Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

<p>It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for almost every reporting bank in the June quarter, at least so far. Most will recognize by now that this crisis is not like past crises, and that as we turn economies back on, together with unprecedented stimulus, low interest rates, the recovery profile can also be very different. We are seeing this within many economies and Japan’s banks stand out, globally. Their credit cost delta is generally higher than others and what matters more is that some have seen their previous six months’ credit costs still far higher than recent years. This can mean substantially lower provisions in coming quarters, leading to substantially higher profit.</p>

It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for almost every reporting bank in the June quarter, at least so far. Most will recognize by now that this crisis is not like past crises, and that as we turn economies back on, together with unprecedented stimulus, low interest rates, the recovery profile can also be very different. We are seeing this within many economies and Japan’s banks stand out, globally. Their credit cost delta is generally higher than others and what matters more is that some have seen their previous six months’ credit costs still far higher than recent years. This can mean substantially lower provisions in coming quarters, leading to substantially higher profit.

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

<p>Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative performance.  Some regional bank stocks rose as much as 35% for the week, while even the mighty megabank <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-gro" target="_blank" rel="noopener" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> rose an eyebrow-raising 17%.  Regrettably, this is not evidence of a paradigm shift in the Japanese banking sector’s fundamental outlook, but more like a knee-jerk reaction to the Bank of Japan’s efforts to restore order to the somewhat chaotic financial markets through buying ETFs, perhaps aided – if financial media are to be believed  –  by government-owned pension funds such as the GPIF.</p><p>The Yen has not weakened against the US Dollar, as one might have expected if international investors had been adopting a ‘risk on’ approach, but has failed several times to break though the Y112 level (as noted recently by Smartkarma contributor <a href="https://www.smartkarma.com/profiles/campbell-gunn" target="_blank" rel="noopener" data-smartkarma-citation="accounts:2531">Campbell Gunn</a>) and is now in sharp retreat: a ‘risk off’ reaction.  This is not good news for Japanese financial stocks.</p><p>The fundamental outlook for Japan’s banks has not improved: if anything, the outlook for FY3/2021 and beyond is now even more challenging than FY3/2020 has been.  As we have frequently pointed out in past Insights, margins remain under downward pressure generally, many regional banks remain underwater on their core domestic businesses, credit costs are rising across the board for all banks and many may face substantial losses on their investment portfolios as they close their accounts for FY3/2020.  Under the circumstances, the recent strength in Japanese bank stock prices is logically unsustainable without further massive intervention by the Japanese financial authorities and the further disruption of price discovery.</p><p>Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “<em>Caveat Emptor!”</em>  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.</p>

Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative performance.  Some regional bank stocks rose as much as 35% for the week, while even the mighty megabank Mitsubishi UFJ Financial (MUFG) (8306 JP) rose an eyebrow-raising 17%.  Regrettably, this is not evidence of a paradigm shift in the Japanese banking sector’s fundamental outlook, but more like a knee-jerk reaction to the Bank of Japan’s efforts to restore order to the somewhat chaotic financial markets through buying ETFs, perhaps aided – if financial media are to be believed  –  by government-owned pension funds such as the GPIF.The Yen has not weakened against the US Dollar, as one might have expected if international investors had been adopting a ‘risk on’ approach, but has failed several times to break though the Y112 level (as noted recently by Smartkarma contributor Campbell Gunn) and is now in sharp retreat: a ‘risk off’ reaction.  This is not good news for Japanese financial stocks.The fundamental outlook for Japan’s banks has not improved: if anything, the outlook for FY3/2021 and beyond is now even more challenging than FY3/2020 has been.  As we have frequently pointed out in past Insights, margins remain under downward pressure generally, many regional banks remain underwater on their core domestic businesses, credit costs are rising across the board for all banks and many may face substantial losses on their investment portfolios as they close their accounts for FY3/2020.  Under the circumstances, the recent strength in Japanese bank stock prices is logically unsustainable without further massive intervention by the Japanese financial authorities and the further disruption of price discovery.Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!”  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/923/original/2020-02-08_18-15-45.png?1581196263" class="editor-image img-responsive" data-smartkarma-image-id="116923"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/924/original/2020-02-09_06-34-51.png?1581197706" class="editor-image img-responsive" data-smartkarma-image-id="116924"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-caption"></div><p><strong>OOOPS!</strong> - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of companies continue this trend, the current quarter will equal CQ2019-1 and CQ2018-2 in seeing a 200 basis point Results Score decline. 169 forecasts or revision announcements added  5bps to the Forecast/Revision Score, supported by slight upward revisions from <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> and <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a>.  The Results Score has dipped below the Forecast/Revision Score for the first time since July 2016 and is a necessary precursor of the bottoming of the cycle. Japan is now in a recession and could see a decline in GDP for the calendar year. The market's current optimism (aided by the Bank of Japan's buy-the-dips support programme) is more appropriate to the middle of the cycle and, with two further poor earnings quarters ahead, suggests limited further upside. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/925/original/2020-02-08_10-48-19.png?1581199859" class="editor-image img-responsive" data-smartkarma-image-id="116925"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>18x EARNINGS</strong> - Trailing-twelve-month (TTM) Operating Income for the composite of listed companies has declined to ¥57.4t, 10% below the peak of early 2019. TTM Net Income has declined by 20% over the same period, resulting in a 6.1 point increase in the market price-earnings ratio to 17.6 times.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/927/original/2020-02-08_10-55-21.png?1581200256" class="editor-image img-responsive" data-smartkarma-image-id="116927"></figure><div class="content-caption">Source • Japan Analytics</div><p style="text-align: left;"><strong>TTM RESULTS</strong> - TTM Operating Profits have been declining quarter-on-quarter for five straight quarters, and are 8.1% lower year-on-year. The Operating Margin has declined from 7.45% to 6.80%. TTM Revenues are now also falling and have only increased by 0.7% year-on-year.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/928/original/2020-02-08_10-59-00.png?1581200533" class="editor-image img-responsive" data-smartkarma-image-id="116928"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>FORECASTS</strong> - The year-on-year Operating Profit decline using current forecasts is 8.5%, while Revenues are flat. Revenue forecasts have been falling quarter-on-quarter for three quarters in a row. The 'uplift' from TTM to Forecast is just ¥3t for sales and ¥0.3t for OP. </p>

Source • Japan AnalyticsOOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of companies continue this trend, the current quarter will equal CQ2019-1 and CQ2018-2 in seeing a 200 basis point Results Score decline. 169 forecasts or revision announcements added  5bps to the Forecast/Revision Score, supported by slight upward revisions from Softbank Corp (9434 JP) and Honda Motor (7267 JP).  The Results Score has dipped below the Forecast/Revision Score for the first time since July 2016 and is a necessary precursor of the bottoming of the cycle. Japan is now in a recession and could see a decline in GDP for the calendar year. The market's current optimism (aided by the Bank of Japan's buy-the-dips support programme) is more appropriate to the middle of the cycle and, with two further poor earnings quarters ahead, suggests limited further upside. Source • Japan Analytics18x EARNINGS - Trailing-twelve-month (TTM) Operating Income for the composite of listed companies has declined to ¥57.4t, 10% below the peak of early 2019. TTM Net Income has declined by 20% over the same period, resulting in a 6.1 point increase in the market price-earnings ratio to 17.6 times.Source • Japan AnalyticsTTM RESULTS - TTM Operating Profits have been declining quarter-on-quarter for five straight quarters, and are 8.1% lower year-on-year. The Operating Margin has declined from 7.45% to 6.80%. TTM Revenues are now also falling and have only increased by 0.7% year-on-year.Source • Japan AnalyticsFORECASTS - The year-on-year Operating Profit decline using current forecasts is 8.5%, while Revenues are flat. Revenue forecasts have been falling quarter-on-quarter for three quarters in a row. The 'uplift' from TTM to Forecast is just ¥3t for sales and ¥0.3t for OP. 

