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

Juroku Financial Group / Equity Bottom-Up

<ul>
<li>We update twelve Japanese regional banks, and add two new names, to target beneficiaries of the improving interest rate outlook; also banks with attractive credit quality, capital adequacy and valuations</li>
<li>We identify the value of equity holdings for disposal among these banks; the lack of near-term easing prospects at the US Fed should support JGB yields and domestic bank valuations</li>
<li>We add smaller cap Juroku Financial to our buy list of Tokyo Kiraboshi Financial, Gunma Bank and higher risk option Suruga Bank</li>
</ul>


We update twelve Japanese regional banks, and add two new names, to target beneficiaries of the improving interest rate outlook; also banks with attractive credit quality, capital adequacy and valuations
We identify the value of equity holdings for disposal among these banks; the lack of near-term easing prospects at the US Fed should support JGB yields and domestic bank valuations
We add smaller cap Juroku Financial to our buy list of Tokyo Kiraboshi Financial, Gunma Bank and higher risk option Suruga Bank


Japanese Regional Banks – Adding a Smaller Cap to Our Key Positive Picks

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

Thematic (Sector/Industry)

On Friday 1 October 2020, three new regional bank holding companies will be created and listed the same day on the Tokyo Stock Exchange.  The establishment of a regional bank holding company in Japan is not new news, but these three will in future set up entirely non-financial subsidiaries as a means of broadening group revenues and profitability.  This is a notable change in bank thinking.Japanese financial authorities have been keen to encourage regional banks to merge in the belief that a reduction in the number of banks will lead to greater efficiencies and a greater willingness to lend, but this has had very mixed results.  What the financial authorities have so far failed to do has been to encourage the banks to adopt a radically differentiated business model, or seriously address the issue of proper risk asset pricing, or improve operating margins, or enhance shareholder returns.  This may be about to change. The kiki-kan  危機感 or ‘sense of crisis’ that appears to be the necessary catalyst to get Japanese banks to abandon their habitual ‘business as usual’ approach and take decisive action, may be finally emerging among the Japanese regional banking fraternity.It’s about time.

On Friday 1 October 2020, three new regional bank holding companies will be created and listed the same day on the Tokyo Stock Exchange.  The establishment of a regional bank holding company in Japan is not new news, but these three will in future set up entirely non-financial subsidiaries as a means of broadening group revenues and profitability.  This is a notable change in bank thinking.Japanese financial authorities have been keen to encourage regional banks to merge in the belief that a reduction in the number of banks will lead to greater efficiencies and a greater willingness to lend, but this has had very mixed results.  What the financial authorities have so far failed to do has been to encourage the banks to adopt a radically differentiated business model, or seriously address the issue of proper risk asset pricing, or improve operating margins, or enhance shareholder returns.  This may be about to change. The kiki-kan  危機感 or ‘sense of crisis’ that appears to be the necessary catalyst to get Japanese banks to abandon their habitual ‘business as usual’ approach and take decisive action, may be finally emerging among the Japanese regional banking fraternity.It’s about time.

Japanese Regional Banks:  Dancing On Their Own

Late on Christmas Day, news leaked out into the financial media that regional bank <a href="https://www.smartkarma.com/entities/fukui-bank-ltd" target="_blank" data-smartkarma-citation="entities:9011:1" rel="noopener">Fukui Bank (8362 JP)</a> may be in advanced negotiations with unlisted secondary regional bank Fukuho Bank to take it over, initially as a majority-owned subsidiary.  Both banks are from Fukui Prefecture in the Hokuriku Region facing the Sea of Japan.  With a combined market share in Fukui Prefecture of around 36% for deposits and 49% for loans, the banks would likely need to invoke the exemptions under the recently approved law permitting banks from the same prefecture to merge without falling afoul of Japan’s anti-monopoly laws.While Fukui Bank’s share price has outperformed the Topix Banks Index in CY2020, this is damning the stock with faint praise.  Foreign investors would be well advised to steer clear.  This is not a run-of-the-mill case of a strong local bank absorbing a smaller, weaker rival.  Far from it.  Both banks have a long history of credit problems, erratic profitability and weakening performance ratios.While the takeover would no doubt have the blessing of the Suga Administration which has been actively promoting a reduction in the number of regional banks, it is difficult to see the economic rationale for the takeover.  Skeptics might suggest this is little more than an opportunity for the banks  -  should they eventually decide to go for a full merger  -  to revalue their head offices, generate one-time ‘windfall profits’ to artificially boost capital and thereby allow Fukuho Bank to repay the ¥6 billion in public funds that it still owes.  And then?  The risk for investors is a reversion by both banks to sub-par operational performance.Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2021.

