Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>I wrote <a href="https://www.smartkarma.com/insights/japan-h1-bank-earnings-interest-fees-up-expenses-credit-costs-down-opportunity-abounds-still" target="_blank" data-smartkarma-citation="insights:116534" rel="noopener">Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down - Opportunity Abounds, Still</a> last week mentioning the trends in guidance revisions.</li>
<li>Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%. </li>
<li>Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.</li>
</ul>


I wrote Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down - Opportunity Abounds, Still last week mentioning the trends in guidance revisions.
Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%. 
Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.


Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well

'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/034/original/2018-08-16_19-07-34.png?1534672507" class="editor-image img-responsive" data-smartkarma-image-id="61034"></figure><div class="content-caption">Source: Japan Analytics</div>A GOOD QUARTER - The Composite Results Score has now declined for seven months in a row and is implying a slowing of the upward momentum in earnings.  However, the score has only declined by 31 basis points since last quarter showing a degree of 'stability' seen only in 2011 in recent years.  The aggregate Forecast/Revision score has also continued to decline and is now lower for the fourth straight month. As would be expected, this score is a reliable leading indicator for the Results Score and suggests further weakening in the rate of earnings growth in the months ahead.  Neither score is, as yet, suggesting a decline in earnings before the end of the fiscal year.YEN CORRELATION WEAKENING - This quarter's earnings' stability was surprising given the relative strength of the Yen compared to a year ago. In the past and even as recently as 2016, a 5 per cent year-on-year decline has resulted in negative Results Scores. The year-on-year change in now positive so any negative impact will dissipate over the next two quarters.MARKET FOLLOWS MOMENTUM LOWER - The All Market Composite peaked on 23rd January and has since fallen by 11% despite a continuation of the Bank of Japan's ETF purchasing programme. Weakening earnings momentum and the overvaluation of many of the leading stocks, as in our '<a href="https://www.smartkarma.com/insights/japan-most-overbought-most-oversold-the-relative-price-score" target="_blank" data-smartkarma-citation="insights:21149">Nifty 50</a>' portfolio, have been contributing factors. With prospects for a much weaker Yen limited by the current trade negotiations between Japan and the United States, and with global growth slowing, we expect both Results and Revision Scores to trend lower, but to end the fiscal year in positive territory. Historically, the market has not risen during periods when both the Results and Forecast/Revision Scores have been trending down.<div class="content-highlight">MARKET RECOMMENDATION - Within a global portfolio, we would market-weight Japanese equities with a bias towards domestic sectors and not hedge the currency exposure.</div>SECTOR RESULTS SCORES -The good news is that only one sector, (Multi-Industry - 75% of which is <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post [6178 JP</a>]) has a negative score - and its score is less negative than last quarter. Both the Media and Consumer Services sectors' scores turned positive and each increased by more than two points.  On the other hand, over half of our 29 sectors saw declining scores, although the number was lower than last quarter.  The top sectors in terms of quarter-on-quarter change were Energy, Consumer Services, Media, Information Technology and Other Commercial Products while the laggards were Non-Bank Finance, Chemicals, Construction, Machinery and Utilities. SECTOR REVISION SCORES - Five sectors have negative Forecast/Revision Scores with Utilities now joining Media, Multi-Industry, Autos and Banks from last quarter. The highest scores are in the Energy, Technology Hardware, Electrical Equipment, Retail and Information Technology sectors. Improvements of greater than one point were seen in Energy, Media and Machinery while Food, Beverages &amp; Tobacco, Chemicals, Utilities, Other Materials and Technology Hardware all lost more than one point. Overall eighteen sectors saw declines.REVISION V. RESULTS SCORES - The difference between the Results and Revision Scores is a good indicator of corporate expectations compared with the trailing-twelve-month reality. In some cases (e.g. Restaurants) the 'optimism' is due to a failure to revise forecasts in the light of weaker results. In others, such as Telecommunications, there is scope for upward revisions in the coming quarters.<div class="content-highlight">
THE OPTIMISTS
Restaurants • Other Materials • Electrical Equipment • Technology Hardware • Retail
THE PESSIMISTS
Banks • Autos • Telecommunications • Utilities • Media • Chemicals
</div>SECTOR PERFORMANCE - Over the last three months, our Japan Market Composite declined by 5.8%. Only four sectors saw an increase in value led by Telecommunications, Energy, Commercial Services and Information Technology. The largest declines were in the Building Materials, Metals, Real Estate Construction and Machinery sectors. Nine sectors are now negative over one year led by Building Materials, Metals and Food, Beverages &amp; Tobacco and only eight are up in double-digits led by Services and Information Technology. For the time being, Domestic Non-Manufacturing sectors 'rules the roost' and Domestic Cyclical sectors have taken over from Global Cyclicals in the 'doghouse'.'.<div class="content-highlight">
SECTOR RECOMMENDATIONS
Our most-preferred sectors are currently Energy, Healthcare, Telecommunications, Other Commercial Products and Information Technology.
Least-preferred sectors are Metals, Chemicals, Machinery, Autos, Construction, Real Estate, Building Materials, Food Beverages &amp; Tobacco and Utilities.
</div>TOP 5 LARGER PEER GROUPS - The top five Peer Groups capitalised at over ¥1 trillion are Machine Tools &amp; Presses, PC &amp; Computer Peripherals, Oil &amp; Gas Refining &amp; Marketing, Telecom Distribution Services and Sporting &amp; Outdoor Goods. The top twenty larger Peer Groups have gained 16% over one year but have declined by 4% on average the last three months.BOTTOM 5 LARGER PEER GROUPS - The bottom five Peer Groups capitalised at over ¥1 trillion are Audio/Visual Content, LCD/LED Materials &amp; Equipment, Electrical Engineering, General Contractors and Real Estate - Leasing. The bottom twenty larger Peer Groups have lost 2% over one year and 9% over the last three months. Only Security Services and Tobacco have risen since May.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/061/038/original/2018-08-19_19-33-03.png?1534674804" class="editor-image img-responsive" data-smartkarma-image-id="61038"></figure>

