Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Thematic (Sector/Industry)

Overall lending, in terms of loans outstanding, is now relatively static, even though YoY growth rates remain comparatively high at around +5.7%pa.  End-February 2021 loan outstandings have drifted back to June 2020 levels, that is to around to the time of the surge in new lending as Japan came out of its first COVID-induced nationwide lock-down.While the Japanese bank sector has enjoyed a rally since the beginning of the year on the back of a weakening Yen, the start of the roll-out of COVID-19 vaccines and a steepening of the long-bond yield curve (albeit from negative territory to closer to zero), the fundamental outlook for the banks remains clouded.  Technically, having passed the ‘marker point’ for the end of perennial bank rallies, namely 15 March (“The Ides of March”), we expect the sector to weaken on reducing volume as we approach the fiscal year-end in Japan.The first quarter of CY2021 has been a fun ride for holders of the more liquid Japanese bank stocks, but trees do not grow to Heaven and stock prices do not rise for ever  –  especially Japanese bank stocks.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/196/406/original/JBanks-2021-0323-TPXvsTPNBNK-2015-2021.jpg?1616476627" class="editor-image img-responsive" data-smartkarma-image-id="196406"></figure></section>

Overall lending, in terms of loans outstanding, is now relatively static, even though YoY growth rates remain comparatively high at around +5.7%pa.  End-February 2021 loan outstandings have drifted back to June 2020 levels, that is to around to the time of the surge in new lending as Japan came out of its first COVID-induced nationwide lock-down.While the Japanese bank sector has enjoyed a rally since the beginning of the year on the back of a weakening Yen, the start of the roll-out of COVID-19 vaccines and a steepening of the long-bond yield curve (albeit from negative territory to closer to zero), the fundamental outlook for the banks remains clouded.  Technically, having passed the ‘marker point’ for the end of perennial bank rallies, namely 15 March (“The Ides of March”), we expect the sector to weaken on reducing volume as we approach the fiscal year-end in Japan.The first quarter of CY2021 has been a fun ride for holders of the more liquid Japanese bank stocks, but trees do not grow to Heaven and stock prices do not rise for ever  –  especially Japanese bank stocks.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

The Japanese financial markets are now so liquid, thanks to the efforts of the BoJ as well as the commercial banks to minimize the impact of the coronavirus pandemic, that bankruptcies in January 2021 fell to their lowest level in 31 years.  Meanwhile, overall lending continues to edge down in terms of loans outstanding, even though YoY growth rates remain relatively high.While the Japanese bank sector has enjoyed a rally since the beginning of the year as the Nikkei-225 Index rises to its highest level in 31 years on high hopes for the successful roll-out of an effective COVID-19 vaccine, the fundamental outlook for the banks is clouded.   “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

The Japanese financial markets are now so liquid, thanks to the efforts of the BoJ as well as the commercial banks to minimize the impact of the coronavirus pandemic, that bankruptcies in January 2021 fell to their lowest level in 31 years.  Meanwhile, overall lending continues to edge down in terms of loans outstanding, even though YoY growth rates remain relatively high.While the Japanese bank sector has enjoyed a rally since the beginning of the year as the Nikkei-225 Index rises to its highest level in 31 years on high hopes for the successful roll-out of an effective COVID-19 vaccine, the fundamental outlook for the banks is clouded.   “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

Japanese Bank Lending:  The Good, The Bad & The Terminally Indebted

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/19151" target="_blank" data-smartkarma-citation="entities:19151:1">Musashino Bank (8336 JP)</a> was one of the last regional banks to announce 3Q FY3/2019 results, and they were a nasty surprise: a consolidated net loss for the nine months to 31 December 2018, caused by heavy reserving in Q3 (October-December 2018) against the bank’s exposure to the troubled <a href="https://www.smartkarma.com/entities/12033" target="_blank" data-smartkarma-citation="entities:12033:1">Akebono Brake Industry Co (7238 JP)</a> .  While the bank has slashed its full-year net profit guidance from ¥11.1 billion to ¥4.5 billion, this would still require an heroic level of profits in Q4 which the bank has never before achieved.  The share price has fallen over 31% in the last twelve months.  Valuations at current levels are still high (FY3/2019 PER is 17.6x) and we consider the share price to be vulnerable to further weakness.  Caveat emptor (May the buyer beware) !