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 7th February ▲2121 7267 5713 ▼ 5401 9616 3407

<p>“Beware the Ides of March”: the soothsayer’s repeated warning to ancient Rome’s most famous emperor in William Shakespeare’s play <em>‘Julius Caesar’</em>.  Caesar ignores the warning and is assassinated later that day by his colleagues on the steps of the Senate.  We have been warning investors in Japanese bank stocks for the last few years to “beware the Ides of March”, advising them to be very underweight in the sector (or preferably out of the sector entirely) by 15 March each year to avoid the risk of incurring a similar fate at the hands of their investment colleagues as befell Julius Caesar on 15 March 44BC.  We are now well past the Ides of March and, true to form, the sector has already peaked and lost momentum after a brief <em>post</em>-Santa rally.  ‘<em>Caveat emptor!</em> (May the buyer beware!)’ remains our Caesarean soothsayer warning to would-be investors in Japanese bank stocks in 2019.</p>

“Beware the Ides of March”: the soothsayer’s repeated warning to ancient Rome’s most famous emperor in William Shakespeare’s play ‘Julius Caesar’.  Caesar ignores the warning and is assassinated later that day by his colleagues on the steps of the Senate.  We have been warning investors in Japanese bank stocks for the last few years to “beware the Ides of March”, advising them to be very underweight in the sector (or preferably out of the sector entirely) by 15 March each year to avoid the risk of incurring a similar fate at the hands of their investment colleagues as befell Julius Caesar on 15 March 44BC.  We are now well past the Ides of March and, true to form, the sector has already peaked and lost momentum after a brief post-Santa rally.  ‘Caveat emptor! (May the buyer beware!)’ remains our Caesarean soothsayer warning to would-be investors in Japanese bank stocks in 2019.

Japanese Banks:  Beyond the Ides of March

Doing bespoke work since 2002....., Custom Products Group

Patrick Hansen

Doing bespoke work since 2002.....

Custom Products Group

Custom Products was started 14 years ago at Lehman Brothers by current co-founder Patrick Hansen, CFA. After 3 years at Lehman, Patrick moved the team to Macquarie Securities where Simon Rigney (co-founder) joined. 3 years ago we took Custom Products independent. 

Our core strength can be summed up three words. 1- Customization - we have very little off the shelf products and most work is done on a one on one bespoke basis. 2- Speed - We pride ourselves in our ability to get requests back to the client very quickly. 3- Confidentiality - We do not redistribute. There is no grace period where we wait a week and then mass blast. Any request stops with that client.

<p>We know that historically there has been a lot of leakage leading into Earnings Season. In a different life, I remember Fuji Photo calling me in and given me a preview of the earnings results 2 weeks before the actual announcement. It may not happen as much now in the large-cap space, so we took a look at the small-cap space with very little coverage to see if there are movements in consensus.</p>

We know that historically there has been a lot of leakage leading into Earnings Season. In a different life, I remember Fuji Photo calling me in and given me a preview of the earnings results 2 weeks before the actual announcement. It may not happen as much now in the large-cap space, so we took a look at the small-cap space with very little coverage to see if there are movements in consensus.

Japanese Small-Cap Names with Consensus Changes Leading into Earning Season....

Japan

Mebuki Financial Group Inc. is a holding company established through the merger of Joyo Bank and Ashikaga Bank. As a financial group, the Company offers deposits, Loans, foreign exchange transactions, commercial and trust banking. Mebuki Financial Group also provides financial services such as letter of credit, credit cards and consulting.

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Mebuki Financial Group (7167 JP)

Japan Banks – Rare Time to Shine?

It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for...

Daniel Tabbush

Japanese Banks: End of March Blues

Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative...

J. Brian Waterhouse

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 7th February ▲2121 7267 5713 ▼ 5401 9616 3407

OOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of...

Campbell Gunn

Japanese Banks: Beyond the Ides of March

“Beware the Ides of March”: the soothsayer’s repeated warning to ancient Rome’s most famous emperor in William Shakespeare’s play ‘Julius Caesar’. ...

J. Brian Waterhouse

Japanese Small-Cap Names with Consensus Changes Leading into Earning Season....

We know that historically there has been a lot of leakage leading into Earnings Season. In a different life, I remember Fuji Photo calling me in...

Custom Products Group

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