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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.These are the stocks that have been included and excluded from the index.<table class="table table-striped">
<colgroup>
<col>
<col>
<col>
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</colgroup>
<tbody>
<tr>
<td colspan="2" style="text-align: center; width: 181pt;"><h3>Inclusions</h3></td>
<td colspan="2" style="text-align: center; width: 197pt;"><h3>Exclusions</h3></td>
</tr>
<tr>
<td>Name</td>
<td>Code</td>
<td>Name</td>
<td>Code</td>
</tr>
<tr>
<td>1766.T</td>
<td>Token Corp</td>
<td>2124.T</td>
<td>Jac Recruitment Co Ltd</td>
</tr>
<tr>
<td>2222.T</td>
<td>Kotobuki Spirits Co Ltd</td>
<td>2206.T</td>
<td>Ezaki Glico Co Ltd</td>
</tr>
<tr>
<td>2264.T</td>
<td>Morinaga Milk Industry Co Ltd</td>
<td>2432.T</td>
<td>DeNA Co Ltd</td>
</tr>
<tr>
<td>2317.T</td>
<td>Systena Corp</td>
<td>3254.T</td>
<td>Pressance Corp</td>
</tr>
<tr>
<td>2593.T</td>
<td>Ito En Ltd</td>
<td>3668.T</td>
<td>Colopl Inc</td>
</tr>
<tr>
<td>2811.T</td>
<td>Kagome Co Ltd</td>
<td>4246.T</td>
<td>DaikyoNishikawa Corp</td>
</tr>
<tr>
<td>3563.T</td>
<td>Sushiro Global Holdings Ltd</td>
<td>4587.T</td>
<td>PeptiDream Inc</td>
</tr>
<tr>
<td>3635.T</td>
<td>Koei Tecmo Holdings Co Ltd</td>
<td>4681.T</td>
<td>Resorttrust Inc</td>
</tr>
<tr>
<td>4189.T</td>
<td>KH Neochem Co Ltd</td>
<td>4751.T</td>
<td>CyberAgent Inc</td>
</tr>
<tr>
<td>4348.T</td>
<td>Infocom Corp</td>
<td>4902.T</td>
<td>Konica Minolta Inc</td>
</tr>
<tr>
<td>4527.T</td>
<td>Rohto Pharmaceutical Co Ltd</td>
<td>5486.T</td>
<td>Hitachi Metals Ltd</td>
</tr>
<tr>
<td>4686.T</td>
<td>Justsystems Corp</td>
<td>5703.T</td>
<td>Nippon Light Metal Holdings Co Ltd</td>
</tr>
<tr>
<td>4816.T</td>
<td>Toei Animation Co Ltd</td>
<td>5714.T</td>
<td>DOWA Holdings Co Ltd</td>
</tr>
<tr>
<td>4921.T</td>
<td>Fancl Corp</td>
<td>5975.T</td>
<td>Topre Corp</td>
</tr>
<tr>
<td>5105.T</td>
<td>Toyo Tire Corp</td>
<td>6269.T</td>
<td>Modec Inc</td>
</tr>
<tr>
<td>5631.T</td>
<td>Japan Steel Works Ltd</td>
<td>6324.T</td>
<td>Harmonic Drive Systems Inc</td>
</tr>
<tr>
<td>5857.T</td>
<td>Asahi Holdings Inc</td>
<td>6463.T</td>
<td>TPR Co Ltd</td>
</tr>
<tr>
<td>6005.T</td>
<td>Miura Co Ltd</td>
<td>6473.T</td>
<td>Jtekt Corp</td>
</tr>
<tr>
<td>6035.T</td>
<td>IR Japan Holdings Ltd</td>
<td>6641.T</td>
<td>Nissin Electric Co Ltd</td>
</tr>
<tr>
<td>6134.T</td>
<td>Fuji Corp (Aichi)</td>
<td>6755.T</td>
<td>Fujitsu General Ltd</td>
</tr>
<tr>
<td>6465.T</td>
<td>Hoshizaki Corp</td>
<td>6806.T</td>
<td>Hirose Electric Co Ltd</td>
</tr>
<tr>
<td>6532.T</td>
<td>BayCurrent Consulting Inc</td>
<td>7012.T</td>
<td>Kawasaki Heavy Industries Ltd</td>
</tr>
<tr>
<td>6670.T</td>
<td>MCJ Co Ltd</td>
<td>7606.T</td>
<td>United Arrows Ltd</td>
</tr>
<tr>
<td>6753.T</td>
<td>Sharp Corp</td>
<td>7867.T</td>
<td>Tomy Co Ltd</td>
</tr>
<tr>
<td>6754.T</td>
<td>Anritsu Corp</td>
<td>8227.T</td>
<td>Shimamura Co Ltd</td>
</tr>
<tr>
<td>8354.T</td>
<td>Fukuoka Financial Group Inc</td>
<td>8628.T</td>
<td>Matsui Securities Co Ltd</td>
</tr>
<tr>
<td>8572.T</td>
<td>Acom Co Ltd</td>
<td>9404.T</td>
<td>Nippon Television Holdings Inc</td>
</tr>
<tr>
<td>9044.T</td>
<td>Nankai Electric Railway Co Ltd</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9142.T</td>
<td>Kyushu Railway Co</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9504.T</td>
<td>Chugoku Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9509.T</td>
<td>Hokkaido Electric Power Co Inc</td>
<td></td>
<td></td>
</tr>
<tr>
<td>9603.T</td>
<td>H.I.S. Co Ltd</td>
<td></td>
<td></td>
</tr>
</tbody>
</table>