Late on Christmas Day, news leaked out into the financial media that regional bank Fukui Bank (8362 JP) may be in advanced negotiations with unlisted secondary regional bank Fukuho Bank to take it over, initially as a majority-owned subsidiary.  Both banks are from Fukui Prefecture in the Hokuriku Region facing the Sea of Japan.  With a combined market share in Fukui Prefecture of around 36% for deposits and 49% for loans, the banks would likely need to invoke the exemptions under the recently approved law permitting banks from the same prefecture to merge without falling afoul of Japan’s anti-monopoly laws.While Fukui Bank’s share price has outperformed the Topix Banks Index in CY2020, this is damning the stock with faint praise.  Foreign investors would be well advised to steer clear.  This is not a run-of-the-mill case of a strong local bank absorbing a smaller, weaker rival.  Far from it.  Both banks have a long history of credit problems, erratic profitability and weakening performance ratios.While the takeover would no doubt have the blessing of the Suga Administration which has been actively promoting a reduction in the number of regional banks, it is difficult to see the economic rationale for the takeover.  Skeptics might suggest this is little more than an opportunity for the banks  -  should they eventually decide to go for a full merger  -  to revalue their head offices, generate one-time ‘windfall profits’ to artificially boost capital and thereby allow Fukuho Bank to repay the ¥6 billion in public funds that it still owes.  And then?  The risk for investors is a reversion by both banks to sub-par operational performance.Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2021.

Fukui Bank (8362 JP):  On Santa's List: Fukuho-Ho-Ho !

Doing bespoke work since 2002....., Custom Products Group

Patrick Hansen

Doing bespoke work since 2002.....

Custom Products Group

Custom Products was started 14 years ago at Lehman Brothers by current co-founder Patrick Hansen, CFA. After 3 years at Lehman, Patrick moved the team to Macquarie Securities where Simon Rigney (co-founder) joined. 3 years ago we took Custom Products independent. 

Our core strength can be summed up three words. 1- Customization - we have very little off the shelf products and most work is done on a one on one bespoke basis. 2- Speed - We pride ourselves in our ability to get requests back to the client very quickly. 3- Confidentiality - We do not redistribute. There is no grace period where we wait a week and then mass blast. Any request stops with that client.

We screened for lesser known names (2 or fewer Analysts with coverage) in Japan that rebounded in September. Some of the larger names by mkt-cap that rebounded were <a href="https://www.smartkarma.com/entities/18346" target="_blank" data-smartkarma-citation="entities:18346:1">Nipro Corp (8086 JP)</a>, <a href="https://www.smartkarma.com/entities/11909" target="_blank" data-smartkarma-citation="entities:11909:1">Mitsubishi Logistics Corp (9301 JP)</a> and <a href="https://www.smartkarma.com/entities/18567" target="_blank" data-smartkarma-citation="entities:18567:1">Nissin Electric Co Ltd (6641 JP)</a>. We identified the rebounds using RSI or Relative Strength Index, which compares gains and losses over a specific period. <h2>Screen Criteria</h2><ol>
<li>Mkt-cap is greater than ¥50bn and there are only 2 or fewer Analyst with coverage</li>
<li>Current RSI (1 month)…</li>
</ol>

We screened for lesser known names (2 or fewer Analysts with coverage) in Japan that rebounded in September. Some of the larger names by mkt-cap that rebounded were Nipro Corp (8086 JP), Mitsubishi Logistics Corp (9301 JP) and Nissin Electric Co Ltd (6641 JP). We identified the rebounds using RSI or Relative Strength Index, which compares gains and losses over a specific period. Screen Criteria
Mkt-cap is greater than ¥50bn and there are only 2 or fewer Analyst with coverage
Current RSI (1 month)…


Lesser Known Names that Rebounded in September....

Japan

North Pacific Bank, Ltd. is the surviving company through the merger of Sapporo Hokuyo Holdings. The company provides banking services including deposits, loans, foreign currency transactions, trust banking, and securities investments.

The Hyakugo Bank, Ltd. is a regional bank based in Mie.  The Bank provides general banking services including deposits, loans, and foreign exchange transactions.  The Hyakugo Bank also develops computer software and provides financial services such as leasing and credit cards.

THE SHIGA BANK, LTD. is a regional bank mainly operating in Shiga.  The Bank also provides financial services including credit card and leasing as well as data management services.

Tokyo Kiraboshi Financial Group, Inc. operates banks. The Company mainly offers financial services. Tokyo Kiraboshi Financial Group provides services in Japan.

Tokyo Kiraboshi Financial Group (7173 JP)

Suruga Bank Ltd. is a Shizuoka based regional bank mainly operating in the Kanto area (central eastern part of Japan) including Tokyo.  The Bank provides deposits, loans, and foreign exchange transactions.  The Suruga Bank also provides financial services such as leasing, letter of credit, and credit cards services.

The Bank of Nagoya, Ltd. is a Nagoya based regional bank.  The Bank provides banking services such as deposits, loans, trust funds, and bond issuance.  The Bank of Nagoya also provides financial services such as leasing and credit cards.

The San-in Godo Bank, Ltd. is a regional bank mainly operating in Shimane and Tottori Prefectures.  The Bank offers banking services including deposits, loans, foreign exchange transactions, and securities brokerage.  The San-in Godo Bank also provides financial services such as leasing, credit cards, letter of credit, invests in venture capital, and develops software.

