Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Japanese Banks have had a good run recently. From the day before the BOJ changed the 10yr yield target in December in its YCC programme to today, +30% vs TOPIX.</li>
<li>The question is how that is spread out. There are lots of banks. Some are cheaper than others. Some are better than others. Can we draw conclusions to trade better?</li>
<li>If you are looking at Japanese Banks to play a change in BOJ policy when Governor Kuroda's term ends shortly, there are definitely conclusions one can draw. I offer comments.</li>
</ul>


Japanese Banks have had a good run recently. From the day before the BOJ changed the 10yr yield target in December in its YCC programme to today, +30% vs TOPIX.
The question is how that is spread out. There are lots of banks. Some are cheaper than others. Some are better than others. Can we draw conclusions to trade better?
If you are looking at Japanese Banks to play a change in BOJ policy when Governor Kuroda's term ends shortly, there are definitely conclusions one can draw. I offer comments.


Thinking About Japanese Banks - Go Big, Go Small, Go Insurance

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

SBI Sumishin Net Bank  / Equity Capital Markets

<ul>
<li>SBI Sumishin Net Bank (SSNB) will be looking to raise around US$1.1bn in its upcoming IPO.</li>
<li>SSNB is a Japanese digital bank set up as a 50-50 joint venture between Sumitomo Mitsui Trust Bank, Japan’s largest trust bank, and SBI Group, a financial services firm. </li>
<li>The deal, if successful, would be Japan’s first online-only bank to go public. In this note, we will talk about our earnings forecast and throughts in valuations.</li>
</ul>


SBI Sumishin Net Bank (SSNB) will be looking to raise around US$1.1bn in its upcoming IPO.
SSNB is a Japanese digital bank set up as a 50-50 joint venture between Sumitomo Mitsui Trust Bank, Japan’s largest trust bank, and SBI Group, a financial services firm. 
The deal, if successful, would be Japan’s first online-only bank to go public. In this note, we will talk about our earnings forecast and throughts in valuations.


SBI Sumishin Net Bank Pre-IPO - Earnings Forecast and Thoughts on Valuations

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/suruga-bank-ltd" target="_blank" data-smartkarma-citation="entities:6267:1" rel="noopener">Suruga Bank Ltd (8358 JP)</a>has raised its interim guidance for 1H FY3/2022 consolidated net profits for the second time in three months: this time by +78% to ¥17.8 billion, or ¥76.86/share.  Credit costs, initially estimated at ¥2 billion for 1H FY3/2022, are now likely to be negative: a write-back to profits of ‘surplus’ loan loss reserves of as much as ¥6.6 billion, suggesting further progress in cleaning up the balance-sheet after the catastrophic ‘share house’ scandal.  This is significant: back in May this year, Suruga was forecasting an interim net loss of ¥2.3 billion because of further precautionary provisioning expenses.Suruga Bank remains one of the most heavily traded Japanese bank stocks and is regularly one of the Top 5 Japanese bank stocks in terms of daily trading volume behind only the three megabanks and <a href="https://www.smartkarma.com/entities/resona-holdings-inc" target="_blank" data-smartkarma-citation="entities:6841:1" rel="noopener">Resona Holdings (8308 JP)</a>. It is currently trading on a remarkably low PER versus peers of 4.1x (assuming 2H FY3/2022 consolidated net profits are at least ¥8 billion, producing a FY3/2022 EPS of ¥122.2/share or better) and an undemanding PBR of 0.37x.Risks remain, of course, and we continue to warn that this is a stock for players of the Long Game only.  The intended disposal of the 18.5% stake in Suruga held by its largest shareholder, <a href="https://www.smartkarma.com/entities/nojima-corp" target="_blank" data-smartkarma-citation="entities:9655:1" rel="noopener">Nojima Corp (7419 JP)</a>, remains an unresolved issue. Nevertheless, the positives continue to increase while the negatives continue to diminish, and the shares are significantly outperforming the Topix Banks Index for the first time in many months.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/240/048/original/8358-Suruga-2021-1105-8358vsTPNBNK-CY2021.jpg?1636249764" class="editor-image img-responsive" data-smartkarma-image-id="240048"></figure></section>

