Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>40% of Banks outside the Top 7 (none of which offered H1 guidance) in the TOPIX Banks Index have now changed H1 guidance or reported H1. 2 reported both up.</li>
<li>92% of the others have revised up H1 net income guidance a weighted average of 47%. Net Interest Income, Corporate fees/comms are up, expenses and credit costs are down.</li>
<li>Big tables with data, reasons for guidance changes, and buyback history of each presented below.</li>
</ul>


40% of Banks outside the Top 7 (none of which offered H1 guidance) in the TOPIX Banks Index have now changed H1 guidance or reported H1. 2 reported both up.
92% of the others have revised up H1 net income guidance a weighted average of 47%. Net Interest Income, Corporate fees/comms are up, expenses and credit costs are down.
Big tables with data, reasons for guidance changes, and buyback history of each presented below.


Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down - Opportunity Abounds, Still

<ul>
<li>Thursday post-close, HS announced Q1 earnings, and Khan Bank Q2 earnings. Both magnificent. Book Value is up HUGE, and combined HS Q1-Khan Q2 is ¥7.7bn - 20% of mkt cap.</li>
<li>On Friday 29 July, HS Holdings (8699 JP) announced it had sold HS Debt Collection Agency - the last "earning asset" except for the 55% stake in Khan Bank. </li>
<li>This lifts shadow book value even higher... Deep value with a catalyst. BUT... in an otherwise unannounced postscript to Q1 earnings, HS announced it bought a stake in a... pawnshop?
</li>
</ul>


Thursday post-close, HS announced Q1 earnings, and Khan Bank Q2 earnings. Both magnificent. Book Value is up HUGE, and combined HS Q1-Khan Q2 is ¥7.7bn - 20% of mkt cap.
On Friday 29 July, HS Holdings (8699 JP) announced it had sold HS Debt Collection Agency - the last "earning asset" except for the 55% stake in Khan Bank. 
This lifts shadow book value even higher... Deep value with a catalyst. BUT... in an otherwise unannounced postscript to Q1 earnings, HS announced it bought a stake in a... pawnshop?



HS Holdings (8699 JP) - Huge Q1, Even Better Q2 Ahead, The 2nd To Last Asset Sale... And a Pawnshop?

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/fidea-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:17012:1" rel="noopener">Fidea Holdings (8713 JP) </a>from Miyagi Prefecture in Japan’s northern Tohoku Region has announced that Iwate-based <a href="https://www.smartkarma.com/entities/tohoku-bank-ltd" target="_blank" data-smartkarma-citation="entities:8169:1" rel="noopener">Tohoku Bank (8349 JP)</a> will become a wholly-owned subsidiary in October 2022, in an all-share deal.   The announcement, which was reported during market trading hours, sent both stock prices up almost 10% on Friday 2 July.  However, rather than presaging a new paradigm for these banks, the spike in the stock prices was simply a reminder of how essentially illiquid these stocks are. The shares retreated to their pre-announcement levels in the following week.Fidea Holdings is the holding company for the smallest of three banks from Yamagata Prefecture, Shonai Bank, and the smallest of two banks from Akita Prefecture, Hokuto Bank.  Tohoku Bank, from Iwate Prefecture, is the smallest of three banks based there, and roughly one-third the size of Fidea Holdings.  Far from being a ‘Band of Brothers’, the enlarged Fidea Holdings will, in effect, be little more than a school of minnows whose combined branch network of 149 branches, while nominally  covering the whole of the Tohoku Region, has little overlap; thus little opportunity to cut costs through closing competing branches or reducing the headcount significantly.  Significant inherent weaknesses in all three banks remain largely unaddressed.  It is difficult to see how simply integrating operations under a holding company structure will resolve them.While the announcement no doubt comes with the advance approval of the financial authorities, who are keen for regional banks to merge to strengthen their operations, it creates something of a dilemma for the Financial Services Authority (FSA) in that both institutions still owe taxpayers a combined total of ¥20 billion (US$181.8 million) in public funds.  Neither seems in a position to repay that capital any time soon, as we explain in this Insight.The Bank of Japan’s own ‘bad bank’, the Resolution &amp; Collection Corporation (RCC), is effectively the largest shareholder in both Fidea Holdings and Tohoku Bank through convertible preferred stock.  Will their debts be forgiven as part of the integration, or will the due date for the public funds repayment simply be extended for a further decade or so?  Will the RCC force conversion of its preferred stock into ordinary shares because of the merger, becoming overtly by far the largest shareholder?  What will be the impact of such a decision on investor sentiment for existing shareholders?  These are all important (and, for the time being, unanswerable) questions for investors.Foreign institutional investors own 12% of Fidea Holdings, and 4% of Tohoku Bank.  We fail to understand the attraction, given all the underlying weaknesses, as we detail in this Insight.  We view Friday’s ‘bounce’ in the stock prices of both Fidea Holdings and Tohoku Bank, on an unusual surge in trading volume, as a narrow ‘opportunity window’ for frustrated shareholders to exit both stocks and stay away thereafter.  That surge is over.  To those who were tempted to pile in we say:   Caveat Emptor! (May the Buyer Beware!).

