Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>As a follow-on to <a href="https://www.smartkarma.com/insights/topix-october-2022-rebal-big-names-with-big-flows" target="_blank" data-smartkarma-citation="insights:81835" rel="noopener">TOPIX October 2022 Rebal - BIG Names with BIG Flows</a> which discussed ¥2.1trln a side flows overall, this insight analyses and proposes intra-sector baskets.</li>
<li>In general, the sector-neutral BUYs vs SELLs baskets of all names where Index Shares change by 10% or more have seen BUYs sharply outperform SELLs in the past three weeks.</li>
<li>Look for pre-positioning unwinds so trading BUY vs SELL baskets which have bucked the trend, banks and chemicals - might be worthwhile. Otherwise, pick your spots. Use the flow.</li>
</ul>


As a follow-on to TOPIX October 2022 Rebal - BIG Names with BIG Flows which discussed ¥2.1trln a side flows overall, this insight analyses and proposes intra-sector baskets.
In general, the sector-neutral BUYs vs SELLs baskets of all names where Index Shares change by 10% or more have seen BUYs sharply outperform SELLs in the past three weeks.
Look for pre-positioning unwinds so trading BUY vs SELL baskets which have bucked the trend, banks and chemicals - might be worthwhile. Otherwise, pick your spots. Use the flow.


TOPIX October 2022 Rebal - Buy/Sell Baskets (May the Flow Be Ever In Your Favour)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/chukyo-bank-ltd" target="_blank" data-smartkarma-citation="entities:20132:1" rel="noopener">Chukyo Bank (8530 JP)</a> and <a href="https://www.smartkarma.com/entities/aichi-bank-ltd" target="_blank" data-smartkarma-citation="entities:15259:1" rel="noopener">Aichi Bank (8527 JP)</a> have decided to join forces to become the largest regional lender in the Nagoya area. </li>
<li>This is probably driven by MUFJ's efforts to rid itself of non-core assets, but in doing so, it is allowing for an accretive structure for minorities.</li>
<li>This ends up being a cheap bank on a slightly complicated pro-forma basis.</li>
</ul>



Chukyo Bank (8530 JP) and Aichi Bank (8527 JP) have decided to join forces to become the largest regional lender in the Nagoya area. 
This is probably driven by MUFJ's efforts to rid itself of non-core assets, but in doing so, it is allowing for an accretive structure for minorities.
This ends up being a cheap bank on a slightly complicated pro-forma basis.


Chukyo (8530) + Aichi (8527) Bank to Create Aichi Fin'l Group - Interesting Structure Adds Value

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Most of Japan’s 77 TSE-listed regional banking entities are expected to announce their interim results from 10-12 November this year, but <a href="https://www.smartkarma.com/entities/hachijuni-bank-ltd" target="_blank" data-smartkarma-citation="entities:20244:1" rel="noopener">Hachijuni Bank (8359 JP)</a> has once again announced its interim results well ahead of the rest.  While results comfortably beat initial guidance, there were no surprises thanks to an upward revision to guidance a week ago. Moreover, an examination of those ‘much improved’ numbers shows that the bank was once again heavily reliant on loan-loss reserve write-backs and ‘selling the family silver’ to keep profits up.The stock is currently just +3.0% higher than it was six months ago; most peers are up around +9% over the same period.  Indeed, Hachijuni Bank has been a conspicuous underperformer against the Topix Banks Index for much of CY2021.  Currently trading on a FY3/2022  PER of 8.3x and PBR of 0.21x, the stock is not especially compelling.  The bank’s woefully low RoE and RoA remain serial disincentives for investors, although some 17% of total shares outstanding continue to be held by die-hard foreigners.There are other regional bank stocks (such as <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>, <a href="https://www.smartkarma.com/entities/shizuoka-bank-ltd" target="_blank" data-smartkarma-citation="entities:4437:1" rel="noopener">Shizuoka Bank (8355 JP)</a> and <a href="https://www.smartkarma.com/entities/fukuoka-financial-group-inc" target="_blank" data-smartkarma-citation="entities:3712:1" rel="noopener">Fukuoka Financial Group (8354 JP)</a> more deserving of investor interest than this one.  For those who are not yet holders of Hachijuni Bank stock, our position is clear: Caveat emptor!  (May the buyer beware!)<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/238/644/original/8359-Hachijuni-2021-1029+8359RelvsTPNBNK.jpg?1635648829" class="editor-image img-responsive" data-smartkarma-image-id="238644"></figure></section>