Suruga Bank Ltd (8358 JP)has raised its interim guidance for 1H FY3/2022 consolidated net profits for the second time in three months: this time by +78% to ¥17.8 billion, or ¥76.86/share.  Credit costs, initially estimated at ¥2 billion for 1H FY3/2022, are now likely to be negative: a write-back to profits of ‘surplus’ loan loss reserves of as much as ¥6.6 billion, suggesting further progress in cleaning up the balance-sheet after the catastrophic ‘share house’ scandal.  This is significant: back in May this year, Suruga was forecasting an interim net loss of ¥2.3 billion because of further precautionary provisioning expenses.Suruga Bank remains one of the most heavily traded Japanese bank stocks and is regularly one of the Top 5 Japanese bank stocks in terms of daily trading volume behind only the three megabanks and Resona Holdings (8308 JP). It is currently trading on a remarkably low PER versus peers of 4.1x (assuming 2H FY3/2022 consolidated net profits are at least ¥8 billion, producing a FY3/2022 EPS of ¥122.2/share or better) and an undemanding PBR of 0.37x.Risks remain, of course, and we continue to warn that this is a stock for players of the Long Game only.  The intended disposal of the 18.5% stake in Suruga held by its largest shareholder, Nojima Corp (7419 JP), remains an unresolved issue. Nevertheless, the positives continue to increase while the negatives continue to diminish, and the shares are significantly outperforming the Topix Banks Index for the first time in many months.

Suruga Bank (8358 JP):  The Sun Also Rises

Mizuho Financial Group / Equity Bottom-Up

Gotōbi (or 五十日 in Japanese) is any date with a ‘5’ or a ‘0’ in it.  In Japan, traditionally, it is a day when money owed is collected and accounts due are settled.  Fridays are always busy days commercially, but when Friday is also a gotōbi things get particularly hectic.  It is a busy day for the banks, too, with a noticeable rise in customer visits to branches and a surge in across-counter transactions, especially in cash and securities.Last Friday, 20th August 2021, was a gotōbi. Imagine, then, the horror that seized bank staff at all 450+ branches of Mizuho Bank (not to mention at its sister organisation Mizuho Trust Bank, where the same thing happened), as 09:00am bank opening time approached, customers were queuing up, and they realised that none of the computer terminals at their counters were working.  None of them; nationwide.Curiously, all the ATMs (source of two previous systems failures) were working normally, as was Mizuho Bank’s Internet banking platform, ‘Mizuho Direct’.  By 10:00am on Friday, most operations were back up and running (except for some foreign currency remittances) and by midday all systems appear to have returned to normal operation.  Management is still trying to establish the cause of the glitch.This now makes the 5th time in 2021 that Mizuho Bank, the principal commercial banking subsidiary of megabank holding company <a href="https://www.smartkarma.com/entities/mizuho-financial-group-inc" target="_blank" data-smartkarma-citation="entities:219:1" rel="noopener">Mizuho Financial Group (8411 JP)</a> (MHFG), has had a systems failure.  That it happened on a gotōbi was embarrassing enough in view of the inconvenience to the many customers visiting the bank’s branches at the time.  Doubly embarrassing for management, inspectors from the Financial Services Agency (FSA) were in the process of winding-up their detailed and long inspection of the bank over the four previous systems malfunctions, with a view to deciding whether the bank should be disciplined for the successive failures through the issuance of a Business Correction Order.  That issuance would now seem to be an inevitability.  A formal demand for a detailed report into the incident (報告微求命令 or hōkoku bikyū meirei in Japanese) has already been issued by the FSA to Mizuho Trust Bank as well as to the parent MHFG.Senior management clearly has much to do in the wake of this latest incident to restore Mizuho’s reputation among customers as a brand that is synonymous with reliability.As we have said in past Smartkarma Insights, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  This latest systems débâcle will not improve its already battered reputation.  MHFG has time and again promised much but then has either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and where ultimately delivering value remains frustratingly elusive.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Gotōbi (or 五十日 in Japanese) is any date with a ‘5’ or a ‘0’ in it.  In Japan, traditionally, it is a day when money owed is collected and accounts due are settled.  Fridays are always busy days commercially, but when Friday is also a gotōbi things get particularly hectic.  It is a busy day for the banks, too, with a noticeable rise in customer visits to branches and a surge in across-counter transactions, especially in cash and securities.Last Friday, 20th August 2021, was a gotōbi. Imagine, then, the horror that seized bank staff at all 450+ branches of Mizuho Bank (not to mention at its sister organisation Mizuho Trust Bank, where the same thing happened), as 09:00am bank opening time approached, customers were queuing up, and they realised that none of the computer terminals at their counters were working.  None of them; nationwide.Curiously, all the ATMs (source of two previous systems failures) were working normally, as was Mizuho Bank’s Internet banking platform, ‘Mizuho Direct’.  By 10:00am on Friday, most operations were back up and running (except for some foreign currency remittances) and by midday all systems appear to have returned to normal operation.  Management is still trying to establish the cause of the glitch.This now makes the 5th time in 2021 that Mizuho Bank, the principal commercial banking subsidiary of megabank holding company Mizuho Financial Group (8411 JP) (MHFG), has had a systems failure.  That it happened on a gotōbi was embarrassing enough in view of the inconvenience to the many customers visiting the bank’s branches at the time.  Doubly embarrassing for management, inspectors from the Financial Services Agency (FSA) were in the process of winding-up their detailed and long inspection of the bank over the four previous systems malfunctions, with a view to deciding whether the bank should be disciplined for the successive failures through the issuance of a Business Correction Order.  That issuance would now seem to be an inevitability.  A formal demand for a detailed report into the incident (報告微求命令 or hōkoku bikyū meirei in Japanese) has already been issued by the FSA to Mizuho Trust Bank as well as to the parent MHFG.Senior management clearly has much to do in the wake of this latest incident to restore Mizuho’s reputation among customers as a brand that is synonymous with reliability.As we have said in past Smartkarma Insights, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  This latest systems débâcle will not improve its already battered reputation.  MHFG has time and again promised much but then has either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and where ultimately delivering value remains frustratingly elusive.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Mizuho Financial Group (8411 JP):  Gotohbi Gremlins