Fidea Holdings (8713 JP) from Miyagi Prefecture in Japan’s northern Tohoku Region has announced that Iwate-based Tohoku Bank (8349 JP) will become a wholly-owned subsidiary in October 2022, in an all-share deal.   The announcement, which was reported during market trading hours, sent both stock prices up almost 10% on Friday 2 July.  However, rather than presaging a new paradigm for these banks, the spike in the stock prices was simply a reminder of how essentially illiquid these stocks are. The shares retreated to their pre-announcement levels in the following week.Fidea Holdings is the holding company for the smallest of three banks from Yamagata Prefecture, Shonai Bank, and the smallest of two banks from Akita Prefecture, Hokuto Bank.  Tohoku Bank, from Iwate Prefecture, is the smallest of three banks based there, and roughly one-third the size of Fidea Holdings.  Far from being a ‘Band of Brothers’, the enlarged Fidea Holdings will, in effect, be little more than a school of minnows whose combined branch network of 149 branches, while nominally  covering the whole of the Tohoku Region, has little overlap; thus little opportunity to cut costs through closing competing branches or reducing the headcount significantly.  Significant inherent weaknesses in all three banks remain largely unaddressed.  It is difficult to see how simply integrating operations under a holding company structure will resolve them.While the announcement no doubt comes with the advance approval of the financial authorities, who are keen for regional banks to merge to strengthen their operations, it creates something of a dilemma for the Financial Services Authority (FSA) in that both institutions still owe taxpayers a combined total of ¥20 billion (US$181.8 million) in public funds.  Neither seems in a position to repay that capital any time soon, as we explain in this Insight.The Bank of Japan’s own ‘bad bank’, the Resolution &amp; Collection Corporation (RCC), is effectively the largest shareholder in both Fidea Holdings and Tohoku Bank through convertible preferred stock.  Will their debts be forgiven as part of the integration, or will the due date for the public funds repayment simply be extended for a further decade or so?  Will the RCC force conversion of its preferred stock into ordinary shares because of the merger, becoming overtly by far the largest shareholder?  What will be the impact of such a decision on investor sentiment for existing shareholders?  These are all important (and, for the time being, unanswerable) questions for investors.Foreign institutional investors own 12% of Fidea Holdings, and 4% of Tohoku Bank.  We fail to understand the attraction, given all the underlying weaknesses, as we detail in this Insight.  We view Friday’s ‘bounce’ in the stock prices of both Fidea Holdings and Tohoku Bank, on an unusual surge in trading volume, as a narrow ‘opportunity window’ for frustrated shareholders to exit both stocks and stay away thereafter.  That surge is over.  To those who were tempted to pile in we say:   Caveat Emptor! (May the Buyer Beware!).

