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.

Thematic (Sector/Industry)

There is a major credit cost improvement across many banks globally during 2Q20. This is likely driven by improved credit modeling for defaults and losses, which will be driven in large part by economic recovery, rising oil prices and unprecedented central bank and government support. This does not mean that there risks do not remain, but it shows that perhaps many banks took too much provisions during 1Q20. Some banks stand out, where credit costs were several times higher than full year 2019.

There is a major credit cost improvement across many banks globally during 2Q20. This is likely driven by improved credit modeling for defaults and losses, which will be driven in large part by economic recovery, rising oil prices and unprecedented central bank and government support. This does not mean that there risks do not remain, but it shows that perhaps many banks took too much provisions during 1Q20. Some banks stand out, where credit costs were several times higher than full year 2019.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/891/original/2020-07-20_11-11-13.png?1595211104" class="editor-image img-responsive" data-smartkarma-image-id="146891"></figure><div class="content-caption">Source • Japan Analytics</div>THE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing low of 1,236.34 on 16th March, the index has recovered by 27%. However, it has only been in the last ten trading days that the number of new two-year share price highs and lows has consistently been in double-digits.  This month has seen 136 new two-year lows and 214 new two-year highs. Whatever the impact of COVID-19 on earnings, the market is very clearly signalling its preferences for COVID 'Heroes &amp; Villains'. In the DETAIL section below, we shall look at the leading large caps in both categories and suggest opportunities in each.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/894/original/2020-07-20_11-42-42.png?1595213322" class="editor-image img-responsive" data-smartkarma-image-id="146894"></figure><div class="content-caption">Source • Japan Analytics</div>RELATIVE PRICE - We shall also conduct the same analysis using our Relative Price Score methodology. The July numbers are 469 Relative Price Score new lows and 229 new highs suggesting a high degree of market polarity as confirmed by the percentages of market value in Overbought and Oversold Stocks - which are both at twenty-year highs.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/895/original/2020-07-20_11-58-18.png?1595214235" class="editor-image img-responsive" data-smartkarma-image-id="146895"></figure><div class="content-caption">Source • Japan Analytics</div>RESULTS DRIVER - We expect the number of absolute 'heroes and villains' to increase in the next two months as the COVID fallout on earnings is revealed, and will provide further updates as we progress.

Source • Japan AnalyticsTHE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing low of 1,236.34 on 16th March, the index has recovered by 27%. However, it has only been in the last ten trading days that the number of new two-year share price highs and lows has consistently been in double-digits.  This month has seen 136 new two-year lows and 214 new two-year highs. Whatever the impact of COVID-19 on earnings, the market is very clearly signalling its preferences for COVID 'Heroes &amp; Villains'. In the DETAIL section below, we shall look at the leading large caps in both categories and suggest opportunities in each.Source • Japan AnalyticsRELATIVE PRICE - We shall also conduct the same analysis using our Relative Price Score methodology. The July numbers are 469 Relative Price Score new lows and 229 new highs suggesting a high degree of market polarity as confirmed by the percentages of market value in Overbought and Oversold Stocks - which are both at twenty-year highs.Source • Japan AnalyticsRESULTS DRIVER - We expect the number of absolute 'heroes and villains' to increase in the next two months as the COVID fallout on earnings is revealed, and will provide further updates as we progress. 

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a bottom-line of NOK 5.0 bn – exceeding 1Q20 results by NOK 1.0 bn or 25.5%. This outperformance was even more pronounced on an operating basis with 2Q20 ahead of the linked quarter result by NOK 1.8 bn or 55.3%. Results were primarily driven by a NOK 3.7 bn (63.3%) decline in loss provisions – which may be somewhat premature; and a NOK 572 mn (9.7%) decline in operating expenses due primarily to lower pension costs.*Management Quite Positive: Management seems to be pleased where DNB is heading, as CEO Braathen has stated that "we’ve seen a gradual but much more rapid recovery than I think we dared to hope for entering the quarter”, and that “June, in particular, was a very strong month for activities in investment banking and housing sales and consumer spending"; and   *Possible Dividend Return: DNB does have best-in-class capital with its CET1 of 18.2%, which is already back above 17.9% pre-COVID-19 CET1 target and nearing its prior peak (4Q19) of 18.6%. Politics aside, DNB does appear to be the first European bank which will be allowed to resume both dividends and share buybacks.

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a bottom-line of NOK 5.0 bn – exceeding 1Q20 results by NOK 1.0 bn or 25.5%. This outperformance was even more pronounced on an operating basis with 2Q20 ahead of the linked quarter result by NOK 1.8 bn or 55.3%. Results were primarily driven by a NOK 3.7 bn (63.3%) decline in loss provisions – which may be somewhat premature; and a NOK 572 mn (9.7%) decline in operating expenses due primarily to lower pension costs.*Management Quite Positive: Management seems to be pleased where DNB is heading, as CEO Braathen has stated that "we’ve seen a gradual but much more rapid recovery than I think we dared to hope for entering the quarter”, and that “June, in particular, was a very strong month for activities in investment banking and housing sales and consumer spending"; and   *Possible Dividend Return: DNB does have best-in-class capital with its CET1 of 18.2%, which is already back above 17.9% pre-COVID-19 CET1 target and nearing its prior peak (4Q19) of 18.6%. Politics aside, DNB does appear to be the first European bank which will be allowed to resume both dividends and share buybacks.

