Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

The slow-motion ‘train wreck’ that is the once-proud <a href="https://www.smartkarma.com/entities/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank Ltd (8358 JP)</a> ploughs on along its path of self-destruction.  Interim results were awful: a consolidated net loss of ¥98.5 billion (US$866 million), mostly incurred in 2Q FY3/2019 through loan-loss reserving and write-offs totalling ¥121.79 billion in respect of the bank’s “share house” debacle and other property investment lending disasters.  The stock remains highly volatile and remains vulnerable to further market reflection on the bank’s longer-term future despite a strong ‘bounce’ in the share price immediately following the results announcement. Full-year guidance implies that further reserving may yet be necessary later in the fiscal year, and there is still no word of a ‘white knight’ buyer for the Okano family’s 15% shareholdings.  It is tempting to believe that, if the credit losses on the bank’s dreadful misadventure have now been fully absorbed, Suruga Bank has achieved some sort of catharsis and can now start to recover.  Based on current evidence, however, the bank still seems a long way from redemption.  Caveat emptor (May the buyer beware!).

The slow-motion ‘train wreck’ that is the once-proud Suruga Bank Ltd (8358 JP) ploughs on along its path of self-destruction.  Interim results were awful: a consolidated net loss of ¥98.5 billion (US$866 million), mostly incurred in 2Q FY3/2019 through loan-loss reserving and write-offs totalling ¥121.79 billion in respect of the bank’s “share house” debacle and other property investment lending disasters.  The stock remains highly volatile and remains vulnerable to further market reflection on the bank’s longer-term future despite a strong ‘bounce’ in the share price immediately following the results announcement. Full-year guidance implies that further reserving may yet be necessary later in the fiscal year, and there is still no word of a ‘white knight’ buyer for the Okano family’s 15% shareholdings.  It is tempting to believe that, if the credit losses on the bank’s dreadful misadventure have now been fully absorbed, Suruga Bank has achieved some sort of catharsis and can now start to recover.  Based on current evidence, however, the bank still seems a long way from redemption.  Caveat emptor (May the buyer beware!).

Suruga Bank (8358 JP): Purging the Augean Stables 2018 - Part 6: Catharsis?

Sumitomo Mitsui Financial Group / Equity Bottom-Up

Interim results announced by <a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial (8316 JP)</a> on 14 November 2018 represented 68% of management’s full-year target of ¥700 billion for consolidated net profits.  While gross group business profits were essentially flat, with weaker net interest income and lower trading profits offsetting stronger fee income, the key drivers of the 1H FY3/2019 profit figures were significantly lower GAE (general &amp; administrative) expenses and profits from sales of equities.  Full-year guidance remains unchanged.  SMFG has a long-standing habit of guiding conservatively and then comfortably exceeding its forecasts.  Based on 1H FY3/2019 results, SMFG looks in a strong position to comfortably exceed that ¥700 billion full-year consolidated net profit target.
Because of their size and liquidity, the megabanks are always a ‘crowded trade’ for foreign investors when it comes to exposure to the Japanese banking sector: the choice usually coming down to either SMFG or <a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi Ufj Financial (8306 JP)</a>(or sometimes both just to be on the safe side).  At 4%, SMFG continues to offer the highest dividend yield of the three megabanks

Interim results announced by Sumitomo Mitsui Financial (8316 JP) on 14 November 2018 represented 68% of management’s full-year target of ¥700 billion for consolidated net profits.  While gross group business profits were essentially flat, with weaker net interest income and lower trading profits offsetting stronger fee income, the key drivers of the 1H FY3/2019 profit figures were significantly lower GAE (general &amp; administrative) expenses and profits from sales of equities.  Full-year guidance remains unchanged.  SMFG has a long-standing habit of guiding conservatively and then comfortably exceeding its forecasts.  Based on 1H FY3/2019 results, SMFG looks in a strong position to comfortably exceed that ¥700 billion full-year consolidated net profit target.
Because of their size and liquidity, the megabanks are always a ‘crowded trade’ for foreign investors when it comes to exposure to the Japanese banking sector: the choice usually coming down to either SMFG or Mitsubishi Ufj Financial (8306 JP)(or sometimes both just to be on the safe side).  At 4%, SMFG continues to offer the highest dividend yield of the three megabanks