Thematic (Sector/Industry)

Data for May 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for Japanese commercial banks continues to fall, led by the major banks where YoY loan growth is now in negative territory.  Loan growth at all banks fell to just +0.5% YoY at the end of May, according to the JBA (April was +2.6% YoY).  We expect that June data (to be released in mid-July) from the JBA and BoJ may reveal overall YoY loan growth is heading for the zero-level.January through mid-March saw an unusually strong rally in bank shares, in line with trends in other global stock markets.  The Topix Banks Index peaked at 162.08 on 19 March 2021  -  just 4 days after the notorious Ides of March ‘turning-point’ that we have often referred to in Smartkarma Insights on Japanese banks’ share price performance  -  and has softened to the 145 level.  The sector’s surprise outperformance of Topix in CY2021 has been undermined by a sub-par June performance and on a longer-term view (as we show at the end of this Insight) and despite this year’s rally the sector remains a disappointing investment against the broader Topix Index.<a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> is the best performer of the major banks so far this year: up +33.6% over the last six months.  That said, this pales in comparison with bank stocks in other markets such as the US and Europe, where economies are recovering from the coronavirus pandemic and there are rising hopes of a mild steepening of the yield curve.  Meanwhile, despite greater concentration on boosting fee income and lowering overheads, many Japan’s banks remain seemingly unable to fully offset the adverse effects of the near-zero interest rate environment on domestic earnings.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/215/895/original/8300-WR-JBanks-2021-0628-ZeroSheFlies-TPNBNKvsTPXin2021.jpg?1624939811" class="editor-image img-responsive" data-smartkarma-image-id="215895"></figure></section>

Data for May 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for Japanese commercial banks continues to fall, led by the major banks where YoY loan growth is now in negative territory.  Loan growth at all banks fell to just +0.5% YoY at the end of May, according to the JBA (April was +2.6% YoY).  We expect that June data (to be released in mid-July) from the JBA and BoJ may reveal overall YoY loan growth is heading for the zero-level.January through mid-March saw an unusually strong rally in bank shares, in line with trends in other global stock markets.  The Topix Banks Index peaked at 162.08 on 19 March 2021  -  just 4 days after the notorious Ides of March ‘turning-point’ that we have often referred to in Smartkarma Insights on Japanese banks’ share price performance  -  and has softened to the 145 level.  The sector’s surprise outperformance of Topix in CY2021 has been undermined by a sub-par June performance and on a longer-term view (as we show at the end of this Insight) and despite this year’s rally the sector remains a disappointing investment against the broader Topix Index.Mitsubishi UFJ Financial (MUFG) (8306 JP) is the best performer of the major banks so far this year: up +33.6% over the last six months.  That said, this pales in comparison with bank stocks in other markets such as the US and Europe, where economies are recovering from the coronavirus pandemic and there are rising hopes of a mild steepening of the yield curve.  Meanwhile, despite greater concentration on boosting fee income and lowering overheads, many Japan’s banks remain seemingly unable to fully offset the adverse effects of the near-zero interest rate environment on domestic earnings.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

Japan

Shinkin Central Bank is a central bank for shinkin banks nationwide, operating as a cooperative financial institution.  The Bank has developed businesses in a variety of fields that contribute the shinkin banking industry.  The Bank's services include enhancement of the credit standing, efficient use of shikin bank's surplus funds, and settlement of domestic exchange transaction.

Sumitomo Mitsui Trust Holdings, Inc. is a holding company established jointly by Chuo Mitsui Trust Holdings and Sumitomo Trust and Banking. As a financial group, the Bank provides trust banking business, as well as securities brokerage, assets management, and related financial services.

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.

Concordia Financial Group, Ltd. is a holding company established through the merger of Bank of Yokohama and Higashi-Nippon Bank. The Company provides banking services and other financial services.

