Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

<ul>
<li>In the post meeting press briefing, governor Kazuo Ueda said there was an increasing chance of the BoJ's 2% inflation target being hit; JGB 10Y yields rose as a result</li>
<li>This implies that the BoJ could change from negative interest rate policy in the near future, perhaps as soon as March, which is positive for the Japanese bank sector’s fundamentals</li>
<li>We believe that this new will give further impetus to Japanese bank shares, especially those banks that are well geared into rising domestic interest rates; we highlight eight banks</li>
</ul>


In the post meeting press briefing, governor Kazuo Ueda said there was an increasing chance of the BoJ's 2% inflation target being hit; JGB 10Y yields rose as a result
This implies that the BoJ could change from negative interest rate policy in the near future, perhaps as soon as March, which is positive for the Japanese bank sector’s fundamentals
We believe that this new will give further impetus to Japanese bank shares, especially those banks that are well geared into rising domestic interest rates; we highlight eight banks


Bank of Japan Meeting Signals– Our Take on the Implications for Japanese Banks

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

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

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

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

The stock price of the tiny, embattled <a href="https://www.smartkarma.com/entities/towa-bank-ltd" target="_blank" data-smartkarma-citation="entities:18283:1" rel="noopener">Towa Bank (8558 JP)</a>, a small Japanese secondary regional bank from Gunma Prefecture just north of Tokyo, at one point jumped 13.5% on Friday on 17x normal trading volume after the bank confirmed it was in “co-operative discussions” with online financial specialist <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>.Financial media have suggested the bank is considering a tie-up with SBI through a small mutual shareholding (1% of Towa Bank stock  -  worth roughly ¥275 million  -  for up to ¥200 million in SBI shares) and the establishment of  a jointly-managed fund to support local businesses.  Towa Bank has stated that nothing has been decided as yet.  If media reports are correct, this would be the fifth such investment by financial entrepreneur Yoshitaka Kitao in Japan’s struggling regional banking sector.  However, there are some important differences with this tie-up.Towa Bank has a long and unenviable history of poor credit decisions and consequent hefty losses, prompting a taxpayer-funded bail-out in FY3/2010.  The current president has been working hard to turn the bank’s fortunes around, managing to repay ¥20.0 billion in public funds in FY3/2019.  Even so, Towa Bank still has ¥15.0 billion (US$143 million) in public funds to repay, and profits have been shrinking rapidly.While this may be seen as another ‘stepping-stone’ for SBI Group’s president and financial entrepreneur Yoshitaka Kitao in his bid to create a “fourth megabank”, investors should bear in mind that the net risk investment amount is little more than chump change for an enterprise like SBI.  Moreover, the apparent emphasis on support for local industry, rather than support for Towa Bank itself, suggests that this tie-up is not a ‘rescue’ of Towa Bank by a ‘white knight’, but an opportunity for a financial entrepreneur to gain valuable access to Towa Bank’s retail client base for a very modest cash outlay.  As such, foreign investors would be well advised to steer clear of Towa Bank stock, as valuations are already demanding.  Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2020.

The stock price of the tiny, embattled Towa Bank (8558 JP), a small Japanese secondary regional bank from Gunma Prefecture just north of Tokyo, at one point jumped 13.5% on Friday on 17x normal trading volume after the bank confirmed it was in “co-operative discussions” with online financial specialist Sbi Holdings (8473 JP).Financial media have suggested the bank is considering a tie-up with SBI through a small mutual shareholding (1% of Towa Bank stock  -  worth roughly ¥275 million  -  for up to ¥200 million in SBI shares) and the establishment of  a jointly-managed fund to support local businesses.  Towa Bank has stated that nothing has been decided as yet.  If media reports are correct, this would be the fifth such investment by financial entrepreneur Yoshitaka Kitao in Japan’s struggling regional banking sector.  However, there are some important differences with this tie-up.Towa Bank has a long and unenviable history of poor credit decisions and consequent hefty losses, prompting a taxpayer-funded bail-out in FY3/2010.  The current president has been working hard to turn the bank’s fortunes around, managing to repay ¥20.0 billion in public funds in FY3/2019.  Even so, Towa Bank still has ¥15.0 billion (US$143 million) in public funds to repay, and profits have been shrinking rapidly.While this may be seen as another ‘stepping-stone’ for SBI Group’s president and financial entrepreneur Yoshitaka Kitao in his bid to create a “fourth megabank”, investors should bear in mind that the net risk investment amount is little more than chump change for an enterprise like SBI.  Moreover, the apparent emphasis on support for local industry, rather than support for Towa Bank itself, suggests that this tie-up is not a ‘rescue’ of Towa Bank by a ‘white knight’, but an opportunity for a financial entrepreneur to gain valuable access to Towa Bank’s retail client base for a very modest cash outlay.  As such, foreign investors would be well advised to steer clear of Towa Bank stock, as valuations are already demanding.  Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2020.

Towa Bank (8558 JP):  Another Notch in the Bedpost

Japan

The Gunma Bank, Ltd. is a regional bank based in Gunma Prefecture.  The Bank provides banking services such as deposits, loans, and foreign exchange transaction.  The Gunma Bank also provides financial services such as leasing, credit cards, letter of credit, and investment advisory, and develops information systems.

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Gunma Bank (8334 JP)

Bank of Japan Meeting Signals– Our Take on the Implications for Japanese Banks

BoJ's inflation target of 2% looks increasingly like it will be reached will should drive the shift from negative interest rate policy, boosting...

Victor Galliano

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