‘


‘
‘



‘ ‘

Helsinge was the third largest asset management firm in Denmark with more than DKK 35 billion in
assets under management. The company was founded as an independent firm in 1969 with a group of
smaller Danish local and regional banks as investors providing a start up capital of less than DKK 10
million.

Helsinge basically managed more than 40 funds for private individuals, pension funds, mutual funds,
corporations and other major institutions. Helsinge also had two venture capital funds, one within the
biotechnology that was one of the largest in the Northern Europe and another within information
technology. After knowing the Helsinge asset management firm which manage the Japanese Fund,
let¶s investigate deeply in regards to its problem statements.

‘‘

Assistant Portfolio manager for the Japanese Fund in Helsinge Asset Management ( Helsinge), was
asked to review the attractiveness of one of the sectors under his coverage which was the Japanese
Telecom Sector. To obtain an immediate overview of that sector, he therefore requested a valuation
on the NTT DoCoMo Inc. NTT DoCoMo is the leading company within the Japanese wireless sub-
sector, as this sub-sector was viewed as the most uncertain part of the telecom sector. If this valuation
determined NTT DoCoMo to be reasonably priced, a more thorough analysis of the whole telecom
sector would be carried out- otherwise, the sector would be zero weighted in the fund for now and
reassessed at a future date. Before going in depth, discussing the case, let¶s look first what are the
Japanese Fund is all about and which company falls into this particular funds.

‘ ‘‘

The Japanese Fund was launch in October 1999 and their client consists of private and institutional
client. Consequently, the Japanese fund invested in two types of companies. Due to an expected
weakening Yen, the first type of companies included highly competitive international companies. The
second type included companies that had accepted the need for restructuring. However, to ensure that
the management of these companies were competent and willing to back up their stated plans of
restructuring with action, the portfolio managers often visited the company headquarters in Japan.
Also since, these companies often began restructuring because of liquidity and leverage problems,
only companies producing positive cash flows and with reasonable debt levels were included in the
portfolio. Now come the technical part which needs continues evaluation and rigorous calculation
especially in estimating the prime valuation technique.

c

Α‘

In evaluating the prime valuation used by the asset management team in Helsinge they implemented
the discounted cash flow model. In finance, ‘ ‘ ! (") analysis is a method of
valuing a project, company, or asset using the concepts of the time value of money. All future cash
flows are estimated and discounted to give their present values (PVs) ± the sum of all future cash
flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or
price of the cash flows in question.

Using DCF analysis to compute the NPV takes as input cash flows and a discount rate and gives as
output a price; the opposite process ± taking cash flows and a price and inferring a discount rate, is
called the yield. Discounted cash flow analysis is widely used in investment finance, real estate
development, and corporate financial management.

To verify the results from the DCF valuation, the valuation were backed up by a #‘ ‘
$ in which comparable companies were examined to determine, for example, the average
price relative to earnings example, the P/E multiple, at which the firm¶s stock prices were trading.
This comparison was meant to confirm whether the assumptions underlying the DCF model were
consistent with experiences market multiples.

·

A‘%‘

Assess the investment philosophy of Helsinge?

The investment ideology practiced by a professional money manager. For example, a portfolio
manager may seek maximum capital gains at the expense of volatile and uncertain returns. An
individual investor should choose a money manager with an investment philosophy that coincides
with the individual's investment objectives.

Investment philosophy is a general approach that directs the decisions related to the investing of
capital. An investment philosophy embodies a certain style or a set of core principles undertaken by
an investor. Choosing an investment philosophy is an important task. An investment philosophy may
be indicative of various personal and professional attributes. Thus an investment philosophy of a more
aggressive investor may tolerate substantial risk by focusing on high growth stocks, while a
conservative investor might instead be interested in stability and long-term rewards. Although each
investor may be guided by a unique investment philosophy, there are several well established
investment models frequently employed by both institutional and individual investors. These
investment philosophy archetypes include fundamental analysis, technical analysis, value investing,
growth investing, and contrarian investment philosophy. Now after knowing what is all about the
business philosophy, next section we will explain in details the Helsinge business philosophy.

Basically, Helsinge business philosophy was nested in the belief that knowledge and analysis was a
means to identifying undervalued companies in which investments would lead to superior for their
clients. This philosophy was carried out by the portfolio management team that, together with a
world-wide network of experts and advisers, selected stock which they felt, had an intrinsic value
lower than the current market value. The portfolio managers made extensive use of advisory boards
which were assigned to each specialised fund and consisted of a range in industry, economic and
political expert. The company is implementing value investment philosophy by choosing the
undervalue stocks that offer most attractive absolute return in the long-run. Now let¶s look at what
type of Japanese Fund invested into:-

The Japanese fund invested primary into 2 categories whereby:

ë‘ Highly competitive international companies

ë‘ Companies that had accepted the need for restructuring

The most undervalued stocks, measured by the difference between the estimated intrinsic value and
market value, were selected following the above guidelines. However, the allocation into a particular

J

stock, depended solely upon the portfolio manager¶s belief in the stock, not on the benchmark
weightings. Thus, if the portfolio manager liked a stock, it would have a significant weighting in the
portfolio. On the other hand, if a sector did not have interesting prospects, it would zero-weighted.
The aim of the fund was to select those undervalued stocks that would offer their clients the most
attractive absolute return in the long run.