The Kiyo Bank Ltd. provides commercial banking services. The Company offers deposits, loans, exchange transactions, and securities investment trusts to indi viduals and businesses. The Kiyo Bank also provides financial services including leasing, credit cards, and credit guarantee services.

Daishi Hokuetsu Financial Group, Inc. provides banking services. The Company offers deposit, loan, settlement, and other services. Daishi Hokuetsu Financial Group provides services in Japan.

Daishi Hokuetsu Financial Group (7327 JP)

The Ogaki Kyoritsu Bank, Ltd. is a regional bank mainly operating in Gifu. The Bank provides general banking services including deposits, loans, and foreign exchange transactions.  The Ogaki Kyoritsu Bank also provides financial services such as credit cards, leasing, installment sales, and letter of credit.

Karnataka Bank Ltd is a full-service bank. The Bank accepts deposits, makes loans and provides other services for the public.

Thanachart Capital Public Company Limited provides financial services including consumer, corporate and mortgage financing.  Additionally the Company provides securities underwriting and investment advisory services.  Thanachart Capital also provides insurance services through its subsidiaries.

Kiatnakin Bank Public Company Limited provides commercial banking services including commercial, developmental, consumer, hire-purchase, and mortgage financing to its customers in Thailand. The Company also provides securities brokerage and investment advisory services.

Dah Sing Banking Group Limited, through its subsidiaries, provides personal banking, commercial banking, and treasury services.  The Group's operations are primarily based in Hong Kong.

Alliance Bank Malaysia Berhad provides a full range of commercial banking services for retail and institutional customers. The Bank offers savings and current accounts, fixed deposits, investments, loans, insurance, wealth management, phone banking, and business cards. Alliance Bank Malaysia serves customers in Singapore and Malaysia.

Bank Maybank Indonesia Tbk PT provides commercial banking services including deposit taking, lending, treasury, and investment banking services. The Bank also provides trade finance facilities, foreign exchange transaction services, loan syndications for project financing, and investment services.

PT Bank Tabungan Negara Persero Tbk provides commercial banking services.

PT Bank Sinarmas Tbk is a full service commercial bank. The Company offers a wide range of banking services, including checking and savings accounts as well as phone banking, Internet banking and automatic teller machines.

Dime Community Bancshares, Inc. provides banking services. The Bank offers commercial and consumer banking and limited trust services, including accepting deposits and originating various loans. Dime Community Bancshares operates in the State of New York.

Brookline Bancorp, Inc. is the holding company for Brookline Bank. The Bank is a full-service financial institution providing  individuals and small to mid-sized businesses with personal deposit and lending services, residential mortgages and home equity credit, C & I lending, commercial real estate lending, cash management, payroll and merchant services, and access to investment services.

The Juroku Bank, Ltd. is a regional bank based in Gifu prefecture.  The Bank provides banking services such as deposits, loans, foreign exchange transactions, and securities investments.  The Juroku Bank also provides financial services such as leasing, credit cards, letter of credit, and loans.

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Juroku Financial Group (7380 JP)

Japanese Regional Banks – Adding a Smaller Cap to Our Key Positive Picks

Aside from the usual metrics, we add regional banks' cross-shareholdings as a share of market cap; smaller cap Juroku Financial added to buy list...

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

Japanese Regional Banks: Dancing On Their Own

The ‘sense of crisis’ that Japanese banks need to abandon their habitual ‘business as usual’ approach and take decisive action may be finally...

J. Brian Waterhouse

Fukui Bank (8362 JP): On Santa's List: Fukuho-Ho-Ho !

On Christmas Day, it was reported that Fukui Bank (8362 JP) may be in negotiations with Fukuho Bank to take it over as a majority-owned...

J. Brian Waterhouse

Lesser Known Names that Rebounded in September....

We screened for lesser known names (2 or fewer Analysts with coverage) in Japan that rebounded in September. Some of the larger names by mkt-cap...

Custom Products Group

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Japanese Regional Banks – Adding a Smaller Cap to Our Key Positive Picks

​Aside from the usual metrics, we add regional banks' cross-shareholdings as a share of market cap; smaller cap Juroku Financial added to buy list...

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

Japanese Regional Banks: Dancing On Their Own

The ‘sense of crisis’ that Japanese banks need to abandon their habitual ‘business as usual’ approach and take decisive action may be finally...

J. Brian Waterhouse

Fukui Bank (8362 JP): On Santa's List: Fukuho-Ho-Ho !

On Christmas Day, it was reported that Fukui Bank (8362 JP) may be in negotiations with Fukuho Bank to take it over as a majority-owned...

J. Brian Waterhouse

Lesser Known Names that Rebounded in September....

We screened for lesser known names (2 or fewer Analysts with coverage) in Japan that rebounded in September. Some of the larger names by mkt-cap...

Custom Products Group

Aside from the usual metrics, we add regional banks' cross-shareholdings as a share of market cap; smaller cap Juroku Financial added to buy list...