Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

As SBI goes hostile on Shinsei Bank, Travis has covered the details on the tender <a href="https://www.smartkarma.com/dashboard?collection=all-insights&amp;item=57426" target="_blank" rel="noopener">here</a>. In order to examine the potential resting place of Shinsei Bank shares after SBI Holdings’ tender concludes, we provide below a valuation comparison vs. a variety of peers.

As SBI goes hostile on Shinsei Bank, Travis has covered the details on the tender here. In order to examine the potential resting place of Shinsei Bank shares after SBI Holdings’ tender concludes, we provide below a valuation comparison vs. a variety of peers.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</div><div>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/wuxi-apptec" target="_blank" data-smartkarma-citation="entities:23679:1" rel="noopener">Wuxi Biologics (2269 HK)</a> and <a href="https://www.smartkarma.com/entities/haier-electronics-group-co" target="_blank" data-smartkarma-citation="entities:4877:1" rel="noopener">Haier Electronics Group Co (1169 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> and <a href="https://www.smartkarma.com/entities/want-want-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:355:1" rel="noopener">Want Want (151 HK)</a>. Shorts increased in Real Estate, Health Care, Communication Services and Financial stocks, and decreased on Information Technology and Consumer Discretionary names.</div><div>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/showa-denko-k-k" target="_blank" data-smartkarma-citation="entities:1496:1" rel="noopener">Showa Denko K.K. (4004 JP)</a>, <a href="https://www.smartkarma.com/entities/pigeon-corp" target="_blank" data-smartkarma-citation="entities:3294:1" rel="noopener">Pigeon Corp (7956 JP)</a>, <a href="https://www.smartkarma.com/entities/change-inc" target="_blank" data-smartkarma-citation="entities:27414:1" rel="noopener">Change Inc (3962 JP)</a> and <a href="https://www.smartkarma.com/entities/nippon-building-fund-inc" target="_blank" data-smartkarma-citation="entities:1900:1" rel="noopener">Nippon Building Fund (8951 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a>, <a href="https://www.smartkarma.com/entities/advantest-corp" target="_blank" data-smartkarma-citation="entities:18107:1" rel="noopener">Advantest Corp (6857 JP)</a>, <a href="https://www.smartkarma.com/entities/tdk-corp" target="_blank" data-smartkarma-citation="entities:18847:1" rel="noopener">TDK Corp (6762 JP)</a> and <a href="https://www.smartkarma.com/entities/aozora-bank-ltd" target="_blank" data-smartkarma-citation="entities:6483:1" rel="noopener">Aozora Bank Ltd (8304 JP)</a>. Sectorally, shorts increased on Materials, Industrials, Real Estate and Consumer Discretionary names.</div><div>In Korea, the biggest increase in shorts were seen on <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a> and <a href="https://www.smartkarma.com/entities/doosan-infracore-co-ltd" target="_blank" data-smartkarma-citation="entities:3982:1" rel="noopener">Doosan Infracore (042670 KS)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/amorepacific-corp" target="_blank" data-smartkarma-citation="entities:20854:1" rel="noopener">Amorepacific Corp (090430 KS)</a>, <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-display-co-ltd" target="_blank" data-smartkarma-citation="entities:7145:1" rel="noopener">LG Display (034220 KS)</a> and <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>. </div><div>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/largan-precision-co-ltd" target="_blank" data-smartkarma-citation="entities:9126:1" rel="noopener">Largan Precision (3008 TT)</a>, <a href="https://www.smartkarma.com/entities/pegatron-corp" target="_blank" data-smartkarma-citation="entities:12852:1" rel="noopener">Pegatron Corp (4938 TT)</a>, <a href="https://www.smartkarma.com/entities/pan-jit-international-inc" target="_blank" data-smartkarma-citation="entities:12501:1" rel="noopener">Pan Jit International (2481 TT)</a> and <a href="https://www.smartkarma.com/entities/elite-semiconductor-memory" target="_blank" data-smartkarma-citation="entities:9373:1" rel="noopener">Elite Semiconductor Memory (3006 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/macronix-international" target="_blank" data-smartkarma-citation="entities:3247:1" rel="noopener">Macronix International (2337 TT)</a>, <a href="https://www.smartkarma.com/entities/yageo-corporation" target="_blank" data-smartkarma-citation="entities:13212:1" rel="noopener">Yageo Corporation (2327 TT)</a> and <a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a>. </div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Tencent Holdings (700 HK), Ping An Insurance (H) (2318 HK), Wuxi Biologics (2269 HK) and Haier Electronics Group Co (1169 HK) while there was short covering on Alibaba Group (9988 HK), Meituan (3690 HK), Xiaomi Corp (1810 HK) and Want Want (151 HK). Shorts increased in Real Estate, Health Care, Communication Services and Financial stocks, and decreased on Information Technology and Consumer Discretionary names.In Japan, stocks that saw the most shorts were Showa Denko K.K. (4004 JP), Pigeon Corp (7956 JP), Change Inc (3962 JP) and Nippon Building Fund (8951 JP) while shorts decreased on Fast Retailing (9983 JP), Advantest Corp (6857 JP), TDK Corp (6762 JP) and Aozora Bank Ltd (8304 JP). Sectorally, shorts increased on Materials, Industrials, Real Estate and Consumer Discretionary names.In Korea, the biggest increase in shorts were seen on LG Chem Ltd (051910 KS) and Doosan Infracore (042670 KS) while shorts were covered on Amorepacific Corp (090430 KS), Celltrion Inc (068270 KS), LG Display (034220 KS) and Samsung Electronics (005930 KS). Stocks in Taiwan that saw the highest increase in shorts were Largan Precision (3008 TT), Pegatron Corp (4938 TT), Pan Jit International (2481 TT) and Elite Semiconductor Memory (3006 TT) while shorts were covered on TSMC (2330 TT), Macronix International (2337 TT), Yageo Corporation (2327 TT) and Mediatek Inc (2454 TT). 

