Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

The Japan financial conglomerate saw its returns down dramatically during the last crisis, even if not in loss as happened with many banks. This can surprise, where most are focused on banks. At the same time, profit decimation may not be considered by most, where <a href="https://www.smartkarma.com/entities/orix-corp" target="_blank" data-smartkarma-citation="entities:9936:1" rel="noopener">Orix Corp (8591 JP)</a> has significant levels of capital. This though does not stop impairments and a step down in profit. The market reaction to its worsened profit in the last crisis was astounding, unlike what’s transpired thus far.  A business that includes aircraft and ship leasing, insurance and real estate and banking, is already fraught with risk in the current environment – all the more so as Japan shuts down.

The Japan financial conglomerate saw its returns down dramatically during the last crisis, even if not in loss as happened with many banks. This can surprise, where most are focused on banks. At the same time, profit decimation may not be considered by most, where Orix Corp (8591 JP) has significant levels of capital. This though does not stop impairments and a step down in profit. The market reaction to its worsened profit in the last crisis was astounding, unlike what’s transpired thus far.  A business that includes aircraft and ship leasing, insurance and real estate and banking, is already fraught with risk in the current environment – all the more so as Japan shuts down.

Orix  - Lending, Insurance, Aircraft & Ship Leasing, No Shortage Of Risks

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Thematic (Sector/Industry)

Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative performance.  Some regional bank stocks rose as much as 35% for the week, while even the mighty megabank <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-gro" target="_blank" rel="noopener" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> rose an eyebrow-raising 17%.  Regrettably, this is not evidence of a paradigm shift in the Japanese banking sector’s fundamental outlook, but more like a knee-jerk reaction to the Bank of Japan’s efforts to restore order to the somewhat chaotic financial markets through buying ETFs, perhaps aided – if financial media are to be believed  –  by government-owned pension funds such as the GPIF.The Yen has not weakened against the US Dollar, as one might have expected if international investors had been adopting a ‘risk on’ approach, but has failed several times to break though the Y112 level (as noted recently by Smartkarma contributor <a href="https://www.smartkarma.com/profiles/campbell-gunn" target="_blank" rel="noopener" data-smartkarma-citation="accounts:2531">Campbell Gunn</a>) and is now in sharp retreat: a ‘risk off’ reaction.  This is not good news for Japanese financial stocks.The fundamental outlook for Japan’s banks has not improved: if anything, the outlook for FY3/2021 and beyond is now even more challenging than FY3/2020 has been.  As we have frequently pointed out in past Insights, margins remain under downward pressure generally, many regional banks remain underwater on their core domestic businesses, credit costs are rising across the board for all banks and many may face substantial losses on their investment portfolios as they close their accounts for FY3/2020.  Under the circumstances, the recent strength in Japanese bank stock prices is logically unsustainable without further massive intervention by the Japanese financial authorities and the further disruption of price discovery.Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!”  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative performance.  Some regional bank stocks rose as much as 35% for the week, while even the mighty megabank Mitsubishi UFJ Financial (MUFG) (8306 JP) rose an eyebrow-raising 17%.  Regrettably, this is not evidence of a paradigm shift in the Japanese banking sector’s fundamental outlook, but more like a knee-jerk reaction to the Bank of Japan’s efforts to restore order to the somewhat chaotic financial markets through buying ETFs, perhaps aided – if financial media are to be believed  –  by government-owned pension funds such as the GPIF.The Yen has not weakened against the US Dollar, as one might have expected if international investors had been adopting a ‘risk on’ approach, but has failed several times to break though the Y112 level (as noted recently by Smartkarma contributor Campbell Gunn) and is now in sharp retreat: a ‘risk off’ reaction.  This is not good news for Japanese financial stocks.The fundamental outlook for Japan’s banks has not improved: if anything, the outlook for FY3/2021 and beyond is now even more challenging than FY3/2020 has been.  As we have frequently pointed out in past Insights, margins remain under downward pressure generally, many regional banks remain underwater on their core domestic businesses, credit costs are rising across the board for all banks and many may face substantial losses on their investment portfolios as they close their accounts for FY3/2020.  Under the circumstances, the recent strength in Japanese bank stock prices is logically unsustainable without further massive intervention by the Japanese financial authorities and the further disruption of price discovery.Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!”  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