So far, this investment philosophy had proven to be successful as, since launch, the fund had
outperformed the Japanese index, the Nikkei 225, by 40.16% (see Exhibit 3). A significant factor
contributing to this outperformance was the zero-weighting of the Japanese telecom sector, which had
a profound adverse effect on the Nikkei 225 during the fund¶s lifetime. First the Japanese Fund, set
up benchmark which is Nikkei 225 (Japanese Stock Exchange) which they initially outperform soon
which start from May 2000 which can be seen in the Exhibit 3. Significant factor that contributed to
this outperform was seen not well in the Japanese Telecom sector and was assigned as zero weighted.
But initially, this factor was performing well in Nikkei 225 during the fund life time.

^

A‘&‘

'‘‘‘‘ ‘ ‘‘(‘

Japan is among world's largest and technologically advanced producers of motor vehicle, electronic
equipment, machine tool, steel and nonferrous metal, ship, chemical, textile, and processed food and
is home to some of the largest and most well-known multinational corporations and commercial
brands. It is also one of the leading research nations in these sectors. We as a group think that, the
prospect there is good but then again the question of would the Japan economy able to sustain in the
long-run bringing profit especially for the Japanese Telecom sector.

r  !‘ ‘‘ ‘"‘‘)*‘

Initially, Japanese cellular phone services were introduced by NTT Public Corporation (NTT Public
Corp) in 1979. NTT Public Corp is actually falls under the government agency whereby its provide
domestic telecommunication services and becoming a monopoly conquering Japanese Cellular Phone
Market. However, in order to becoming more competitive NTT Public Corporation has gone into
privatization in 1985. Meanwhile, in year 1986 the Ministry of Posts and Telecommunications
decided to issue a licence to a new operator which results competition for NTT.

In the year 1993, the Ministry issued licences of digital cellular phone services to other newcomers
cause a few firms were consolidated and market become an oligopoly which consist of Softbank, NTT
DoCoMo, KDDI, and MVNO¶s (Mobile Virtual Network Operators). Ìn the year 1996, there is an
increase in the number of subscribers which cause by abolition of subscribers charges, reduction in
the monthly charges, and technological advances in handsets and this trend has increase in September
2009 which amounted to 109.6 million. Recently, the market has almost reached saturation point,
judging from low rate of market growth and high penetration rate of handsets. There has not been any
major reduction in prices since 2000. Now to have big picture, what makes the big players different
from others, in answering this question examine the Japanese culture and Japanese pattern purchase is
important.

Consumer infatuation with the cell phone is universal. Yet individual needs and preferences, shaped
by culture, importantly influence purchasing decisions. A recent JMR internet survey of Japanese,
American and Chinese consumers conducted by JMR sought to determine cultural differences
regarding consumers' cell phone preferences.

a

With a balanced sample of urban residents aged 15 to 49 in the three countries, consumers were
asked about cell phone usage and feature preferences. They chose among buying factors that
included carrier (service provider), price, phone features, phone design, and the brand maker of the
phone.

Consumers in all three countries agreed on the high importance of their cell phone in daily
communications: over 95% of Japanese and over 90% of Chinese and U.S. consumers said their cell
phone was central to their daily communications, contract lists and scheduling. Chinese and Japanese
agreed closely on the importance they placed on cell phones features such as built-in dictionary
features, GPS location finders, music loading and listening features and, for the lucky few with
devices that include the feature, television broadcast viewing. The next section will explain about the
NTTD DoCoMo development in the Japanese Cellular Phone Market.



‘")‘

In the late 1990¶s NTTD DoCoMo have stable share market around 57% stated under the
Telecommunications Carriers Associations (TCA). The company also had adopted the de facto
standard HTML which enabled large number of content producers to enter the market. Besides, the
company also installed software for i ±mode service on standard handsets in June 2000. At this time
market share NTT DoCoMo is approximately increase tremendously around 80% from July to
October 2000.

Even though NTT DocoMo had the advantage of scale, the other companies were not too far behind
in terms of the technology. They all provided their customers with the opportunity to go online, and
all came up with new and improved services and phones. J- Phone was actually the first to introduce a
phone with a built- in digital camera and the company was expected to launch its 3G services. The
second largest competitor, Cellular Inc, (au), was highly leveraged and had therefore decided to
upgrade its existing infrastructure to 2.5 G instead of investing in the brand new infrastructure that 3G
required. However, as NTT DoCoMo was experiencing problems with its 3G network, au could
actually offer its customers the industryµs most advance services.

This fact was very evident from the monthly market share figure from May 2002, where NTT
DoCoMo µs share had dropped to a record low of 34 percent. Due to the substantial improvement in
the market share, au decided to speed up its investment in 3G and was expected to introduce 3G
within the next 12 months. The only company that was not expected to invest in 3G was the last
market participant, Tu-Ka, which did not have a sufficient customer base to justify massive
investment in 3G. That is to say, although the introduction of value added services via advanced
handsets temporarily differentiates the operators from other competitors, these competitors soon catch
up with the advanced services developed by the first mover. „


 
 



   
   
 
   
 
 
  

  
 


 

The above mention data is mention about NTT DoCoMo and its competitors in the Japanese Cellular
phone market, now lets us come to reality where we can identify the current situation of Japanese
Telecom sector in depth details.

