Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the global Discretionary vs. Staples ratio, price and RS deterioration for mainland China, Germany, and European Technology, and new lows in the NASDAQ Global Automobile index. Aside from Germany, other major indexes remain above support in Europe/UK and Japan.  We highlight a number of attractive opportunities in “defensive” Financials including electronic exchanges/markets, insurance, commercial/consumer financing, and select asset managers.

Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the global Discretionary vs. Staples ratio, price and RS deterioration for mainland China, Germany, and European Technology, and new lows in the NASDAQ Global Automobile index. Aside from Germany, other major indexes remain above support in Europe/UK and Japan.  We highlight a number of attractive opportunities in “defensive” Financials including electronic exchanges/markets, insurance, commercial/consumer financing, and select asset managers.

Global Equity Strategy: More Cracks Begin to Show

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

Overall, <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-gro" target="_blank" rel="noopener" data-smartkarma-citation="entities:218:1">Mitsubishi Ufj Financial (8306 JP)</a>’s 1Q FY3/2020 results were encouraging. Japan’s biggest financial group looks well-placed to comfortably achieve and even exceed its conservative FY3/2020 profits guidance.  Nevertheless, the Japanese banking sector remains vulnerable to external factors such as the ongoing US-China trade dispute, the possible adverse effect on domestic demand if the Japanese government goes ahead with its plan to raise consumption tax from 8% to 10% later this year, and the strengthening of the Yen against the US$ and other major currencies as global markets increasingly adopt a ‘risk off’ attitude to rising uncertainty.It is difficult to identify a strong case for buying any of the Japanese major bank stocks at the present time, even when MUFG’s stock price is trading on a PBR of 0.42x.  The share price is only some 10% above the 52-week low of ¥490 achieved in June this year, and remains vulnerable to further downside pressure in the very short-term.Our advice to would-be investors in MUFG stock is to wait until the announcement of the Japanese banks’ interim results this November, by which time a great deal of the current macro uncertainty may have been clarified (or may have even disappeared altogether).

Overall, Mitsubishi Ufj Financial (8306 JP)’s 1Q FY3/2020 results were encouraging. Japan’s biggest financial group looks well-placed to comfortably achieve and even exceed its conservative FY3/2020 profits guidance.  Nevertheless, the Japanese banking sector remains vulnerable to external factors such as the ongoing US-China trade dispute, the possible adverse effect on domestic demand if the Japanese government goes ahead with its plan to raise consumption tax from 8% to 10% later this year, and the strengthening of the Yen against the US$ and other major currencies as global markets increasingly adopt a ‘risk off’ attitude to rising uncertainty.It is difficult to identify a strong case for buying any of the Japanese major bank stocks at the present time, even when MUFG’s stock price is trading on a PBR of 0.42x.  The share price is only some 10% above the 52-week low of ¥490 achieved in June this year, and remains vulnerable to further downside pressure in the very short-term.Our advice to would-be investors in MUFG stock is to wait until the announcement of the Japanese banks’ interim results this November, by which time a great deal of the current macro uncertainty may have been clarified (or may have even disappeared altogether).

MUFG (8306 JP): No Harm in Waiting  (1Q FY3/2020 Results Comment)

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

<a href="https://www.smartkarma.com/entities/3929" target="_blank" data-smartkarma-citation="entities:3929:1">Security Bank (SECB PM)</a> trades at a premium to Asian banks on a P/Book, franchise valuation, earnings yield, and total return ratio basis.The PH Score™ of 5.3 is neither good nor bad. (Asia median is 5.7).In terms of fundamental traction, efficiency has eroded and interconnected profitability has narrowed. "Jaws" are negative. Funding cost growth is sharply in excess of interest income growth. On the other hand, liquidity and capital adequacy are moving in the right direction or are stable.Asset quality seems to have dramatically improved. Headline non-performing loans are now very low due to adoption of PFRS9. These are calculated now as loans aligned to a default criteria. The bank seems to have reclassified part of "stage 3" impaired loans back into "stage 2". "Stage 2" is comprised of assets which have experienced a SICR (significant increase in credit risk) since initial recognition, such as substandard, past-dues, and SMLs, and are not classified as NPLs. "Stage 2" represents almost 4% of the loan book versus a headline impaired or problem loan ratio of just 0.64%. In addition, unimpaired past-due loans (73% of headline NPLs) climbed 57% YoY. Charge-offs soared 47% YoY. Perhaps the asset quality is not as pristine as the NPL ratio intimates.When we look back from 2004, we see an explosive increase in loans (+10x since 2004) coinciding with lower profitability over this period. This is not a good sign. As the bank shifts to consumer lending for growth, up 10x since 2012, we wonder whether a similar pattern will emerge.In short, the bank resides in the bottom decile of our global VFM (Valuation, Fundamentals, Momentum) rankings.