'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. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/923/original/2020-02-08_18-15-45.png?1581196263" class="editor-image img-responsive" data-smartkarma-image-id="116923"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/924/original/2020-02-09_06-34-51.png?1581197706" class="editor-image img-responsive" data-smartkarma-image-id="116924"></figure><div class="content-caption">Source • Japan Analytics</div><div class="content-caption"></div>OOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of companies continue this trend, the current quarter will equal CQ2019-1 and CQ2018-2 in seeing a 200 basis point Results Score decline. 169 forecasts or revision announcements added  5bps to the Forecast/Revision Score, supported by slight upward revisions from <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> and <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a>.  The Results Score has dipped below the Forecast/Revision Score for the first time since July 2016 and is a necessary precursor of the bottoming of the cycle. Japan is now in a recession and could see a decline in GDP for the calendar year. The market's current optimism (aided by the Bank of Japan's buy-the-dips support programme) is more appropriate to the middle of the cycle and, with two further poor earnings quarters ahead, suggests limited further upside. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/925/original/2020-02-08_10-48-19.png?1581199859" class="editor-image img-responsive" data-smartkarma-image-id="116925"></figure><div class="content-caption">Source • Japan Analytics</div>18x EARNINGS - Trailing-twelve-month (TTM) Operating Income for the composite of listed companies has declined to ¥57.4t, 10% below the peak of early 2019. TTM Net Income has declined by 20% over the same period, resulting in a 6.1 point increase in the market price-earnings ratio to 17.6 times.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/927/original/2020-02-08_10-55-21.png?1581200256" class="editor-image img-responsive" data-smartkarma-image-id="116927"></figure><div class="content-caption">Source • Japan Analytics</div>TTM RESULTS - TTM Operating Profits have been declining quarter-on-quarter for five straight quarters, and are 8.1% lower year-on-year. The Operating Margin has declined from 7.45% to 6.80%. TTM Revenues are now also falling and have only increased by 0.7% year-on-year.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/116/928/original/2020-02-08_10-59-00.png?1581200533" class="editor-image img-responsive" data-smartkarma-image-id="116928"></figure><div class="content-caption">Source • Japan Analytics</div>FORECASTS - The year-on-year Operating Profit decline using current forecasts is 8.5%, while Revenues are flat. Revenue forecasts have been falling quarter-on-quarter for three quarters in a row. The 'uplift' from TTM to Forecast is just ¥3t for sales and ¥0.3t for OP.

Source • Japan AnalyticsOOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of companies continue this trend, the current quarter will equal CQ2019-1 and CQ2018-2 in seeing a 200 basis point Results Score decline. 169 forecasts or revision announcements added  5bps to the Forecast/Revision Score, supported by slight upward revisions from Softbank Corp (9434 JP) and Honda Motor (7267 JP).  The Results Score has dipped below the Forecast/Revision Score for the first time since July 2016 and is a necessary precursor of the bottoming of the cycle. Japan is now in a recession and could see a decline in GDP for the calendar year. The market's current optimism (aided by the Bank of Japan's buy-the-dips support programme) is more appropriate to the middle of the cycle and, with two further poor earnings quarters ahead, suggests limited further upside. Source • Japan Analytics18x EARNINGS - Trailing-twelve-month (TTM) Operating Income for the composite of listed companies has declined to ¥57.4t, 10% below the peak of early 2019. TTM Net Income has declined by 20% over the same period, resulting in a 6.1 point increase in the market price-earnings ratio to 17.6 times.Source • Japan AnalyticsTTM RESULTS - TTM Operating Profits have been declining quarter-on-quarter for five straight quarters, and are 8.1% lower year-on-year. The Operating Margin has declined from 7.45% to 6.80%. TTM Revenues are now also falling and have only increased by 0.7% year-on-year.Source • Japan AnalyticsFORECASTS - The year-on-year Operating Profit decline using current forecasts is 8.5%, while Revenues are flat. Revenue forecasts have been falling quarter-on-quarter for three quarters in a row. The 'uplift' from TTM to Forecast is just ¥3t for sales and ¥0.3t for OP. 

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 7th February ▲2121 7267 5713 ▼ 5401 9616 3407