Asia Short Interest Weekly: Tencent, Want Want, Showa Denko, NBF, LG Chem, AmoreCorp, Pegatron

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Mizuho Financial Group / Equity Bottom-Up

A 15% improvement in net interest and fee income (NIFI), tremendous loan growth (+8.6% YoY), widening loan margins and a ten-fold improvement in core earnings were not enough to prevent interim FY3/2021 results for <a href="https://www.smartkarma.com/entities/mizuho-financial-group-inc" target="_blank" data-smartkarma-citation="entities:219:1" rel="noopener">Mizuho Financial Group (8411 JP)</a>  (MHFG) from falling 25% YoY.  A 7-fold surge in credit costs to ¥81.22 billion and impairment losses on cross-shareholdings of ¥55.2 billion put paid to that.  Even so, consolidated net profits of ¥215.52 billion represented two-thirds of full-year guidance, which has now been raised from ¥320.0 billion to ¥350.0 billion (down 22% YoY).
The shares have risen 17% in the last six months but are still 18% below where they were this time last year.  Curiously, this means that, on a 12-month basis, MHFG has managed to outperform not only arch-rivals <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a>  and <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-group-inc" target="_blank" data-smartkarma-citation="entities:217:1" rel="noopener">Sumitomo Mitsui Financial Group (8316 JP)</a> but the other four major banks as well.  Even so, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  MHFG has time and again promised much but then either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and creating value.  Investor patience has been sorely tested.
Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

A 15% improvement in net interest and fee income (NIFI), tremendous loan growth (+8.6% YoY), widening loan margins and a ten-fold improvement in core earnings were not enough to prevent interim FY3/2021 results for Mizuho Financial Group (8411 JP)  (MHFG) from falling 25% YoY.  A 7-fold surge in credit costs to ¥81.22 billion and impairment losses on cross-shareholdings of ¥55.2 billion put paid to that.  Even so, consolidated net profits of ¥215.52 billion represented two-thirds of full-year guidance, which has now been raised from ¥320.0 billion to ¥350.0 billion (down 22% YoY).
The shares have risen 17% in the last six months but are still 18% below where they were this time last year.  Curiously, this means that, on a 12-month basis, MHFG has managed to outperform not only arch-rivals Mitsubishi UFJ Financial (MUFG) (8306 JP)  and Sumitomo Mitsui Financial Group (8316 JP) but the other four major banks as well.  Even so, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  MHFG has time and again promised much but then either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and creating value.  Investor patience has been sorely tested.
Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Mizuho Financial Group (8411 JP):  Anything But Consistent

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) (8306 JP)

*Morgan Stanley/Eaton Vance Transaction: Morgan Stanley (MS.US) announced its intention to acquire Eaton Vance for approximately USD 7 bn in a 50/50 cash/stock transaction. According to MS, this transaction is expected to be earnings break-even on deal consummation. We are less optimistic;  *MUFG Should Worry About Dilution: Mitsubishi UFJ Financial Group (8306.JP) [MUFG] collectively owns 22.6% of the outstanding shares of MS on a fully diluted basis; prior to both the E*Trade Financial and Eaton Vance (EV.US) transactions MS represented an estimated and outsized 25.4% of MUFG's FY (March) 2020 bottom-line - despite MUFG's high reliance on gains.In aggregate, both transactions dilute MUFG's MS stake by 3.57% to 18.99%. Both transactions are anticipated to dilute MUFG's earnings attributable to Morgan Stanley by USD 175 mn or close to 9.0% YOY or 2.2% overall for MUFG in FY 2020 – assuming the status quo on securities gains; and*MUFG Already Has Enough Headaches: Earnings at MUFG remain quite tenuous. Outside of its high reliance on volatile sources of securities trading, impairment losses associated with its ownership stake in Bank Danamon (BNMN.IJ),  earnings pressures from Union Bank in California,  the re-jigging of the systems integration at MUFG NICOS too should continue to weigh on future results.