â

On August 6, 2010 Japan's Telecommunications Carriers Association (TCA) reported data for mobile
phone carriers' contacts for new subscribers. New subscribers total 557,900 in July 2010, including
the big players in the Japanese telecommunications market DoCoMo, au, and Softbank plus E-
Mobile, a firm offering only data transmission services. All four telecos combined gained a positive
YoY change of 46.1% point in July 2010. Despite having experienced declining subscriptions in
March 2010, Softbank is defending its market leader position in terms of new mobile subscriptions for
the fourth month in a row. Here is the graph showing the number of new subscribers between
different types of cellular competitors as of June 7, 2010.

On June 7, 2010 Japan's Telecommunications Carriers Association (TCA) reported data for mobile
phone carriers' contacts for new subscribers. New subscribers total 470,000 in May 2010, including
the big players in the Japanese telecommunications market DoCoMo, au, and Softbank plus E-
Mobile, a firm offering only data transmission services. Softbank racked up the most new subscribers
during in May 2010, reaching some 251,100 subscribers. The next highest subscriber gains were by
NTT Docomo with 113,200 new contracts in May. All four telecom combined gained a positive YoY
change of 165.8% in May 2010. Despite having experienced declining subscriptions in March 2010,
Softbank is now again leading the market in terms of new mobile subscriptions. Softbank, Apple's
designated agent for the iPhone in Japan, is expected to experience further increases in new
subscriptions due to the release of the immensely popular iPhone 4 at the end of June 2010.

After showing all these information, we have come up with the consensus that in the long period of
time, NTT DoCoMo will face strive competition with its other competitors in the market. The key
solution here is not to become first mover only and becoming stagnant at that particular stage only but
finding new continuous ways of developing new product innovation through extensive research and
development is strongly needed. Each cellular companies need to emphasize on their own
differentiation and not only imitate what the main players is doing, but rigorously developed unique
products which impossible for other competitors to duplicate. In doing so, there is a need to have

ù

collaboration with other developing countries example such as US or other countries in developing
new innovated products. Besides, Japanese also facing huge reduction in their numbers of population.
Below here illustrated some example.

Japan is now a day is facing a sharp decline in its populations as the number of deaths is
outnumbering the number of births in the country. This has impacted the growth prospects of the
country negatively. Longer life expectancy and low birth rates means that reducing Japanese
population is growing at a higher rate. This is an alarming situation for Japan especially during this
universal global recession time. In 2008, the government of Japan recovered 1.14 million deaths, the
highest ever in Japan since 1947. It was until 2005 that the number of births exceeded the number of
deaths. But the figures have changed drastically and in 2008 itself 1.09 million births and 1.14 million
deaths resulted in a population dip by over 50,000 people. Due to this population fall almost 25% of
the present Japanese population is of the age 65 and above, which further makes the Japanese
economy weaker. Due to declining Japanese population makes it Japanese Cellular Phone services
facing big trouble in finding new subscribers.

Surveying the market in the long- term services have become almost homogeneous among operators
and little room for product differentiation in the cellular phone market. In the long run the market is
not attractive provided if NTT DoCoMo able to developed proactive, innovative and creative
products and cellular phone services which unique from its other competitors in the Japanese Phone
Cellular Market which difficult for other competitors to copy. Another way of doing it is by stringent
the law especially laws concerning copyrights need to be seriously enforce as these new innovation
being protected from any competitors phone producers.

Late marriages and more working women are the primary two reasons for the reduced births in Japan.
The country has a low fertility rate on 1.36 as compared to USA, 2.10 and France, 1.98. Looking at
future prospect in the Japanese Cellular Phone Sector is not attractive due to saturation of the market
whereby all Japanese citizen having their own cellular phone. Besides, we also can see from the
exhibit showing the number of Japanese population is increasing but at the lowest rate whereby
almost the entire citizen is from the old generation and the number of birth rate is declining. Below
here is the Japanese population from the 1870 until 2100 which being estimated by the professional.



c
   
'

'
"
‘‘

Notes and sources:

1.‘ 1870 population is an estimate. The population of Japan in 1846 is given as 26,907,625 and in
1872 as 33,110,796 in the source quoted in note 2.
2.‘ Population of Japan 1875-1915 (Column 3) from  


,
Toyo Keizaishinbunsha (Toyo Economic Newspaper Co.) p.634.
3.‘ Population of Japan 1920-1985 (Column 2) from    
 „
 
, Toyo
Keizaishinbunnsha (Toyo Economic Newspaper Co.) p.23.
4.‘ Population of Japan 1990-1995, and the 2000-2100 population scenario from NSSPPRI
(National Social Security and Population Problem Research Institute: www.ipss.go.jp/)
5.‘ [

 are estimated peak populations

cc