Most of Japan’s 77 TSE-listed regional banking entities are expected to announce their interim results from 10-12 November this year, but Hachijuni Bank (8359 JP) has once again announced its interim results well ahead of the rest.  While results comfortably beat initial guidance, there were no surprises thanks to an upward revision to guidance a week ago. Moreover, an examination of those ‘much improved’ numbers shows that the bank was once again heavily reliant on loan-loss reserve write-backs and ‘selling the family silver’ to keep profits up.The stock is currently just +3.0% higher than it was six months ago; most peers are up around +9% over the same period.  Indeed, Hachijuni Bank has been a conspicuous underperformer against the Topix Banks Index for much of CY2021.  Currently trading on a FY3/2022  PER of 8.3x and PBR of 0.21x, the stock is not especially compelling.  The bank’s woefully low RoE and RoA remain serial disincentives for investors, although some 17% of total shares outstanding continue to be held by die-hard foreigners.There are other regional bank stocks (such as Chiba Bank (8331 JP), Shizuoka Bank (8355 JP) and Fukuoka Financial Group (8354 JP) more deserving of investor interest than this one.  For those who are not yet holders of Hachijuni Bank stock, our position is clear: Caveat emptor!  (May the buyer beware!)

Hachijuni Bank (8359 JP):  Ahead of the Peloton

Prestidigitation, or sleight of hand, is what stage magicians use to create their illusions, to the delight of the onlookers who are beguiled into looking elsewhere at a crucial moment in the conjuring trick when they might otherwise spot what the ‘magician’ is really doing.FY3/2021 results for <a href="https://www.smartkarma.com/entities/hachijuni-bank-ltd" target="_blank" data-smartkarma-citation="entities:20244:1" rel="noopener">Hachijuni Bank (8359 JP)</a> are, at first glance, impressive.  In difficult trading conditions, consolidated net profits sailed past the bank’s guidance by over 24% to ¥22.3 billion (a +1.4% YoY improvement over FY3/2020).  Management has generously raised the final dividend by 33% from ¥6/share to ¥8/share. But this was simply continuing a dividend policy that management has practiced most years since FY3/2017: a ¥6/share interim dividend and an ¥8/share final dividend.  Let us not forget that guidance for FY3/2021 was withheld by management until 30 October 2020, so well into the financial year.  And bottom-line profits relied heavily on ¥6.3 billion in 2nd Half gains from  ‘selling the family silver’, namely realizing gains on part of the bank’s share portfolio as global stock markets fortuitously rose.  Moreover, trading gains of ¥9.9 billion were needed to offset a six-fold rise in credit costs from ¥1.4 billion to ¥9.3 billion because the bank’s collection of non-performing loans rose by 29.3% to ¥101.1 billion in a single year: primarily in loans in ‘high risk’ categories.  The quality of reported profits is indeed strained.In terms of balance-sheet efficiency, the bank’s return on assets (RoA) has deteriorated further to just 20bps, while its return on equity (RoE) is a risible 2.70%.  With flat profits being forecast for FY3/2022, and trading on an unremarkable PER of 8.1x, there are far better investments in the Japanese banking sector than this.  For those who are not yet holders of Hachijuni Bank stock but may have noticed the apparent strong recovery in the bank’s profitability according to its FY3/2021 financial statements, our position is clear: Caveat emptor! (May the buyer beware!)

Prestidigitation, or sleight of hand, is what stage magicians use to create their illusions, to the delight of the onlookers who are beguiled into looking elsewhere at a crucial moment in the conjuring trick when they might otherwise spot what the ‘magician’ is really doing.FY3/2021 results for Hachijuni Bank (8359 JP) are, at first glance, impressive.  In difficult trading conditions, consolidated net profits sailed past the bank’s guidance by over 24% to ¥22.3 billion (a +1.4% YoY improvement over FY3/2020).  Management has generously raised the final dividend by 33% from ¥6/share to ¥8/share. But this was simply continuing a dividend policy that management has practiced most years since FY3/2017: a ¥6/share interim dividend and an ¥8/share final dividend.  Let us not forget that guidance for FY3/2021 was withheld by management until 30 October 2020, so well into the financial year.  And bottom-line profits relied heavily on ¥6.3 billion in 2nd Half gains from  ‘selling the family silver’, namely realizing gains on part of the bank’s share portfolio as global stock markets fortuitously rose.  Moreover, trading gains of ¥9.9 billion were needed to offset a six-fold rise in credit costs from ¥1.4 billion to ¥9.3 billion because the bank’s collection of non-performing loans rose by 29.3% to ¥101.1 billion in a single year: primarily in loans in ‘high risk’ categories.  The quality of reported profits is indeed strained.In terms of balance-sheet efficiency, the bank’s return on assets (RoA) has deteriorated further to just 20bps, while its return on equity (RoE) is a risible 2.70%.  With flat profits being forecast for FY3/2022, and trading on an unremarkable PER of 8.1x, there are far better investments in the Japanese banking sector than this.  For those who are not yet holders of Hachijuni Bank stock but may have noticed the apparent strong recovery in the bank’s profitability according to its FY3/2021 financial statements, our position is clear: Caveat emptor! (May the buyer beware!)  