Fidea Holdings (9713 JP):  A School of Minnows

Concordia Financial Group, Ltd / Equity Bottom-Up

Interim results for <a href="https://www.smartkarma.com/entities/concordia-financial-group-ltd" target="_blank" data-smartkarma-citation="entities:22704:1" rel="noopener">Concordia Financial Group, Ltd (7186 JP)</a>, or CFG, were coloured by significantly lower net interest and fee income from domestic business reported by Bank of Yokohama, and a reduced consolidated net loss of just ¥125 million reported by Higashi-Nippon Bank (HNPB) as a result of much lower credit costs than 1H FY3/2020. HNPB remains the drag on group profitability.Aggregate foreign ownership in CFG remains high at around 31.5% as investors view CFG as a liquid alternative to the ‘crowded trade’ of simply buying megabanks for exposure to the Japanese financial sector.  Moreover, CFG offers a cash dividend payment policy of 33% of net profits, a total shareholder return policy target of 50%, conducts frequent share buybacks, and regularly cancels part of its Treasury Stock to boost overall shareholder returns.  However, lingering investor memories of past management scandals have caused CFG to significantly underperform the Topix Banks Index since 2018, with its share price still down 16% YoY even after a 21% recovery in the last six months.The Topix Banks Index has notably underperformed Topix all year, but may be in for its perennial ‘run’ between now and mid-February next year, buoyed by the outcome of the US election and with global market hopes high for a successful COVID-19 vaccine. Even so, within the regional banking sector, we much prefer <a href="https://www.smartkarma.com/entities/chiba-bank-ltd" target="_blank" data-smartkarma-citation="entities:1048:1" rel="noopener">Chiba Bank (8331 JP)</a> and <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> on fundamentals, or <a href="https://www.smartkarma.com/entities/bank-of-kyoto-ltd" target="_blank" data-smartkarma-citation="entities:5248:1" rel="noopener">Bank Of Kyoto (8369 JP)</a> as a strong thematic play on the rising fortunes of its largest stock investment, namely <a href="https://www.smartkarma.com/entities/nintendo-co-ltd" target="_blank" data-smartkarma-citation="entities:5415:1" rel="noopener">Nintendo Co Ltd (7974 JP)</a>.

Interim results for Concordia Financial Group, Ltd (7186 JP), or CFG, were coloured by significantly lower net interest and fee income from domestic business reported by Bank of Yokohama, and a reduced consolidated net loss of just ¥125 million reported by Higashi-Nippon Bank (HNPB) as a result of much lower credit costs than 1H FY3/2020. HNPB remains the drag on group profitability.Aggregate foreign ownership in CFG remains high at around 31.5% as investors view CFG as a liquid alternative to the ‘crowded trade’ of simply buying megabanks for exposure to the Japanese financial sector.  Moreover, CFG offers a cash dividend payment policy of 33% of net profits, a total shareholder return policy target of 50%, conducts frequent share buybacks, and regularly cancels part of its Treasury Stock to boost overall shareholder returns.  However, lingering investor memories of past management scandals have caused CFG to significantly underperform the Topix Banks Index since 2018, with its share price still down 16% YoY even after a 21% recovery in the last six months.The Topix Banks Index has notably underperformed Topix all year, but may be in for its perennial ‘run’ between now and mid-February next year, buoyed by the outcome of the US election and with global market hopes high for a successful COVID-19 vaccine. Even so, within the regional banking sector, we much prefer Chiba Bank (8331 JP) and Iyo Bank (8385 JP) on fundamentals, or Bank Of Kyoto (8369 JP) as a strong thematic play on the rising fortunes of its largest stock investment, namely Nintendo Co Ltd (7974 JP).