Source: Japan AnalyticsA GOOD QUARTER - The Composite Results Score has now declined for seven months in a row and is implying a slowing of the upward momentum in earnings.  However, the score has only declined by 31 basis points since last quarter showing a degree of 'stability' seen only in 2011 in recent years.  The aggregate Forecast/Revision score has also continued to decline and is now lower for the fourth straight month. As would be expected, this score is a reliable leading indicator for the Results Score and suggests further weakening in the rate of earnings growth in the months ahead.  Neither score is, as yet, suggesting a decline in earnings before the end of the fiscal year.YEN CORRELATION WEAKENING - This quarter's earnings' stability was surprising given the relative strength of the Yen compared to a year ago. In the past and even as recently as 2016, a 5 per cent year-on-year decline has resulted in negative Results Scores. The year-on-year change in now positive so any negative impact will dissipate over the next two quarters.MARKET FOLLOWS MOMENTUM LOWER - The All Market Composite peaked on 23rd January and has since fallen by 11% despite a continuation of the Bank of Japan's ETF purchasing programme. Weakening earnings momentum and the overvaluation of many of the leading stocks, as in our 'Nifty 50' portfolio, have been contributing factors. With prospects for a much weaker Yen limited by the current trade negotiations between Japan and the United States, and with global growth slowing, we expect both Results and Revision Scores to trend lower, but to end the fiscal year in positive territory. Historically, the market has not risen during periods when both the Results and Forecast/Revision Scores have been trending down.MARKET RECOMMENDATION - Within a global portfolio, we would market-weight Japanese equities with a bias towards domestic sectors and not hedge the currency exposure.SECTOR RESULTS SCORES -The good news is that only one sector, (Multi-Industry - 75% of which is Japan Post [6178 JP]) has a negative score - and its score is less negative than last quarter. Both the Media and Consumer Services sectors' scores turned positive and each increased by more than two points.  On the other hand, over half of our 29 sectors saw declining scores, although the number was lower than last quarter.  The top sectors in terms of quarter-on-quarter change were Energy, Consumer Services, Media, Information Technology and Other Commercial Products while the laggards were Non-Bank Finance, Chemicals, Construction, Machinery and Utilities. SECTOR REVISION SCORES - Five sectors have negative Forecast/Revision Scores with Utilities now joining Media, Multi-Industry, Autos and Banks from last quarter. The highest scores are in the Energy, Technology Hardware, Electrical Equipment, Retail and Information Technology sectors. Improvements of greater than one point were seen in Energy, Media and Machinery while Food, Beverages &amp; Tobacco, Chemicals, Utilities, Other Materials and Technology Hardware all lost more than one point. Overall eighteen sectors saw declines.REVISION V. RESULTS SCORES - The difference between the Results and Revision Scores is a good indicator of corporate expectations compared with the trailing-twelve-month reality. In some cases (e.g. Restaurants) the 'optimism' is due to a failure to revise forecasts in the light of weaker results. In others, such as Telecommunications, there is scope for upward revisions in the coming quarters.
THE OPTIMISTS
Restaurants • Other Materials • Electrical Equipment • Technology Hardware • Retail
THE PESSIMISTS
Banks • Autos • Telecommunications • Utilities • Media • Chemicals
SECTOR PERFORMANCE - Over the last three months, our Japan Market Composite declined by 5.8%. Only four sectors saw an increase in value led by Telecommunications, Energy, Commercial Services and Information Technology. The largest declines were in the Building Materials, Metals, Real Estate Construction and Machinery sectors. Nine sectors are now negative over one year led by Building Materials, Metals and Food, Beverages &amp; Tobacco and only eight are up in double-digits led by Services and Information Technology. For the time being, Domestic Non-Manufacturing sectors 'rules the roost' and Domestic Cyclical sectors have taken over from Global Cyclicals in the 'doghouse'.'.
SECTOR RECOMMENDATIONS
Our most-preferred sectors are currently Energy, Healthcare, Telecommunications, Other Commercial Products and Information Technology.
Least-preferred sectors are Metals, Chemicals, Machinery, Autos, Construction, Real Estate, Building Materials, Food Beverages &amp; Tobacco and Utilities.
TOP 5 LARGER PEER GROUPS - The top five Peer Groups capitalised at over ¥1 trillion are Machine Tools &amp; Presses, PC &amp; Computer Peripherals, Oil &amp; Gas Refining &amp; Marketing, Telecom Distribution Services and Sporting &amp; Outdoor Goods. The top twenty larger Peer Groups have gained 16% over one year but have declined by 4% on average the last three months.BOTTOM 5 LARGER PEER GROUPS - The bottom five Peer Groups capitalised at over ¥1 trillion are Audio/Visual Content, LCD/LED Materials &amp; Equipment, Electrical Engineering, General Contractors and Real Estate - Leasing. The bottom twenty larger Peer Groups have lost 2% over one year and 9% over the last three months. Only Security Services and Tobacco have risen since May.