Fukuoka Financial Group, Inc. is a holding company established through the merger of the Bank of Fukuoka and Kumamoto Family Bank. As a financial group, the Company provides banking services including deposits, loans, foreign currency transactions. The Company also provides other financial services such as credit card, letter of credit, and leasing services.

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

Mebuki Financial Group Inc. is a holding company established through the merger of Joyo Bank and Ashikaga Bank. As a financial group, the Company offers deposits, Loans, foreign exchange transactions, commercial and trust banking. Mebuki Financial Group also provides financial services such as letter of credit, credit cards and consulting.

SBI Shinsei Bank, Ltd. provides banking services including deposits, loans, and foreign exchange transaction, as well as investment trust service and issuance of long-term bonds.

Rakuten Bank, Ltd. operates as an Internet based bank. The Company provides banking services including deposits, loans, exchange transactions, and other services. Rakuten Bank also provides financial services including investment trusts, securities, credit and cash cards, lottery tickets, and others.

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.

CIMB Group Holdings Berhad provides commercial banking and related financial services. The Company and its subsidiaries, operate as a regional universal bank offering a full range of financial products and services, covering corporate and investment banking, consumer banking, treasury, insurance and asset management.

BDO Unibank Inc provides banking services. The Bank offers saving accounts, investment, loans, credit and debit cards, remittance, insurance, and trade financing services. BDO Unibank serves customers in Philippines.

Punjab National Bank provides financial services such as corporate and personal banking, industrial finance, agricultural finance, financing of trade and international banking. The Company provides services to domestic conglomerates, medium and small industrial units, exporters, non-resident Indians and multinational companies.

Canara Bank Ltd. provides a full range of banking services throughout India. The Group's activities include retail banking, commercial and personal banking, investment management, treasury & NRI services, cash management and assorted ATM facilities.

Bank of Baroda owns and operates commercial banks in India.  The Group's banks provide the traditional forms of banking services, including CD's, Credit Card services and a variety of car loans, in addition to gold banking and a range of insurance services.  The Group also owns IBU International Finance Limited, an international banking company in Hong Kong.

Union Bank of India Limited provides a full range of banking services throughout India. The Company's activities include retail banking, commercial and personal banking, investment management, treasury and NRI services, cash management and assorted ATM facilities. Union Bank has an online tele-banking facility for all its core banking customers.

Public Bank Berhad provides a range of banking and financial services which include leasing and factoring, stock and futures broking, financing for the purchase of licensed public vehicles, and other financial services. The Group's overseas operations include branches in Hong Kong, Sri Lanka, Laos, Cambodia, and Vietnam.

Bank of Nanjing Co., Ltd. operates commercial banking businesses. The Company offers deposits, loans, settlement, discounting, financial bond issuance, government bond underwriting, bank guarantee, and other related financial services. Bank of Nanjing provides services for enterprises and individuals.

First Financial Holding Co., Ltd. is a holding company.  Through its subsidiaries, the Company accepts deposits, provides loans and discount, letters of credit, and guarantee services, invests in marketable securities, provides securities brokerage and investment services, as well as provides insurance services.

E.Sun Financial Holding Company Ltd. is a holding company.  Through its subsidiaries, the Company provides banking, brokerage and dealer services.

Resona Holdings, Inc. operates as a holding company. The Company, through its subsidiaries, provides financial services, including banking, trust operations, and credit card services. Resona Holdings also offers consulting services related to personal loans, asset management, and asset succession.

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Resona Holdings (8308 JP)

Thinking About Japanese Banks - Go Big, Go Small, Go Insurance

The BOJ is set for a change in policy shortly. It could come before Kuroda-san leaves, or after, and we don't yet know whether Kishida-san will go...

Travis Lundy

SBI Sumishin Net Bank Pre-IPO - Earnings Forecast and Thoughts on Valuations

SBI Sumishin Net Bank (SSNB) will be looking to raise around US$1.1bn in its upcoming IPO. In this note, we talk about our earnings forecast and...

Sumeet Singh

Suruga Bank (8358 JP): The Sun Also Rises

Suruga Bank (8358 JP) has raised its interim guidance for the second time in three months to ¥17.8 billion, or ¥76.86/share. The stock is...

J. Brian Waterhouse

Mizuho Financial Group (8411 JP): Gotohbi Gremlins

Mizuho Bank has suffered its 5th systems failure so far this year, and the FSA is not amused. Neither should shareholders be. Caveat Emptor! (May...

J. Brian Waterhouse

Japanese Bank Lending: Zero She Flies

The sector’s surprise outperformance of Topix in CY2021 has been undermined by a sub-par June performance. Zero growth beckons. Caveat Emptor...

J. Brian Waterhouse

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