*Morgan Stanley/Eaton Vance Transaction: Morgan Stanley (MS.US) announced its intention to acquire Eaton Vance for approximately USD 7 bn in a 50/50 cash/stock transaction. According to MS, this transaction is expected to be earnings break-even on deal consummation. We are less optimistic;  *MUFG Should Worry About Dilution: Mitsubishi UFJ Financial Group (8306.JP) [MUFG] collectively owns 22.6% of the outstanding shares of MS on a fully diluted basis; prior to both the E*Trade Financial and Eaton Vance (EV.US) transactions MS represented an estimated and outsized 25.4% of MUFG's FY (March) 2020 bottom-line - despite MUFG's high reliance on gains.In aggregate, both transactions dilute MUFG's MS stake by 3.57% to 18.99%. Both transactions are anticipated to dilute MUFG's earnings attributable to Morgan Stanley by USD 175 mn or close to 9.0% YOY or 2.2% overall for MUFG in FY 2020 – assuming the status quo on securities gains; and*MUFG Already Has Enough Headaches: Earnings at MUFG remain quite tenuous. Outside of its high reliance on volatile sources of securities trading, impairment losses associated with its ownership stake in Bank Danamon (BNMN.IJ),  earnings pressures from Union Bank in California,  the re-jigging of the systems integration at MUFG NICOS too should continue to weigh on future results. 

Mitsubishi UFJ Financial Group – MS Continues to Dilute MUFG

*Shinsei To Purchase UDC Finance: Australia and New Zealand Banking Corp (ANZ.AU) [ANZ] and Shinsei Bank (8303.JP) [Shinsei] announced a share purchase agreement of ANZ’s asset finance business in New Zealand, UDC Finance (UDC), for NZD 762 mn – following ANZ Bank New Zealand’s previously announced strategic review of UDC;*What Is The Real Price?: Shinsei’s “stated” purchase price for UDC amounts to a P/BV of 1.2x and P/E of 11.0x based on FY (September) 2019 net profit of NZD 70 mn.  The statement in the Shinsei press release is quite worrisome from both the standpoint of the actual cost of UDC for Shinsei and the impact to near-term earnings; and   *A Possible Fall Below 10% CAR: On its face, Shinsei states that the UDC deal will reduce its capital adequacy ratio by just 40 bp to above 10%. Given even Shinsei’s understanding of this transaction, we challenge that its CAR will remain of the 10% threshold.

*Shinsei To Purchase UDC Finance: Australia and New Zealand Banking Corp (ANZ.AU) [ANZ] and Shinsei Bank (8303.JP) [Shinsei] announced a share purchase agreement of ANZ’s asset finance business in New Zealand, UDC Finance (UDC), for NZD 762 mn – following ANZ Bank New Zealand’s previously announced strategic review of UDC;*What Is The Real Price?: Shinsei’s “stated” purchase price for UDC amounts to a P/BV of 1.2x and P/E of 11.0x based on FY (September) 2019 net profit of NZD 70 mn.  The statement in the Shinsei press release is quite worrisome from both the standpoint of the actual cost of UDC for Shinsei and the impact to near-term earnings; and   *A Possible Fall Below 10% CAR: On its face, Shinsei states that the UDC deal will reduce its capital adequacy ratio by just 40 bp to above 10%. Given even Shinsei’s understanding of this transaction, we challenge that its CAR will remain of the 10% threshold.  

Japan

Aozora Bank, Ltd. provides banking services including deposits, savings, loans, foreign exchange transactions, and securities investments. Aozora Bank also provides services such as trust account, resolution and collection, and venture capital.

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Aozora Bank Ltd (8304 JP)

Shinsei Bank - Valuations

In order to examine the potential resting place of Shinsei Bank shares after SBI Holdings’ tender concludes, we provide below a valuation...

Mio Kato

Asia Short Interest Weekly: Tencent, Want Want, Showa Denko, NBF, LG Chem, AmoreCorp, Pegatron

The Asia short report highlights large movements in weekly short interest across HK, Japan, Korea and Taiwan to be used as an input in trading...

Brian Freitas

Mizuho Financial Group (8411 JP): Anything But Consistent

Despite outperforming all of the major banks this year, MHFG’s lack of consistency, either in profit generation or management execution, makes this...

J. Brian Waterhouse

Mitsubishi UFJ Financial Group – MS Continues to Dilute MUFG

MUFG Receives Additional Dilution From Morgan Stanley In Another Overpriced US Transaction. Eaton Vance Was The Fourth In a Series of Wealth...

Thomas J. Monaco

Shinsei Bank - Top O’ The Cycle To You

*Shinsei To Purchase UDC Finance: Australia and New Zealand Banking Corp (ANZ.AU) [ANZ] and Shinsei Bank (8303.JP) [Shinsei] announced a share...

Thomas J. Monaco

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