Security Bank (SECB PM) trades at a premium to Asian banks on a P/Book, franchise valuation, earnings yield, and total return ratio basis.The PH Score™ of 5.3 is neither good nor bad. (Asia median is 5.7).In terms of fundamental traction, efficiency has eroded and interconnected profitability has narrowed. "Jaws" are negative. Funding cost growth is sharply in excess of interest income growth. On the other hand, liquidity and capital adequacy are moving in the right direction or are stable.Asset quality seems to have dramatically improved. Headline non-performing loans are now very low due to adoption of PFRS9. These are calculated now as loans aligned to a default criteria. The bank seems to have reclassified part of "stage 3" impaired loans back into "stage 2". "Stage 2" is comprised of assets which have experienced a SICR (significant increase in credit risk) since initial recognition, such as substandard, past-dues, and SMLs, and are not classified as NPLs. "Stage 2" represents almost 4% of the loan book versus a headline impaired or problem loan ratio of just 0.64%. In addition, unimpaired past-due loans (73% of headline NPLs) climbed 57% YoY. Charge-offs soared 47% YoY. Perhaps the asset quality is not as pristine as the NPL ratio intimates.When we look back from 2004, we see an explosive increase in loans (+10x since 2004) coinciding with lower profitability over this period. This is not a good sign. As the bank shifts to consumer lending for growth, up 10x since 2012, we wonder whether a similar pattern will emerge.In short, the bank resides in the bottom decile of our global VFM (Valuation, Fundamentals, Momentum) rankings.

Security Bank: Something Makes Me Feel Insecure

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.

Philippine National Bank / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/233" target="_blank" data-smartkarma-citation="entities:233:1">Philippine National Bank (PNB PM)</a> continues to go unnoticed.  We are doubtful that this will last indefinitely. This is especially the case given the size of PNB in Philippine banking and its impressive transformation. It remains one of the best turnaround stories in Asia-Pacific, where its bad loans have come down dramatically, its returns have risen and where profit growth is amongst the most robust in all the region. PNB is at a paltry 0.4x PB and 4.4x PE, but with 19% average annual profit growth and ROA in excess of 1%,. Its market capitalization is only 5.4% of assets and there is no major bank in the region at this low level and yet with an ROA as high as that of PNB. With its 3Q18 results just out, revealing ongoing positive change, it is not likely that this bank will remain unnoticed.

Philippine National Bank (PNB PM) continues to go unnoticed.  We are doubtful that this will last indefinitely. This is especially the case given the size of PNB in Philippine banking and its impressive transformation. It remains one of the best turnaround stories in Asia-Pacific, where its bad loans have come down dramatically, its returns have risen and where profit growth is amongst the most robust in all the region. PNB is at a paltry 0.4x PB and 4.4x PE, but with 19% average annual profit growth and ROA in excess of 1%,. Its market capitalization is only 5.4% of assets and there is no major bank in the region at this low level and yet with an ROA as high as that of PNB. With its 3Q18 results just out, revealing ongoing positive change, it is not likely that this bank will remain unnoticed.