SMFG (8316 JP):  Standing Out in a Crowd

'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. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/068/507/original/2018-11-02_10-20-29.png?1541121653" class="editor-image img-responsive" data-smartkarma-image-id="68507"></figure>Source: Japan Analytics
NB: companies are colour-coded by sector
</div>28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-<ul>
<li>In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/6483" target="_blank" data-smartkarma-citation="entities:6483:1">Aozora (8304 JP)</a> and <a href="https://www.smartkarma.com/entities/16897" target="_blank" data-smartkarma-citation="entities:16897:1">Shinsei (8303 JP)</a> have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are <a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ (8306 JP)</a>, <a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial (8316 JP)</a>, <a href="https://www.smartkarma.com/entities/838" target="_blank" data-smartkarma-citation="entities:838:1">Japan Post Bank (7182 JP)</a>, <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post Holdings (6178 JP)</a> and <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial (8411 JP)</a> from the present day.</li>
<li>Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. </li>
<li>Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as <a href="https://www.smartkarma.com/entities/458" target="_blank" data-smartkarma-citation="entities:458:1">Seibu Holdings (9024 JP)</a> and <a href="https://www.smartkarma.com/entities/1184" target="_blank" data-smartkarma-citation="entities:1184:1">Japan Airlines (9201 JP)</a>, they are no longer highly-ranked.</li>
<li>Seven current Top 20 companies - (<a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a>, <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI (9433 JP)</a>, <a href="https://www.smartkarma.com/entities/13498" target="_blank" data-smartkarma-citation="entities:13498:1">Japan Tobacco (2914 JP)</a>, <a href="https://www.smartkarma.com/entities/13520" target="_blank" data-smartkarma-citation="entities:13520:1">Central Japan Railway (9022 JP)</a>, <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/15070" target="_blank" data-smartkarma-citation="entities:15070:1">Recruit (6098 JP)</a>)  - have listed during the last 28 years. </li>
</ul>THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - <a href="https://www.smartkarma.com/entities/3077" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a>.


Source: Japan Analytics
NB: companies are colour-coded by sector
28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-
In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only Nomura (8604 JP), Aozora (8304 JP) and Shinsei (8303 JP) have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are Mitsubishi UFJ (8306 JP), Sumitomo Mitsui Financial (8316 JP), Japan Post Bank (7182 JP), Japan Post Holdings (6178 JP) and Mizuho Financial (8411 JP) from the present day.
Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. 
Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as Seibu Holdings (9024 JP) and Japan Airlines (9201 JP), they are no longer highly-ranked.
Seven current Top 20 companies - (Softbank (9984 JP), NTT Docomo (9437 JP), KDDI (9433 JP), Japan Tobacco (2914 JP), Central Japan Railway (9022 JP), Fast Retailing (9983 JP) and Recruit (6098 JP))  - have listed during the last 28 years. 
THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - Keyence (6861 JP), Toyota Motor (7203 JP) and Sony (6758 JP). 

Japan: The Evolution Of (Non-Financial) Market Leadership

The share price of embattled regional bank <a href="https://www.smartkarma.com/entities/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank Ltd (8358 JP)</a> rebounded very strongly last week, closing in the afternoon of Friday, 21 September 2018 at ¥602, or a weekly gain of 23.3%.  Indeed, the stock rose by ¥100 on that Friday alone: a daily gain of 19.2% on exceptionally heavy volume.  What prompted the short-covering scramble was a media report suggesting that the Okano Family, which has dominated Suruga Bank since its official founding in 1895, was looking to divest itself of all family holdings in the bank.  While this development, if true, would represent a further step along the long road to redemption for the bank, we think it is much too early for foreign investors (other than those with very long investment time-horizons) to be piling in to the stock at this stage.  Caveat emptor (may the buyer beware!).