The results of the JPX Nikkei 400 review have been announced. There are 32 inclusions and 27 deletions to bring the number of constituents back to 400 and the changes will be effective after the close of trading on 27 November.The index review is normally effective after the close of trading on  the second last trading day in August, but was postponed by 3 months this year because of the extension given to companies to file their annual reports and quarterly reports to 30 September owing to COVID-19.These are the stocks that have been included and excluded from the index.








Inclusions
Exclusions


Name
Code
Name
Code


1766.T
Token Corp
2124.T
Jac Recruitment Co Ltd


2222.T
Kotobuki Spirits Co Ltd
2206.T
Ezaki Glico Co Ltd


2264.T
Morinaga Milk Industry Co Ltd
2432.T
DeNA Co Ltd


2317.T
Systena Corp
3254.T
Pressance Corp


2593.T
Ito En Ltd
3668.T
Colopl Inc


2811.T
Kagome Co Ltd
4246.T
DaikyoNishikawa Corp


3563.T
Sushiro Global Holdings Ltd
4587.T
PeptiDream Inc


3635.T
Koei Tecmo Holdings Co Ltd
4681.T
Resorttrust Inc


4189.T
KH Neochem Co Ltd
4751.T
CyberAgent Inc


4348.T
Infocom Corp
4902.T
Konica Minolta Inc


4527.T
Rohto Pharmaceutical Co Ltd
5486.T
Hitachi Metals Ltd


4686.T
Justsystems Corp
5703.T
Nippon Light Metal Holdings Co Ltd


4816.T
Toei Animation Co Ltd
5714.T
DOWA Holdings Co Ltd


4921.T
Fancl Corp
5975.T
Topre Corp


5105.T
Toyo Tire Corp
6269.T
Modec Inc


5631.T
Japan Steel Works Ltd
6324.T
Harmonic Drive Systems Inc


5857.T
Asahi Holdings Inc
6463.T
TPR Co Ltd


6005.T
Miura Co Ltd
6473.T
Jtekt Corp


6035.T
IR Japan Holdings Ltd
6641.T
Nissin Electric Co Ltd


6134.T
Fuji Corp (Aichi)
6755.T
Fujitsu General Ltd


6465.T
Hoshizaki Corp
6806.T
Hirose Electric Co Ltd


6532.T
BayCurrent Consulting Inc
7012.T
Kawasaki Heavy Industries Ltd


6670.T
MCJ Co Ltd
7606.T
United Arrows Ltd


6753.T
Sharp Corp
7867.T
Tomy Co Ltd


6754.T
Anritsu Corp
8227.T
Shimamura Co Ltd


8354.T
Fukuoka Financial Group Inc
8628.T
Matsui Securities Co Ltd


8572.T
Acom Co Ltd
9404.T
Nippon Television Holdings Inc


9044.T
Nankai Electric Railway Co Ltd




9142.T
Kyushu Railway Co




9504.T
Chugoku Electric Power Co Inc




9509.T
Hokkaido Electric Power Co Inc




9603.T
H.I.S. Co Ltd






JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Concordia Financial Group, Ltd / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/concordia-financial-group-ltd" target="_blank" data-smartkarma-citation="entities:22704:1" rel="noopener">Concordia Financial Group, Ltd (7186 JP)</a>, or CFG, is the holding company for one of Japan’s largest regional banks, the Bank of Yokohama (BoY), and a small Tokyo-based secondary regional bank, Higashi-Nippon Bank (HNPB).  Two years on from a lending scandal at HNPB that forced the HNPB president to step down, growth at CFG continues to be dogged by ongoing problems with the group’s junior partner.  HNPB reported a consolidated net loss in FY3/2020 and is now expected to record a further net loss in FY3/2021.
Aggregate foreign ownership in CFG remains high at around 31.5% as investors view CFG as a liquid alternative to the ‘crowded trade’ of simply buying megabanks for exposure to the Japanese financial sector.  However, CFG continues to significantly underperform the Topix Banks Index, with its share price down over 21% in the last six months. CFG is by far the worst-performing of the 4 remaining regional banks with market capitalisations greater than US$3bn.  This is despite a cash dividend payment policy of 33% of net profits, a total shareholder return policy target of 50%, frequent share buybacks, and regular share cancellations.