Hachijuni Bank (8359 JP):  A Case of Prestidigitation?

Concordia Financial Group, Ltd / Equity Bottom-Up

<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, has slashed its FY3/3021 guidance by 36.7% to ¥25.3 billion and is now expecting EPS of just ¥20.97 against previous guidance of ¥33.15.  There are two principal causes: writing down an investment in a bear fund that went dramatically wrong in a rising market to the tune of ¥16.1 billion; and a significant increase in credit costs of ¥9.0 billion, largely at subsidiary Higashi-Nippon Bank (HNPB).Lingering investor memories of past management scandals and disappointing financial performance at HNPB in particular have caused CFG to significantly underperform its peers over the last 12 months, with its stock price up only +23.5% against an average of 35.5% for the other Top 5 regional banks in terms of market capitalisation.Yet aggregate foreign ownership in CFG remains high at around 31.5%.  Foreign 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.  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> for their strong management and stable 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 an interesting thematic play.

Concordia Financial Group, Ltd (7186 JP), or CFG, has slashed its FY3/3021 guidance by 36.7% to ¥25.3 billion and is now expecting EPS of just ¥20.97 against previous guidance of ¥33.15.  There are two principal causes: writing down an investment in a bear fund that went dramatically wrong in a rising market to the tune of ¥16.1 billion; and a significant increase in credit costs of ¥9.0 billion, largely at subsidiary Higashi-Nippon Bank (HNPB).Lingering investor memories of past management scandals and disappointing financial performance at HNPB in particular have caused CFG to significantly underperform its peers over the last 12 months, with its stock price up only +23.5% against an average of 35.5% for the other Top 5 regional banks in terms of market capitalisation.Yet aggregate foreign ownership in CFG remains high at around 31.5%.  Foreign 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.  Even so, within the regional banking sector, we much prefer Chiba Bank (8331 JP) and Iyo Bank (8385 JP) for their strong management and stable fundamentals, or Bank Of Kyoto (8369 JP) as an interesting thematic play.

Concordia Financial Group (7186 JP): Asset Quality Issues

Japan

The Chiba Bank, Ltd. is a regional bank based in Chiba Prefecture. The Bank offers general banking services including deposits, loans, and foreign exchange transactions. The Chiba Bank also develops software and provides financial services such as leasing, securities brokerage, letter of credit, and credit cards.

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Chiba Bank (8331 JP)

TOPIX October 2022 Rebal - Buy/Sell Baskets (May the Flow Be Ever In Your Favour)

This companion piece to the first October 2022 FFW Rebalance piece shows both large (>¥5bn) and small (¥1-5bn) intra-sector flows. Using the flows...

Travis Lundy

Chukyo (8530) + Aichi (8527) Bank to Create Aichi Fin'l Group - Interesting Structure Adds Value

Aichi and Chukyo Banks will merge to become top lender in Nagoya ahead of current #1 and cheap good regional Bk of Nagoya. Transaction structure is...

Travis Lundy

Hachijuni Bank (8359 JP): Ahead of the Peloton

Hachijuni Bank's interim results comfortably beat initial guidance, but there were no surprises thanks to an upward revision to earnings guidance a...

J. Brian Waterhouse

Hachijuni Bank (8359 JP): A Case of Prestidigitation?

Prestidigitation, or sleight of hand, is what magicians use to create their illusions. Onlookers are beguiled into looking elsewhere at a crucial...

J. Brian Waterhouse

Concordia Financial Group (7186 JP): Asset Quality Issues

Concordia Financial Group (7186 JP) has slashed its FY3/3021 guidance by 36.7% to ¥25.3 billion on higher credit costs and after writing down a...

J. Brian Waterhouse

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