<a href="https://www.smartkarma.com/entities/chugoku-bank-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:11177:1">Chugoku Bank (8382 JP)</a>, based in Okayama Prefecture in the Chugoku region of western Japan, is the 10th-largest Japanese regional bank in terms of market capitalisation.  It has a long-standing reputation for solid earnings thanks to conservative management and a strong financial position.  But, as the old Japanese proverb goes, even monkeys fall out of trees sometimes.  At first glance, things look fine: the bank is well-capitalised with a CAR of 13.62%, and interim results beat guidance convincingly.  Yet the bank has lowered its full-year forecast: one of only a handful of regional banks to do so when interim results were announced earlier this month.  Why?  Probably because interim results were still down 11% YoY, core earnings are down 24% YoY, the bank’s key net return on domestic funds deployed is now in negative territory, and credit costs are rising sharply.  Oh dear.  That reputation is looking distinctly undeserved these days.Make no mistake: not long ago, Chugoku Bank was an exceptionally strong bank. It may again be one some day.  Right now, however, the long-standing premium rating on its stock price (PER of 15.4x against a peer average of 10.9x) is unjustifiable given the deterioration in its core profitability.Foreign investors in aggregate continue to own just short of 17% of outstanding shares.  With Chugoku Bank’s performance ratios continuing to decline, its reputation for solid earnings in question, and in light of the recent profit warning for FY3/20 earnings from the bank, one wonders how long it will be before more foreign investors in Chugoku Bank head for the exits.  For those considering investing in this bank, perhaps unaware of the worrying deterioration in the bank’s basic domestic business but attracted by the disarmingly tantalising combination of strong capitalisation, high market share in its home prefecture, and a long history of conservative management, our advice is:  Caveat emptor!  (May the buyer beware!)

Chugoku Bank (8382 JP), based in Okayama Prefecture in the Chugoku region of western Japan, is the 10th-largest Japanese regional bank in terms of market capitalisation.  It has a long-standing reputation for solid earnings thanks to conservative management and a strong financial position.  But, as the old Japanese proverb goes, even monkeys fall out of trees sometimes.  At first glance, things look fine: the bank is well-capitalised with a CAR of 13.62%, and interim results beat guidance convincingly.  Yet the bank has lowered its full-year forecast: one of only a handful of regional banks to do so when interim results were announced earlier this month.  Why?  Probably because interim results were still down 11% YoY, core earnings are down 24% YoY, the bank’s key net return on domestic funds deployed is now in negative territory, and credit costs are rising sharply.  Oh dear.  That reputation is looking distinctly undeserved these days.Make no mistake: not long ago, Chugoku Bank was an exceptionally strong bank. It may again be one some day.  Right now, however, the long-standing premium rating on its stock price (PER of 15.4x against a peer average of 10.9x) is unjustifiable given the deterioration in its core profitability.Foreign investors in aggregate continue to own just short of 17% of outstanding shares.  With Chugoku Bank’s performance ratios continuing to decline, its reputation for solid earnings in question, and in light of the recent profit warning for FY3/20 earnings from the bank, one wonders how long it will be before more foreign investors in Chugoku Bank head for the exits.  For those considering investing in this bank, perhaps unaware of the worrying deterioration in the bank’s basic domestic business but attracted by the disarmingly tantalising combination of strong capitalisation, high market share in its home prefecture, and a long history of conservative management, our advice is:  Caveat emptor!  (May the buyer beware!)

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

TSE Tokyo Price Index TOPIX / Technical Analysis

In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the most attractive Sectors globally -- overweight. These two Sectors account for half of today’s individual recommendations Countries that are (1) developing positively in terms of price and RS and (2) have significant representation in this report include: Japan (TOPIX), Switzerland (SMI), and France (CAC 40).Outside of the above themes, a bottoms-up approach is required to uncover attractive and actionable stocks. On page 4 we include a table of all stocks highlighted in this report.

In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the most attractive Sectors globally -- overweight. These two Sectors account for half of today’s individual recommendations Countries that are (1) developing positively in terms of price and RS and (2) have significant representation in this report include: Japan (TOPIX), Switzerland (SMI), and France (CAC 40).Outside of the above themes, a bottoms-up approach is required to uncover attractive and actionable stocks. On page 4 we include a table of all stocks highlighted in this report. 

Overweight Global Technology & Industrials

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)

Orix - Lending, Insurance, Aircraft & Ship Leasing, No Shortage Of Risks

The Japan financial conglomerate saw its returns down dramatically during the last crisis, even if not in loss as happened with many banks. This...

Daniel Tabbush

Japanese Banks: End of March Blues

Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative...

J. Brian Waterhouse

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 7th February ▲2121 7267 5713 ▼ 5401 9616 3407

OOOPS! - The 480 quarterly results announced on Friday subtracted a further 20 basis points from our Results Score. If the remaining 38% of...

Campbell Gunn

Chugoku Bank (8382 JP): Even Monkeys

Chugoku Bank (8382 JP), based in Okayama Prefecture in the Chugoku region of western Japan, is the 10th-largest Japanese regional bank in terms of...

J. Brian Waterhouse

Overweight Global Technology & Industrials

In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the...

Vermilion Research

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