Except for a brief rally in early March, the Topix Banks Index has notably underperformed Topix all year.  Within the regional banking sector, we much prefer Chiba Bank (8331 JP) to CFG for its strong, scandal-free management and long-standing profits ‘track record’.

Concordia Financial Group, Ltd (7186 JP), or CFG, is the holding company for one of Japan’s largest regional banks, the Bank of Yokohama (BoY), and a small Tokyo-based secondary regional bank, Higashi-Nippon Bank (HNPB).  Two years on from a lending scandal at HNPB that forced the HNPB president to step down, growth at CFG continues to be dogged by ongoing problems with the group’s junior partner.  HNPB reported a consolidated net loss in FY3/2020 and is now expected to record a further net loss in FY3/2021.
Aggregate foreign ownership in CFG remains high at around 31.5% as investors view CFG as a liquid alternative to the ‘crowded trade’ of simply buying megabanks for exposure to the Japanese financial sector.  However, CFG continues to significantly underperform the Topix Banks Index, with its share price down over 21% in the last six months. CFG is by far the worst-performing of the 4 remaining regional banks with market capitalisations greater than US$3bn.  This is despite a cash dividend payment policy of 33% of net profits, a total shareholder return policy target of 50%, frequent share buybacks, and regular share cancellations.
Except for a brief rally in early March, the Topix Banks Index has notably underperformed Topix all year.  Within the regional banking sector, we much prefer Chiba Bank (8331 JP) to CFG for its strong, scandal-free management and long-standing profits ‘track record’.

Concordia Financial Group (7186 JP):  Blame It on the Junior

FY3/2020 consolidated results were slightly below guidance and FY3/2021 guidance suggests consolidated net profits may fall as much as 76% YoY to just ¥6bn, with a ¥3.5bn net loss in 1H FY3/2021 as a result of further precautionary provisioning.  That said, <a href="https://www.smartkarma.com/entities/suruga-bank-ltd" target="_blank" data-smartkarma-citation="entities:6267:1" rel="noopener">Suruga Bank Ltd (8358 JP)</a> reached some important milestones in FY3/2020 on the long, slow road to recovery after the catastrophic ‘share house’ scandal.Management is now focusing on a new business model that includes more corporate business in a bid to stabilise and diversify revenues.  Market reaction has remained mixed to date, as shown in the high volatility of the share price from one day to the next.  Nevertheless, the stock has risen over 20% since our last Insight <a href="https://www.smartkarma.com/insights/suruga-bank-8358-jp-swimming-against-the-tide" target="_blank" data-smartkarma-citation="insights:38141" rel="noopener">Suruga Bank (8358 JP):  Swimming Against the Tide</a> in early April 2020: a considerably better performance than that of several much larger regional banks that are also widely held by foreign investors.  Suruga Bank remains one of the most heavily-traded Japanese bank stocks, and is regularly one of the Top 5 Japanese bank stocks in terms of daily trading volume behind only the three megabanks and <a href="https://www.smartkarma.com/entities/resona-holdings-inc" target="_blank" data-smartkarma-citation="entities:6841:1" rel="noopener">Resona Holdings (8308 JP)</a>.Risks remain, and we continue to warn that this is a stock for players of the Long Game only.  Nevertheless, the positives are increasing while the negatives are gradually starting to diminish.

