Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

As we warned in our previous Smartkarma Insight on <a href="https://www.smartkarma.com/entities/hyakujushi-bank-ltd" target="_blank" data-smartkarma-citation="entities:20502:1" rel="noopener">Hyakujushi Bank (8386 JP)</a>, <a href="https://www.smartkarma.com/insights/hyakujushi-bank-8386-jp-in-the-stocks-with-investors" target="_blank" data-smartkarma-citation="insights:42773" rel="noopener">Hyakujushi Bank (8386 JP):  In the Stocks with Investors</a>, the bank has now had to issue a profit warning for both 1H FY3/2021 and FY3/2021, slashing its interim guidance from consolidated net profits of ¥2.3 billion to a consolidated net loss of ¥1.6 billion.  The bank has in addition lowered its full-year guidance by ¥3 billion to just ¥500 million: a reduction of 87.5%.  The problem is burgeoning valuation losses on securities. While the interim dividend of ¥40/share is being maintained despite the likely 1H loss, the final dividend has been cut from ¥40/share to ¥30/share.
Foreign investors continue to own around 11% of outstanding shares despite the bank’s long-standing structural issues, low efficiency, demanding valuations (FY3/2021 PER now exceeds 100x!) and continuing reliance on volatile non-core income sources to prop up flagging revenues.  Caveat emptor!  (May the Buyer Beware!)

As we warned in our previous Smartkarma Insight on Hyakujushi Bank (8386 JP), Hyakujushi Bank (8386 JP):  In the Stocks with Investors, the bank has now had to issue a profit warning for both 1H FY3/2021 and FY3/2021, slashing its interim guidance from consolidated net profits of ¥2.3 billion to a consolidated net loss of ¥1.6 billion.  The bank has in addition lowered its full-year guidance by ¥3 billion to just ¥500 million: a reduction of 87.5%.  The problem is burgeoning valuation losses on securities. While the interim dividend of ¥40/share is being maintained despite the likely 1H loss, the final dividend has been cut from ¥40/share to ¥30/share.
Foreign investors continue to own around 11% of outstanding shares despite the bank’s long-standing structural issues, low efficiency, demanding valuations (FY3/2021 PER now exceeds 100x!) and continuing reliance on volatile non-core income sources to prop up flagging revenues.  Caveat emptor!  (May the Buyer Beware!)

Hyakujushi Bank (8336 JP):  The First Cut Is the Deepest

FY3/2021 has not started well for <a href="https://www.smartkarma.com/entities/hyakujushi-bank-ltd" target="_blank" data-smartkarma-citation="entities:20502:1" rel="noopener">Hyakujushi Bank (8386 JP)</a>, the largest regional bank based in Kagawa Prefecture and the 2nd- largest regional bank after <a href="https://www.smartkarma.com/entities/iyo-bank-ltd" target="_blank" data-smartkarma-citation="entities:6869:1" rel="noopener">Iyo Bank (8385 JP)</a> in Shikoku, one of the four main islands that make up the Japanese archipelago.  1Q (April-June) FY3/2021 results were a hefty consolidated net loss of ¥3.39 billion (US$32.0 million), largely the result of stock valuation losses of ¥6.62 billion.  Unsurprisingly, share price performance has been disappointing recently, but we feel there is further downside risk with the bank’s FY3/2021 guidance now in considerable doubt.  Foreign investors own in aggregate around 11% of outstanding shares.  Given the bank’s long-standing structural issues and low efficiency, we struggle to understand why.  Caveat emptor!  (May the Buyer Beware!)

FY3/2021 has not started well for Hyakujushi Bank (8386 JP), the largest regional bank based in Kagawa Prefecture and the 2nd- largest regional bank after Iyo Bank (8385 JP) in Shikoku, one of the four main islands that make up the Japanese archipelago.  1Q (April-June) FY3/2021 results were a hefty consolidated net loss of ¥3.39 billion (US$32.0 million), largely the result of stock valuation losses of ¥6.62 billion.  Unsurprisingly, share price performance has been disappointing recently, but we feel there is further downside risk with the bank’s FY3/2021 guidance now in considerable doubt.  Foreign investors own in aggregate around 11% of outstanding shares.  Given the bank’s long-standing structural issues and low efficiency, we struggle to understand why.  Caveat emptor!  (May the Buyer Beware!)

Hyakujushi Bank (8386 JP):  In the Stocks with Investors

Not only the largest regional bank based in Ehime Prefecture but also the largest regional bank on Shikoku, one of the four main islands that make up the Japanese archipelago, <a href="https://www.smartkarma.com/entities/iyo-bank-ltd" target="_blank" data-smartkarma-citation="entities:6869:1" rel="noopener">Iyo Bank (8385 JP)</a> is additionally the best-performing Japanese bank stock in CY2020.  The shares are up +39% on a 6-months basis and up over +37% YoY.  This is in sharp contrast to the performance of the major banks whose share prices have generally fallen by double-digits over the last six months.  What has been driving Iyo Bank’s share price has been a turnaround in profitability amid solid loan growth, thanks to a remarkably broad geographic spread of branches and range of clients that have allowed the bank to spread its risk and (so far) avoid the worst of the pandemic-induced economic downturn.It’s enough to bring a smile to the ghosts of the bank’s founding fathers, some of whom reputedly traded in their careers as quasi-pirates (海賊 kaizoku in Japanese) in the turbulent waters off Ehime to become respectable citizens and bank owners at the very beginning of Japan’s modern-day banking system back in 1878.

Not only the largest regional bank based in Ehime Prefecture but also the largest regional bank on Shikoku, one of the four main islands that make up the Japanese archipelago, Iyo Bank (8385 JP) is additionally the best-performing Japanese bank stock in CY2020.  The shares are up +39% on a 6-months basis and up over +37% YoY.  This is in sharp contrast to the performance of the major banks whose share prices have generally fallen by double-digits over the last six months.  What has been driving Iyo Bank’s share price has been a turnaround in profitability amid solid loan growth, thanks to a remarkably broad geographic spread of branches and range of clients that have allowed the bank to spread its risk and (so far) avoid the worst of the pandemic-induced economic downturn.It’s enough to bring a smile to the ghosts of the bank’s founding fathers, some of whom reputedly traded in their careers as quasi-pirates (海賊 kaizoku in Japanese) in the turbulent waters off Ehime to become respectable citizens and bank owners at the very beginning of Japan’s modern-day banking system back in 1878.

Iyo Bank  (8385 JP):  The Return of the Pirate's Smile

Japan

The Hyakujushi Bank, Ltd. is a regional bank based in Kagawa prefecture. The Bank provides banking services such as deposits, loans, and foreign exchange transactions.  The Hyakujushi Bank also provides financial services such as leasing, credit cards, and letter of credit, and develops computer software.

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Hyakujushi Bank (8386 JP)

Hyakujushi Bank (8336 JP): The First Cut Is the Deepest

The bank has slashed its interim guidance to a Y1.6bn consolidated net loss, cut its FY3/2021 NP guidance by 87.5% to just Y500mn and cut the...

J. Brian Waterhouse

Hyakujushi Bank (8386 JP): In the Stocks with Investors

FY3/2021 has not started well for Hyakujushi Bank (8386 JP), the largest regional bank based in Kagawa Prefecture and the 2nd- largest regional...

J. Brian Waterhouse

Iyo Bank (8385 JP): The Return of the Pirate's Smile

Not only the largest regional bank based in Ehime Prefecture but also the largest regional bank on Shikoku, one of the four main islands that make...

J. Brian Waterhouse

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