated. We have put our fair value estimate under review as we revise our model projections. There is no change to our economic moat rating.

Revenue grew 5.4% year over year, a bit below our projection of 6.5%. DoCoMo increased its subscriber base by 2.3% to 61.5 million. It was particularly successful in selling smartphones, with the number of customers using them almost doubling during the year to 18.7 million, while its LTE customer base jumped more than 5 times to 11.57 million. These handset sales were the primary driver of DoCoMo’s top-line growth. However, some of this growth was offset by lower average revenue per user, as voice ARPU continues to drop faster than data revenue grows. This scenario is likely to continue throughout this fiscal year, which will negate continued subscriber growth. We think subscriber growth and data ARPU growth will be sufficient in the fiscal year ending March 2014 to offset the declines in voice ARPU.

The high handset sales also pressured DoCoMo’s margins. For the year, its EBITDA margin was 35.1%, which was a smaller drop than we anticipated. However, we had expected handset sales to decline this year, enabling margins to increase, but management’s guidance was for higher revenue due to even more handset sales and margins falling further. We will be adjusting our model accordingly.

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