FY3/2020 consolidated results were slightly below guidance and FY3/2021 guidance suggests consolidated net profits may fall as much as 76% YoY to just ¥6bn, with a ¥3.5bn net loss in 1H FY3/2021 as a result of further precautionary provisioning.  That said, Suruga Bank Ltd (8358 JP) reached some important milestones in FY3/2020 on the long, slow road to recovery after the catastrophic ‘share house’ scandal.Management is now focusing on a new business model that includes more corporate business in a bid to stabilise and diversify revenues.  Market reaction has remained mixed to date, as shown in the high volatility of the share price from one day to the next.  Nevertheless, the stock has risen over 20% since our last Insight Suruga Bank (8358 JP):  Swimming Against the Tide in early April 2020: a considerably better performance than that of several much larger regional banks that are also widely held by foreign investors.  Suruga Bank remains one of the most heavily-traded Japanese bank stocks, and is regularly one of the Top 5 Japanese bank stocks in terms of daily trading volume behind only the three megabanks and Resona Holdings (8308 JP).Risks remain, and we continue to warn that this is a stock for players of the Long Game only.  Nevertheless, the positives are increasing while the negatives are gradually starting to diminish.

Suruga Bank (8358 JP):  One Step Back, but Several Steps Forward

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

Mizuho Financial Group / Equity Bottom-Up

*Another Mizuho Pre-Announcement: Mizuho Financial Group (8411/JP)[Mizuho] would ultimately follow Fukuoka Financial’s (8354.JP) [FFG] lead in taking a more aggressive posture on its loan loss reserving leading up to FY (March) 2019 results announcement on May 15th.Post-close on May 7th, Mizuho did just that  - reducing its FY 2019 consolidated net profit target from JPY 470 bn to JPY 445 bn;
* Still Overstating Earnings Despite Provision Top-Up: We forecast Mizuho’s Japan-only COVID-19 provision should be JPY 34 bn, and an additional FSA guideline provision of JPY 109-437 bn. By our calculation, Mizuho’s domestic COVID-19 provision appears about right (we expect additional COVID-19 provisions internationally), while at a minimum its FSA guidelined provision is light by between JPY 29-357 bn. In other words, we anticipate a major downward guidance revision for FY 2021 at Mizuho’s results announcement; and 
*Something Not Right At MUFG: Mitsubishi UFJ Group Holdings (8306.JP) [MUFG] postponed its earnings results from May 15th to May 22nd – after revising forecasts several times during the fiscal year. Since we haven’t heard from MUFG on the COVID-19 and FSA guideline matter to date, we’d anticipate another downward earnings revision come final results.

*Another Mizuho Pre-Announcement: Mizuho Financial Group (8411/JP)[Mizuho] would ultimately follow Fukuoka Financial’s (8354.JP) [FFG] lead in taking a more aggressive posture on its loan loss reserving leading up to FY (March) 2019 results announcement on May 15th.Post-close on May 7th, Mizuho did just that  - reducing its FY 2019 consolidated net profit target from JPY 470 bn to JPY 445 bn;
* Still Overstating Earnings Despite Provision Top-Up: We forecast Mizuho’s Japan-only COVID-19 provision should be JPY 34 bn, and an additional FSA guideline provision of JPY 109-437 bn. By our calculation, Mizuho’s domestic COVID-19 provision appears about right (we expect additional COVID-19 provisions internationally), while at a minimum its FSA guidelined provision is light by between JPY 29-357 bn. In other words, we anticipate a major downward guidance revision for FY 2021 at Mizuho’s results announcement; and 
*Something Not Right At MUFG: Mitsubishi UFJ Group Holdings (8306.JP) [MUFG] postponed its earnings results from May 15th to May 22nd – after revising forecasts several times during the fiscal year. Since we haven’t heard from MUFG on the COVID-19 and FSA guideline matter to date, we’d anticipate another downward earnings revision come final results.    