Japan: Results & Revision Scores Summer 2018 Update - Market Composite, Sectors & Peer Groups

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

The unexpected cut to FY3/2021 guidance announced by <a href="https://www.smartkarma.com/entities/gunma-bank-ltd" target="_blank" data-smartkarma-citation="entities:15777:1" rel="noopener">Gunma Bank (8334 JP)</a>, the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, is a reminder that the coronavirus pandemic continues to exact a heavy toll on Japanese industry, despite substantial efforts by the Japanese government and private commercial banks to support their clients wherever feasible.  Despite the likely dent in FY3/2021 earnings (to be formally announced in the next 2-3 weeks) caused by additional credit provisioning, we expect earnings to recover in FY3/2022.  The bank is maintaining its dividend unchanged at ¥13/share, suggesting a dividend payout ratio of around 45%.  On a prospective PER (using the bank’s revised guidance) of 12.5x and a low PBR of 0.31x, the stock remains attractive against peers.  We maintain our positive view on this stock.

The unexpected cut to FY3/2021 guidance announced by Gunma Bank (8334 JP), the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, is a reminder that the coronavirus pandemic continues to exact a heavy toll on Japanese industry, despite substantial efforts by the Japanese government and private commercial banks to support their clients wherever feasible.  Despite the likely dent in FY3/2021 earnings (to be formally announced in the next 2-3 weeks) caused by additional credit provisioning, we expect earnings to recover in FY3/2022.  The bank is maintaining its dividend unchanged at ¥13/share, suggesting a dividend payout ratio of around 45%.  On a prospective PER (using the bank’s revised guidance) of 12.5x and a low PBR of 0.31x, the stock remains attractive against peers.  We maintain our positive view on this stock.

Gunma Bank  (8334 JP):  Compressed Guidance

Financial entrepreneur Yoshitaka Kitao and his flagship company <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">Sbi Holdings (8473 JP)</a> have just netted their sixth and seventh regional banks, namely secondary regional banks Kirayaka Bank and Sendai Bank from the Tohoku Region of northern Japan.On Friday 20 November 2020, the holding company for these two banks, tiny <a href="https://www.smartkarma.com/entities/jimoto-holdings-inc" target="_blank" data-smartkarma-citation="entities:5763:1" rel="noopener">Jimoto Holdings (7161 JP)</a>, finally announced its interim results for FY3/2021.  Interim net profits collapsed 91% YoY to just ¥64 million (US$615,000), and the group’s revised full-year guidance now warns of a full-year consolidated net loss of around ¥3 billion: largely the result of accumulated valuation losses in the securities portfolio of principal subsidiary Kirayaka Bank.  To rub salt into investors’ wounds, Jimoto Holdings simultaneously announced that it was issuing 3.65 million new shares to a subsidiary of <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">Sbi Holdings (8473 JP)</a>  for a consideration of around ¥3.4 billion (US$33.6 million).  The SBI Group will control just over 18% of Jimoto Holdings’ outstanding shares when the transactions are completed.Jimoto Holdings is the latest investment by financial entrepreneur Yoshitaka Kitao in Japan’s struggling regional banking sector, and another ‘stepping-stone’ for the SBI Group’s president towards his goal of creating a “fourth megabank”.Foreign investors would be well advised to steer clear.  The future for Jimoto Holdings is far from certain, despite the capital injection.  Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2020.

