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

<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

Kyoto Financial Group  / Equity Bottom-Up

<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

<ul>
<li>We introduce our Japanese big cap banks scorecard; from this, we pick Resona, Mizuho and SMFG with our wildcard being Shizuoka</li>
<li>The scorecard metrics measure leverage to higher interest rates, LDRs, levels of cash balances, bond exposures, cross-holdings and valuations; from this, we derive a weighted ranking for each bank</li>
<li>We remove Concordia from our buy list; we prefer Shizuoka for its better leverage to rising rates and high ratio of cross-holdings to market capitalization with a holdings reduction plan</li>
</ul>


We introduce our Japanese big cap banks scorecard; from this, we pick Resona, Mizuho and SMFG with our wildcard being Shizuoka
The scorecard metrics measure leverage to higher interest rates, LDRs, levels of cash balances, bond exposures, cross-holdings and valuations; from this, we derive a weighted ranking for each bank
We remove Concordia from our buy list; we prefer Shizuoka for its better leverage to rising rates and high ratio of cross-holdings to market capitalization with a holdings reduction plan


Japanese Big Cap Banks – Three Scorecard Stand-Outs, and One Wildcard

<ul>
<li>BoJ raised rates to 0.5% at its January policy meeting and BoJ Governor Kazuo Ueda hinted at more rate hikes; BoJ’s new Outlook Report forecasts higher core inflation in 2025</li>
<li>We reiterate our core recommendations Resona and Mizuho for their leverage to higher interest rates, their low LDRs, their high levels of cash at the BoJ and their modest valuation</li>
<li>We also keep our buys on Concordia and Shizuoka, for their leverage to higher interest rates and LDRs below 90%, along with their attractive valuations highlighted by low PEGs</li>
</ul>


BoJ raised rates to 0.5% at its January policy meeting and BoJ Governor Kazuo Ueda hinted at more rate hikes; BoJ’s new Outlook Report forecasts higher core inflation in 2025
We reiterate our core recommendations Resona and Mizuho for their leverage to higher interest rates, their low LDRs, their high levels of cash at the BoJ and their modest valuation
We also keep our buys on Concordia and Shizuoka, for their leverage to higher interest rates and LDRs below 90%, along with their attractive valuations highlighted by low PEGs


Japanese Big Cap Banks – Revisiting Interest Rate Sensitivities

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)

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

Japanese market interest rates continue to rise from low levels. Our scorecard justifies buy recommendations for Resona, Mizuho, and largely,...

Victor Galliano

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

Focusing on big-cap banks that have more in the tank than high gearing to rising interest rates; Kyoto is top in terms of share of equity holdings...

Victor Galliano

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

Kyoto Financial plans to double or triple disposals in equity holdings, which could equate to 40%+ of market cap; we upgrade to a buy rating,...

Victor Galliano

Japanese Big Cap Banks – Three Scorecard Stand-Outs, and One Wildcard

Introducing Japanese big cap banks scorecard: Resona, Mizuho, SMFG top picks with Shizuoka as the wildcard; metrics measure leverage, LDRs, cash...

Victor Galliano

Japanese Big Cap Banks – Revisiting Interest Rate Sensitivities

BoJ raises rates to 0.5% and hints at more hikes, forecasting higher inflation in 2025. Buy Resona, Mizuho, Concordia, and Shizuoka due primarily...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

Japanese market interest rates continue to rise from low levels. Our scorecard justifies buy recommendations for Resona, Mizuho, and largely,...

Victor Galliano

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

Focusing on big-cap banks that have more in the tank than high gearing to rising interest rates; Kyoto is top in terms of share of equity holdings...

Victor Galliano

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

​Kyoto Financial plans to double or triple disposals in equity holdings, which could equate to 40%+ of market cap; we upgrade to a buy rating,...

Victor Galliano

Japanese Big Cap Banks – Three Scorecard Stand-Outs, and One Wildcard

​Introducing Japanese big cap banks scorecard: Resona, Mizuho, SMFG top picks with Shizuoka as the wildcard; metrics measure leverage, LDRs, cash...

Victor Galliano

Japanese Big Cap Banks – Revisiting Interest Rate Sensitivities

​BoJ raises rates to 0.5% and hints at more hikes, forecasting higher inflation in 2025. Buy Resona, Mizuho, Concordia, and Shizuoka due primarily...

Victor Galliano

Kyoto Financial plans to double or triple disposals in equity holdings, which could equate to 40%+ of market cap; we upgrade to a buy rating,...

Introducing Japanese big cap banks scorecard: Resona, Mizuho, SMFG top picks with Shizuoka as the wildcard; metrics measure leverage, LDRs, cash...

BoJ raises rates to 0.5% and hints at more hikes, forecasting higher inflation in 2025. Buy Resona, Mizuho, Concordia, and Shizuoka due primarily...