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>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>Resona’s 3QFY24 results confirm that it is well geared to higher interest rates in Japan, with its high floating rate loan exposure, low LDR and high BoJ cash balance</li>
<li>In addition, management is executing effectively to deliver revenue growth well ahead of opex growth, and NPL trends continue to improve, resulting in sharply lower cost of risk</li>
<li>Resona’s equity holdings value to market cap ratio is 36%, the highest of the six biggest Japanese banks by market cap; management is actively divesting holdings to free up capital</li>
</ul>


Resona’s 3QFY24 results confirm that it is well geared to higher interest rates in Japan, with its high floating rate loan exposure, low LDR and high BoJ cash balance
In addition, management is executing effectively to deliver revenue growth well ahead of opex growth, and NPL trends continue to improve, resulting in sharply lower cost of risk
Resona’s equity holdings value to market cap ratio is 36%, the highest of the six biggest Japanese banks by market cap; management is actively divesting holdings to free up capital


Resona Holdings (8308 JP) – Positive 3QFY24 Results

<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

<ul>
<li>Market expectations that the BoJ’s monetary policy meeting will raise benchmark interest rates in December are reflected in the rising JGB yields, and in the domestic lending rate trends</li>
<li>We reiterate our core recommendations of Resona and Mizuho for their leverage to higher interest rates, their low LDRs and their high share of strategic holdings relative to market capitalisation</li>
<li>We reduce Chiba to neutral from buy, keep our buy on Concordia; we add Shizuoka for its gearing to higher interest rates and very high share of strategic shareholdings</li>
</ul>


Market expectations that the BoJ’s monetary policy meeting will raise benchmark interest rates in December are reflected in the rising JGB yields, and in the domestic lending rate trends
We reiterate our core recommendations of Resona and Mizuho for their leverage to higher interest rates, their low LDRs and their high share of strategic holdings relative to market capitalisation
We reduce Chiba to neutral from buy, keep our buy on Concordia; we add Shizuoka for its gearing to higher interest rates and very high share of strategic shareholdings


Japanese Big Cap Banks – Shizuoka (5831 JP) Upgraded to Buy, Chiba (8331 JP) To Neutral from Buy

<ul>
<li>The Japanese banks’ share prices have barely moved following the Bank of Japan’s exit from negative interest rates; is it largely discounted or does the continued accommodative stance instil caution? </li>
<li>Japanese banks will benefit from 100% of their deposits at the BoJ earning 0.1%, as opposed to 40% of bank deposits which was the case up to the 20th March</li>
<li>We believe our positive recommendations are all geared into higher domestic interest rates; we highlight Resona, Mizuho and Suruga in this report for their high cash and at bank balances</li>
</ul>


The Japanese banks’ share prices have barely moved following the Bank of Japan’s exit from negative interest rates; is it largely discounted or does the continued accommodative stance instil caution? 
Japanese banks will benefit from 100% of their deposits at the BoJ earning 0.1%, as opposed to 40% of bank deposits which was the case up to the 20th March
We believe our positive recommendations are all geared into higher domestic interest rates; we highlight Resona, Mizuho and Suruga in this report for their high cash and at bank balances


Japanese Banks – Cash Balances and the BoJ’s Negative Interest Rate Policy Exit

Japan

Resona Holdings, Inc. operates as a holding company. The Company, through its subsidiaries, provides financial services, including banking, trust operations, and credit card services. Resona Holdings also offers consulting services related to personal loans, asset management, and asset succession.

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Resona Holdings (8308 JP)

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