Musashino Bank (8336 JP) was one of the last regional banks to announce 3Q FY3/2019 results, and they were a nasty surprise: a consolidated net loss for the nine months to 31 December 2018, caused by heavy reserving in Q3 (October-December 2018) against the bank’s exposure to the troubled Akebono Brake Industry Co (7238 JP) .  While the bank has slashed its full-year net profit guidance from ¥11.1 billion to ¥4.5 billion, this would still require an heroic level of profits in Q4 which the bank has never before achieved.  The share price has fallen over 31% in the last twelve months.  Valuations at current levels are still high (FY3/2019 PER is 17.6x) and we consider the share price to be vulnerable to further weakness.  Caveat emptor (May the buyer beware) !

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Weak car sales in China, Nissan's removal of Carlos Ghosn, Akebono Brake Industry share price plunge - facts that make everyone cringe at the sound of it. High indebtedness, low margin and weak sales growth were the chief reasons why Akebono's share price plunge. Kumho Tire's high debt to equity ratio has been reduced by an equity investment from a Chinese group but will that help to turn the company around?

Weak car sales in China, Nissan's removal of Carlos Ghosn, Akebono Brake Industry share price plunge - facts that make everyone cringe at the sound of it. High indebtedness, low margin and weak sales growth were the chief reasons why Akebono's share price plunge. Kumho Tire's high debt to equity ratio has been reduced by an equity investment from a Chinese group but will that help to turn the company around? 

Kumho Tire (073240): Tough Times Ahead Still...

Global Automotive Stocks/EV Focus/Event Driven, SC Capital

SC Capital

Global Automotive Stocks/EV Focus/Event Driven

Over 22 years covering Japanese equities on both the sell side and the buy side. 

Bottom-up Japan Equities Research

Event-Driven

Toyo Tire (5105) could see a further sell-off in its shares tomorrow (2/15) if guidance is as conservative as usual. This has much to do with little patience in the market these days for weak guidance amid current volatility but also because Toyo has a tendency to low-ball its forecasts.If guidance is in-line or above FY18 consensus OP of Y54.4bn the stock should rip upwards. We think there's a ample room for Toyo to guide more towards the Y50bn level or even below Y50bn in OP to play it safe…

Toyo Tire (5105) could see a further sell-off in its shares tomorrow (2/15) if guidance is as conservative as usual. This has much to do with little patience in the market these days for weak guidance amid current volatility but also because Toyo has a tendency to low-ball its forecasts.If guidance is in-line or above FY18 consensus OP of Y54.4bn the stock should rip upwards. We think there's a ample room for Toyo to guide more towards the Y50bn level or even below Y50bn in OP to play it safe…

Toyo Tire Could Be Weak on Bearish FY18 Guidance

Japan

AKEBONO BRAKE INDUSTRY CO., LTD. manufactures brake products for automobile, motorcycles, trains and industrial machinery. The Company's product include disc brakes, drum brakes, disk brake rotors, and corner modules. Akebono has its manufacturing facilities in Japan, North America, Europe, and Asia.

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Akebono Brake Industry Co (7238 JP)

Japanese Bank Lending: A Lot of Static

The first quarter of CY2021 has been a fun ride for holders of the more liquid Japanese bank stocks, but trees do not grow to Heaven and stock...

J. Brian Waterhouse

Japanese Bank Lending: The Good, The Bad & The Terminally Indebted

Japanese financial markets are now so liquid, thanks to the efforts of the BoJ and the commercial banks, that bankruptcies in January 2021 fell to...

J. Brian Waterhouse

Musashino Bank (8336 JP): Braking Bad

Musashino Bank (8336 JP) was one of the last regional banks to announce 3Q FY3/2019 results, and they were a nasty surprise: a consolidated net...

J. Brian Waterhouse

Kumho Tire (073240): Tough Times Ahead Still...

Weak car sales in China, Nissan's removal of Carlos Ghosn, Akebono Brake Industry share price plunge - facts that make everyone cringe at the sound...

Henry Soediarko

Toyo Tire Could Be Weak on Bearish FY18 Guidance

Toyo Tire (5105) could see a further sell-off in its shares tomorrow (2/15) if guidance is as conservative as usual. This has much to do with...

SC Capital

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