The share price of embattled regional bank Suruga Bank Ltd (8358 JP) rebounded very strongly last week, closing in the afternoon of Friday, 21 September 2018 at ¥602, or a weekly gain of 23.3%.  Indeed, the stock rose by ¥100 on that Friday alone: a daily gain of 19.2% on exceptionally heavy volume.  What prompted the short-covering scramble was a media report suggesting that the Okano Family, which has dominated Suruga Bank since its official founding in 1895, was looking to divest itself of all family holdings in the bank.  While this development, if true, would represent a further step along the long road to redemption for the bank, we think it is much too early for foreign investors (other than those with very long investment time-horizons) to be piling in to the stock at this stage.  Caveat emptor (may the buyer beware!).

Suruga Bank (8358 JP): Purging the Augean Stables 2018 - Part 4

Thematic (Sector/Industry)

TREASURY SHARES IN JAPAN - As a prelude to an upcoming insight on share buybacks in Japan, this note is a fork of <a href="https://www.smartkarma.com/profiles/342" target="_blank" data-smartkarma-citation="accounts:342">Douglas Kim</a> 's quick note on Korean Companies with Highest Levels of Treasury Shares. We highlight the Japanese companies with the highest percentage of Treasury Shares to shares in issue as well as those larger capitalisation stocks that have forgone the pleasure of buybacks.2.7% OF SHARES HELD IN TREASURY - As is the case in Korea, most Japanese companies do not cancel shares after…

TREASURY SHARES IN JAPAN - As a prelude to an upcoming insight on share buybacks in Japan, this note is a fork of Douglas Kim 's quick note on Korean Companies with Highest Levels of Treasury Shares. We highlight the Japanese companies with the highest percentage of Treasury Shares to shares in issue as well as those larger capitalisation stocks that have forgone the pleasure of buybacks.2.7% OF SHARES HELD IN TREASURY - As is the case in Korea, most Japanese companies do not cancel shares after…

Japan: Treasury Share 'Kings' and 'Paupers'

Japan

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.

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SBI Shinsei Bank (8303 JP)

Suruga Bank (8358 JP): Purging the Augean Stables 2018 - Part 6: Catharsis?

The slow-motion ‘train wreck’ that is the once-proud Suruga Bank Ltd (8358 JP) ploughs on along its path of self-destruction. Interim results were...

J. Brian Waterhouse

SMFG (8316 JP): Standing Out in a Crowd

Interim results announced by Sumitomo Mitsui Financial (8316 JP) on 14 November 2018 represented 68% of management’s full-year target of ¥700...

J. Brian Waterhouse

Japan: The Evolution Of (Non-Financial) Market Leadership

28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the...

Campbell Gunn

Suruga Bank (8358 JP): Purging the Augean Stables 2018 - Part 4

The share price of embattled regional bank Suruga Bank Ltd (8358 JP) rebounded very strongly last week, closing in the afternoon of Friday, 21...

J. Brian Waterhouse

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Suruga Bank (8358 JP): Purging the Augean Stables 2018 - Part 6: Catharsis?

The slow-motion ‘train wreck’ that is the once-proud Suruga Bank Ltd (8358 JP) ploughs on along its path of self-destruction. Interim results were...

J. Brian Waterhouse

SMFG (8316 JP): Standing Out in a Crowd

Interim results announced by Sumitomo Mitsui Financial (8316 JP) on 14 November 2018 represented 68% of management’s full-year target of ¥700...

J. Brian Waterhouse

Japan: The Evolution Of (Non-Financial) Market Leadership

28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the...

Campbell Gunn

Suruga Bank (8358 JP): Purging the Augean Stables 2018 - Part 4

The share price of embattled regional bank Suruga Bank Ltd (8358 JP) rebounded very strongly last week, closing in the afternoon of Friday, 21...

J. Brian Waterhouse

Japan: Treasury Share 'Kings' and 'Paupers'

TREASURY SHARES IN JAPAN - As a prelude to an upcoming insight on share buybacks in Japan, this note is a fork of Douglas Kim 's quick note on...

Campbell Gunn