Concordia Financial Group (7186 JP):  Unequal Partners

<a href="https://www.smartkarma.com/entities/concordia-financial-group-ltd" target="_blank" data-smartkarma-citation="entities:22704:1" rel="noopener">Concordia Financial Group, Ltd (7186 JP)</a>, or CFG, is the holding company for one of Japan’s largest regional banks, the Bank of Yokohama (BoY), and a small Tokyo-based secondary regional bank, Higashi-Nippon Bank (HNPB).  Two years on from a lending scandal at HNPB that forced the HNPB president to step down, growth at CFG continues to be dogged by ongoing problems with the group’s junior partner.  HNPB reported a consolidated net loss in FY3/2020 and is now expected to record a further net loss in FY3/2021.
Aggregate foreign ownership in CFG remains high at around 31.5% as investors view CFG as a liquid alternative to the ‘crowded trade’ of simply buying megabanks for exposure to the Japanese financial sector.  However, CFG continues to significantly underperform the Topix Banks Index, with its share price down over 21% in the last six months. CFG is by far the worst-performing of the 4 remaining regional banks with market capitalisations greater than US$3bn.  This is despite a cash dividend payment policy of 33% of net profits, a total shareholder return policy target of 50%, frequent share buybacks, and regular share cancellations.
Except for a brief rally in early March, the Topix Banks Index has notably underperformed Topix all year.  Within the regional banking sector, we much prefer Chiba Bank (8331 JP) to CFG for its strong, scandal-free management and long-standing profits ‘track record’.

Concordia Financial Group, Ltd (7186 JP), or CFG, is the holding company for one of Japan’s largest regional banks, the Bank of Yokohama (BoY), and a small Tokyo-based secondary regional bank, Higashi-Nippon Bank (HNPB).  Two years on from a lending scandal at HNPB that forced the HNPB president to step down, growth at CFG continues to be dogged by ongoing problems with the group’s junior partner.  HNPB reported a consolidated net loss in FY3/2020 and is now expected to record a further net loss in FY3/2021.
Aggregate foreign ownership in CFG remains high at around 31.5% as investors view CFG as a liquid alternative to the ‘crowded trade’ of simply buying megabanks for exposure to the Japanese financial sector.  However, CFG continues to significantly underperform the Topix Banks Index, with its share price down over 21% in the last six months. CFG is by far the worst-performing of the 4 remaining regional banks with market capitalisations greater than US$3bn.  This is despite a cash dividend payment policy of 33% of net profits, a total shareholder return policy target of 50%, frequent share buybacks, and regular share cancellations.
Except for a brief rally in early March, the Topix Banks Index has notably underperformed Topix all year.  Within the regional banking sector, we much prefer Chiba Bank (8331 JP) to CFG for its strong, scandal-free management and long-standing profits ‘track record’.

Concordia Financial Group (7186 JP):  Blame It on the Junior

Japan

Tokyo Kiraboshi Financial Group, Inc. operates banks. The Company mainly offers financial services. Tokyo Kiraboshi Financial Group provides services in Japan.

Tokyo Kiraboshi Financial Group (7173 JP)

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Tokyo Kiraboshi Financial Group (7173 JP)

Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down - Opportunity Abounds, Still

The macro backdrop for Japanese banks is pretty good. Business restructuring efforts are bearing fruit. Global macro is adding fees. Stocks are up,...

Travis Lundy

HS Holdings (8699 JP) - Huge Q1, Even Better Q2 Ahead, The 2nd To Last Asset Sale... And a Pawnshop?

HS Holdings (8699) reports great Q1, even better incoming Q2 (mostly known already), and sells the last remaining financial asset. All good. THEN...

Travis Lundy

Fidea Holdings (9713 JP): A School of Minnows

Fidea Holdings (8713 JP) has announced that Iwate-based Tohoku Bank (8349 JP) will become a wholly-owned subsidiary in October 2022, in an all...

J. Brian Waterhouse

Concordia Financial Group (7186 JP): Unequal Partners

Interim results for Concordia Financial Group (7186 JP) show that partner bank HNPB remains the drag on group profitability. The stock is down 16%...

J. Brian Waterhouse

Concordia Financial Group (7186 JP): Blame It on the Junior

Concordia Financial Group, Ltd (7186 JP), or CFG, is the holding company for one of Japan’s largest regional banks, the Bank of Yokohama (BoY), and...

J. Brian Waterhouse

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