Financial entrepreneur Yoshitaka Kitao and his flagship company Sbi Holdings (8473 JP) have just netted their sixth and seventh regional banks, namely secondary regional banks Kirayaka Bank and Sendai Bank from the Tohoku Region of northern Japan.On Friday 20 November 2020, the holding company for these two banks, tiny Jimoto Holdings (7161 JP), finally announced its interim results for FY3/2021.  Interim net profits collapsed 91% YoY to just ¥64 million (US$615,000), and the group’s revised full-year guidance now warns of a full-year consolidated net loss of around ¥3 billion: largely the result of accumulated valuation losses in the securities portfolio of principal subsidiary Kirayaka Bank.  To rub salt into investors’ wounds, Jimoto Holdings simultaneously announced that it was issuing 3.65 million new shares to a subsidiary of Sbi Holdings (8473 JP)  for a consideration of around ¥3.4 billion (US$33.6 million).  The SBI Group will control just over 18% of Jimoto Holdings’ outstanding shares when the transactions are completed.Jimoto Holdings is the latest investment by financial entrepreneur Yoshitaka Kitao in Japan’s struggling regional banking sector, and another ‘stepping-stone’ for the SBI Group’s president towards his goal of creating a “fourth megabank”.Foreign investors would be well advised to steer clear.  The future for Jimoto Holdings is far from certain, despite the capital injection.  Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2020.

Jimoto Holdings (7161 JP):  Kirayaka Cracks

Interim results for <a href="https://www.smartkarma.com/entities/gunma-bank-ltd" target="_blank" data-smartkarma-citation="entities:15777:1" rel="noopener">Gunma Bank (8334 JP)</a>, the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, comfortably beat the bank’s own guidance despite hefty COVID-19-related loan loss provisioning taken in 1Q.  The bank has left its full-year guidance unchanged, expecting consolidated net profits of ¥20.5 billion, or ¥49/share, with dividends for the year of ¥13/share, suggesting a dividend payout ratio of around 27%.  On a prospective PER (using the bank’s revised guidance) of 7.0x and a low PBR of 0.30x, the stock remains inexpensive against peers despite having risen some 30% since touching a 2020 low in mid-March.  Surprisingly, foreign investors own in aggregate less than 18% of this undervalued Japanese regional bank.  Worth considering.

Interim results for Gunma Bank (8334 JP), the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, comfortably beat the bank’s own guidance despite hefty COVID-19-related loan loss provisioning taken in 1Q.  The bank has left its full-year guidance unchanged, expecting consolidated net profits of ¥20.5 billion, or ¥49/share, with dividends for the year of ¥13/share, suggesting a dividend payout ratio of around 27%.  On a prospective PER (using the bank’s revised guidance) of 7.0x and a low PBR of 0.30x, the stock remains inexpensive against peers despite having risen some 30% since touching a 2020 low in mid-March.  Surprisingly, foreign investors own in aggregate less than 18% of this undervalued Japanese regional bank.  Worth considering.

Gunma Bank (8334 JP):  Hiding in Plain Sight

Japan

The Towa Bank Ltd is a regional bank that mainly operates in Saitama, Gunma, and Tochigi prefectures.  The Bank provides banking services such as deposits, loans, and exchange transactions.  Towa Bank also provides other financial services including leasing and credit cards.

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Towa Bank (8558 JP)

Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well

Since last week's piece, 5 banks have reported strong H1 results, ahead of guidance and up yoy. 7 more have amended H1 guidance up an average of...

Travis Lundy

Japan: Results & Revision Scores Summer 2018 Update - Market Composite, Sectors & Peer Groups

A GOOD QUARTER - The Composite Results Score has now declined for seven months in a row and is implying a slowing of the upward momentum in...

Campbell Gunn

Gunma Bank (8334 JP): Compressed Guidance

The surprise cut to FY3/2021 guidance announced by Gunma Bank (8334 JP) is a reminder that the pandemic continues to take a heavy toll on Japanese...

J. Brian Waterhouse

Jimoto Holdings (7161 JP): Kirayaka Cracks

Financial entrepreneur Yoshitaka Kitao and his flagship company SBI Holdings (8473 JP) have just netted their sixth and seventh regional banks,...

J. Brian Waterhouse

Gunma Bank (8334 JP): Hiding in Plain Sight

On a PER of 7.0x and a PBR of 0.30x, the stock remains inexpensive against peers despite being up some 30% since touching a low in mid-March. This...

J. Brian Waterhouse

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