Mizuho Financial – Not Exactly Golden This Week

<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) has joined leading Japanese regional bank group <a href="https://www.smartkarma.com/entities/fukuoka-financial-group-inc" target="_blank" data-smartkarma-citation="entities:3712:1" rel="noopener">Fukuoka Financial Group (8354 JP)</a> in adopting the December 2019 recommendations of the Financial Services Agency to use a ‘forward-looking’ methodology in calculating appropriate credit provisioning levels, rather than basing provisions on past years’ actual credit loss experience.  The effect of this is to boost loan loss reserves by an additional ¥80 billion in FY3/2020, bringing total credit costs for the fiscal year to a remarkable ¥170 billion.  As a result, management has lowered its guidance for FY3/2020 consolidated net profit from ¥470 billion to ¥445 billion, or to ¥18.53/share.  The dividend remains unchanged at ¥7.50/share, suggesting a dividend payout ratio for FY3/2020 of just short of 43%.As we have stated in past Insights, MHFG remains far too heavily reliant on its trading desks, on loan loss reserve reversals to profit (clearly not in FY3/2020, however!), and on profits from selling its substantial cross-shareholdings, rather than on the generation of profits from its core businesses.  Core profitability remains worryingly low, despite recent attempts to ‘clear the decks’ of redundant and uneconomic assets.As might be expected of a major banking group that time and again has promised much but then has either failed to deliver or has surprised the market with sudden hefty write-downs and a sweeping change in strategy, many foreign investors remain wary of the bank as a logical investment, as do we.Caveat emptor!  (May the Buyer Beware!)

Mizuho Financial Group (8411 JP)(MHFG) has joined leading Japanese regional bank group Fukuoka Financial Group (8354 JP) in adopting the December 2019 recommendations of the Financial Services Agency to use a ‘forward-looking’ methodology in calculating appropriate credit provisioning levels, rather than basing provisions on past years’ actual credit loss experience.  The effect of this is to boost loan loss reserves by an additional ¥80 billion in FY3/2020, bringing total credit costs for the fiscal year to a remarkable ¥170 billion.  As a result, management has lowered its guidance for FY3/2020 consolidated net profit from ¥470 billion to ¥445 billion, or to ¥18.53/share.  The dividend remains unchanged at ¥7.50/share, suggesting a dividend payout ratio for FY3/2020 of just short of 43%.As we have stated in past Insights, MHFG remains far too heavily reliant on its trading desks, on loan loss reserve reversals to profit (clearly not in FY3/2020, however!), and on profits from selling its substantial cross-shareholdings, rather than on the generation of profits from its core businesses.  Core profitability remains worryingly low, despite recent attempts to ‘clear the decks’ of redundant and uneconomic assets.As might be expected of a major banking group that time and again has promised much but then has either failed to deliver or has surprised the market with sudden hefty write-downs and a sweeping change in strategy, many foreign investors remain wary of the bank as a logical investment, as do we.Caveat emptor!  (May the Buyer Beware!)

Mizuho Financial Group  (8411 JP):  Eyes Forward

Japan

Fukuoka Financial Group, Inc. is a holding company established through the merger of the Bank of Fukuoka and Kumamoto Family Bank. As a financial group, the Company provides banking services including deposits, loans, foreign currency transactions. The Company also provides other financial services such as credit card, letter of credit, and leasing services.

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Fukuoka Financial Group (8354 JP)

JPX Nikkei 400 Index Rebalance: Better Late Than Never (32 Adds; 27 Deletes)

There are 32 inclusions and 27 exclusions from the JPX Nikkei 400. The changes will be effective after the close of trading on 27 November and the...

Brian Freitas

Concordia Financial Group (7186 JP): Blame It on the Junior

Concordia Financial Group, Ltd (7186 JP), or CFG, is the holding company for one of Japan’s largest regional banks, the Bank of Yokohama (BoY), and...

J. Brian Waterhouse

Suruga Bank (8358 JP): One Step Back, but Several Steps Forward

FY3/2020 consolidated results were slightly below guidance and FY3/2021 guidance suggests consolidated net profits may fall as much as 76% YoY to...

J. Brian Waterhouse

Mizuho Financial – Not Exactly Golden This Week

*Another Mizuho Pre-Announcement: Mizuho Financial Group (8411/JP)[Mizuho] would ultimately follow Fukuoka Financial’s (8354.JP) [FFG] lead in...

Thomas J. Monaco

Mizuho Financial Group (8411 JP): Eyes Forward

Mizuho Financial Group (8411 JP)(MHFG) has joined leading Japanese regional bank group Fukuoka Financial Group (8354 JP) in adopting the December...

J. Brian Waterhouse

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