Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

Kyoto Financial Group  / Equity Bottom-Up

<ul>
<li>Kyoto Financial has equity holdings relative to market cap of 135%, well above its larger cap Japanese peer banks, and amounting to a market value of over JPY1.1trillion</li>
<li>Management has stated that it is targeting JPY100bn+ of disposals in terms of market value by March 2029, but we believe that the market expected more</li>
<li>Sizeable disposals of equity holdings is Kyoto’s primary source of prospective shareholder value creation; aside from this, its fundamental attractions are limited and so we downgrade Kyoto to a neutral</li>
</ul>


Kyoto Financial has equity holdings relative to market cap of 135%, well above its larger cap Japanese peer banks, and amounting to a market value of over JPY1.1trillion
Management has stated that it is targeting JPY100bn+ of disposals in terms of market value by March 2029, but we believe that the market expected more
Sizeable disposals of equity holdings is Kyoto’s primary source of prospective shareholder value creation; aside from this, its fundamental attractions are limited and so we downgrade Kyoto to a neutral


Kyoto Financial Group (5844 JP): Disposals Plan for Equity Holdings Warrants More Ambitious Target

<ul>
<li>We update our proprietary scorecard and many of our charts based on the latest data; despite the recent lack of BoJ rate hikes, interest rate spreads are widening</li>
<li>The JGB yield curve has continued to steepen, which is constructive for Japanese banks; in addition, market lending rates to June continue to rise faster than deposit rates</li>
<li>We stick with our focus on two core attributes; gearing to higher interest rates and cross-holdings to market capitalization keeping Resona, Mizuho, Shizuoka and Kyoto on our list of buys</li>
</ul>


We update our proprietary scorecard and many of our charts based on the latest data; despite the recent lack of BoJ rate hikes, interest rate spreads are widening
The JGB yield curve has continued to steepen, which is constructive for Japanese banks; in addition, market lending rates to June continue to rise faster than deposit rates
We stick with our focus on two core attributes; gearing to higher interest rates and cross-holdings to market capitalization keeping Resona, Mizuho, Shizuoka and Kyoto on our list of buys


Japanese Big Cap Banks – Stick with Our Key Positive Picks

<ul>
<li>The Bank of Japan left the short-term interest rate unchanged, but the governor stated that the tapering of JGB buying will continue, albeit with an eye on market stability</li>
<li>This implies that the JGB yield curve is likely to continue steepening going forward, which is constructive for Japanese banks; in addition, market lending rates to April continue to rise</li>
<li>We reassert buys on Resona, Mizuho, Shizuoka and Kyoto aided by our proprietary scorecard, and based on two core attributes; gearing to higher interest rates and cross-holdings to market capitalization</li>
</ul>


The Bank of Japan left the short-term interest rate unchanged, but the governor stated that the tapering of JGB buying will continue, albeit with an eye on market stability
This implies that the JGB yield curve is likely to continue steepening going forward, which is constructive for Japanese banks; in addition, market lending rates to April continue to rise
We reassert buys on Resona, Mizuho, Shizuoka and Kyoto aided by our proprietary scorecard, and based on two core attributes; gearing to higher interest rates and cross-holdings to market capitalization


Japanese Big Cap Banks – Key Fundamental Tailwinds Drive Our Positive Picks

<ul>
<li>BoJ’s lower GDP growth forecasts add weight to the rate hike deferral; we focus on big-cap banks that have more in the tank than high gearing to rising benchmark rates</li>
<li>An increasingly important factor, in our view, is the share of strategic equity holdings relative to market capitalization; Kyoto is top on this metric, followed by Shizuoka, Resona and Mizuho</li>
<li>With the lack of the rate hike catalyst in the near term, we remove SMFG from the buy list and would look to lighten holdings selectively in other Japanese banks</li>
</ul>


BoJ’s lower GDP growth forecasts add weight to the rate hike deferral; we focus on big-cap banks that have more in the tank than high gearing to rising benchmark rates
An increasingly important factor, in our view, is the share of strategic equity holdings relative to market capitalization; Kyoto is top on this metric, followed by Shizuoka, Resona and Mizuho
With the lack of the rate hike catalyst in the near term, we remove SMFG from the buy list and would look to lighten holdings selectively in other Japanese banks


Japanese Big Cap Banks – Focusing on Strategic Equity Holdings as BoJ Likely to Defer Rate Hikes

<ul>
<li>Kyoto Financial’s president has hinted at increasing disposals in strategic equity holdings; the prior target was a JPY100bn reduction in holdings by March 2029, now there is talk of JPY200-300bn</li>
<li>We estimate Kyoto Financial’s equity holdings relative to market cap at 140%+, well above its peer banks; yet, until very recently, the president had been against meaningfully reducing equity holdings</li>
<li>The president’s change of view leads us to upgrade Kyoto Financial to a buy; the change in outlook means that there is real potential to extract value for shareholders</li>
</ul>


Kyoto Financial’s president has hinted at increasing disposals in strategic equity holdings; the prior target was a JPY100bn reduction in holdings by March 2029, now there is talk of JPY200-300bn
We estimate Kyoto Financial’s equity holdings relative to market cap at 140%+, well above its peer banks; yet, until very recently, the president had been against meaningfully reducing equity holdings
The president’s change of view leads us to upgrade Kyoto Financial to a buy; the change in outlook means that there is real potential to extract value for shareholders


Kyoto Financial Group (TSE:5844) – Positive Shift in C-Suite Outlook

Japan

Kyoto Financial Group, Inc. offers financial services. The Company provides commodity securities transaction, securities investment, trust, credit guarantee, banking related services, and other services. Kyoto Financial Group also operates real estate management and leasing, economic research, and other businesses.

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Kyoto Financial Group (5844 JP)