DNB ASA – Window To Be Constructive Is Open

* Poor Operating Result:Aeon Financial Service (8570.JP) [AFS] reported a FY 1Q20 operating loss of JPY 0.8 bn, and a net loss of JPY 1.1 bn. The poor result was driven by JPY 30.7 bn in net loss provisions, as credit quality across AFS deteriorated well beyond expectations resultant of the global slowdown attributed to COVID-19;* ASEAN Risk: Aeon Thana Sinsap (ATS.TB) [ATS], AFS’ 54.3% owned subsidiary) reported a 46% YOY decline results to THB 530 mn, as ATS temporarily closed 70 branches for about six weeks through mid-May due to COVID-19, and offered credit assistance to customers in line with the Bank of Thailand’s relief measures. Aeon Credit Service Berhad (ACSM.HK) reported results of MYR 26.3 mn  - declining 69% YOY in 1Q to MYR 26.3 mn. The Malaysian government’s Movement Control Order (MCO) to prevent the spread of COVID-19 had a negative impact on local business activities,*Dividend Cut: FY 2/21 DPS guidance of JPY 23 is a sharp reduction in DPS – but in line with the projected profit decline and works out to a dividend payout ratio of 50%-100%. This was a negative surprise as AFS had made a convincing argument for dividend stability at the FY 2/20 earnings briefing. If a 2nd wave of COVID-19 occurs, we’d expect the dividend to decline to zero.

* Poor Operating Result:Aeon Financial Service (8570.JP) [AFS] reported a FY 1Q20 operating loss of JPY 0.8 bn, and a net loss of JPY 1.1 bn. The poor result was driven by JPY 30.7 bn in net loss provisions, as credit quality across AFS deteriorated well beyond expectations resultant of the global slowdown attributed to COVID-19;* ASEAN Risk: Aeon Thana Sinsap (ATS.TB) [ATS], AFS’ 54.3% owned subsidiary) reported a 46% YOY decline results to THB 530 mn, as ATS temporarily closed 70 branches for about six weeks through mid-May due to COVID-19, and offered credit assistance to customers in line with the Bank of Thailand’s relief measures. Aeon Credit Service Berhad (ACSM.HK) reported results of MYR 26.3 mn  - declining 69% YOY in 1Q to MYR 26.3 mn. The Malaysian government’s Movement Control Order (MCO) to prevent the spread of COVID-19 had a negative impact on local business activities,*Dividend Cut: FY 2/21 DPS guidance of JPY 23 is a sharp reduction in DPS – but in line with the projected profit decline and works out to a dividend payout ratio of 50%-100%. This was a negative surprise as AFS had made a convincing argument for dividend stability at the FY 2/20 earnings briefing. If a 2nd wave of COVID-19 occurs, we’d expect the dividend to decline to zero.  

AEON Financial Services – ASEAN Weakness Results In Dividend Cut

*Insolvency Filing: Wirecard’s (WDR.GY) ongoing last minute negotiations with lenders (including the purported debt for equity swap and asset sales) fell apart, as the management board filed a surprise application for the opening of insolvency proceedings with the district court of Munich;*Risk Exposures Identified: The financial media has widely reported that the EUR 1.75 bn revolver has been almost fully drawn upon at approximately EUR 1.6 bn; and  *Sad Chapter Draws To A Close: Another sad chapter in European banking has now come to an abrupt close. Regulatory reform remains a political hot potato but there is zero evidence of resolve given the conflicted rating agencies, auditing business models, feckless regulators et al.

*Insolvency Filing: Wirecard’s (WDR.GY) ongoing last minute negotiations with lenders (including the purported debt for equity swap and asset sales) fell apart, as the management board filed a surprise application for the opening of insolvency proceedings with the district court of Munich;*Risk Exposures Identified: The financial media has widely reported that the EUR 1.75 bn revolver has been almost fully drawn upon at approximately EUR 1.6 bn; and  *Sad Chapter Draws To A Close: Another sad chapter in European banking has now come to an abrupt close. Regulatory reform remains a political hot potato but there is zero evidence of resolve given the conflicted rating agencies, auditing business models, feckless regulators et al.  

Japan

Mitsubishi UFJ Financial Group, Inc. (MUFG) is a holding company established through the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings. As a financial group, the Company provides a variety of financial and investment services including commercial banking, trust banking, international finance, and assets management services.

Mitsubishi UFJ Financial (MUFG) (8306 JP)

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Mitsubishi UFJ Financial (MUFG) (8306 JP)

Banks – Credit Cost Delta

There is a major credit cost improvement across many banks globally during 2Q20. This is likely driven by improved credit modeling for defaults and...

Daniel Tabbush

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

THE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing...

Campbell Gunn

DNB ASA – Window To Be Constructive Is Open

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a...

Thomas J. Monaco

AEON Financial Services – ASEAN Weakness Results In Dividend Cut

* Poor Operating Result:Aeon Financial Service (8570.JP) [AFS] reported a FY 1Q20 operating loss of JPY 0.8 bn, and a net loss of JPY 1.1 bn. The...

Thomas J. Monaco

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52-week Range

Market Cap (USDm)

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Banks – Credit Cost Delta

There is a major credit cost improvement across many banks globally during 2Q20. This is likely driven by improved credit modeling for defaults and...

Daniel Tabbush

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

THE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing...

Campbell Gunn

DNB ASA – Window To Be Constructive Is Open

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a...

Thomas J. Monaco

AEON Financial Services – ASEAN Weakness Results In Dividend Cut

* Poor Operating Result:Aeon Financial Service (8570.JP) [AFS] reported a FY 1Q20 operating loss of JPY 0.8 bn, and a net loss of JPY 1.1 bn. The...

Thomas J. Monaco

Wirecard – The Cookie Crumbles

*Insolvency Filing: Wirecard’s (WDR.GY) ongoing last minute negotiations with lenders (including the purported debt for equity swap and asset...

Thomas J. Monaco