Philippine National Bank – A Giant Gem, Still Undiscovered

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

* Bank Danamon is additive to MUFG’s ASEAN strategy, bringing it's foreign content of EPS to 50%.* From a financial and managerial perspective, Bank Danomon is a time consuming and expensive transaction. Greater EPS accretion could be garnered more simply and without the risks execution, and being in Indonesia.   * Focus, in our view, would be better spent on repairing/restructuring the US operation (s) whose overall business appears to have stalled, and where greater EPS and price performance…

* Bank Danamon is additive to MUFG’s ASEAN strategy, bringing it's foreign content of EPS to 50%.* From a financial and managerial perspective, Bank Danomon is a time consuming and expensive transaction. Greater EPS accretion could be garnered more simply and without the risks execution, and being in Indonesia.   * Focus, in our view, would be better spent on repairing/restructuring the US operation (s) whose overall business appears to have stalled, and where greater EPS and price performance…

MUFG – Bank Danamon Deal Makes Little Sense

Philippines

Rizal Commercial Banking Corporation provides banking and financial products and services in the Philippines and internationally. It operates through Retail Banking, Corporate Banking, Treasury, and Others segments. The company�s deposit products include checking and savings accounts, time deposits, foreign currency deposits, and cash cards. Its loan portfolio comprises commercial and consumer loans; and wholesale lending, rediscounting, and guaranty facilities. The company also provides remittance, payment and settlement, treasury, trust, overdraft facilities, money market, and trading services. In addition, it offers corporate cash management services, such as collection and receivables services; disbursements; government payment services; and third party services comprising collection and receivables services, and payment management services. Further, the company provides investment banking services, such as the underwriting of debt and equity securities for distribution through public offering or private placement; syndicated loans, joint ventures, and project finance; financial advisory and consultancy services; and mergers and acquisitions services. Additionally, it offers ancillary services, including day and night depository, deposit pick-up and delivery, foreign currency conversions, foreign trade information, economic and investment research, wealth management, and safety deposit boxes; automated teller machines; bills payment machines; and mobile, Internet, phone banking, and e-Shop services. As of December 31, 2014, the company operated a network of 449 business centers, including 35 extension offices; and 1,202 ATMs. The company was formerly known as Rizal Development Bank and changed its name to Rizal Commercial Banking Corporation in January 1963. Rizal Commercial Banking Corporation was founded in 1960 and is headquartered in Makati City, the Philippines. Rizal Commercial Banking Corporation operates as a subsidiary of Yuchengco Group of Companies.

Philippine National Bank, through its subsidiaries, provides commercial bank services. Its products include deposit-taking, lending, bill discounting, foreign exchange dealing, investment banking, and fund transfer. The Company also offers merchant banking, remittance servicing, non-life insurance, leasing, stock brokerage, foreign exchange trading, and related services.

Asia United Bank Corporation, together with its subsidiaries, provides a range of banking and other financial products and services to consumers, small medium enterprises, and large corporations in the Philippines. The company operates through Commercial, Consumer, Treasury, Branch Banking, and Others segments. It provides commercial banking services, such as deposit products, loans and trade finance, domestic and foreign fund transfers, treasury, foreign exchange, and trust services. Its deposit products include savings, current, time, and other currency deposit accounts; and loan portfolio comprises auto, home, salary, and commercial loans, as well as real estate and pension loans. The company also provides cash management services; investment products, including treasury and trust products; and other services consisting of card, remittance, property sale, and leasing services. As of June 30, 2016, the company operated 232 branches. Asia United Bank Corporation was founded in 1997 and is headquartered in Pasig, the Philippines.

East West Banking Corporation, together with its subsidiaries, operates as a commercial bank providing a range of financial services to consumer and corporate clients in the Philippines. It operates through Retail Banking, Corporate Banking, Consumer Banking, and Treasury and Trust segments. The company offers personal banking services, such as checking and savings accounts, time deposit, bills payment, check-writing, and prepaid and gift cards; credit cards; auto, home, pre owned properties and cars, personal, and business loans; Internet banking; personal investment services, including money market and fixed-income unit investment trust funds, and fixed-income investment trust funds; and suite of corporate services comprising payroll, disbursement, collection, and others services. It also provides trade finance; treasury products, such as fixed income securities and foreign exchange products; and fund and investment management, custodianship, administration and collateral agency services, and stock and transfer agency services. As of As of December 31, 2014, it served its customers through a network of 358 branches and 533 ATMs. The company was founded in 1994 and is headquartered in Taguig City, the Philippines.

Philippine Bank of Communications provides commercial banking products and services in the Philippines. The company operates through Branch Banking Group, Corporate Banking Group, Treasury, Consumer Finance, and Trust and Wealth Management segments. It offers deposit products and services, including savings, checking, and time deposit accounts; and loans comprising commercial loans, industrial loans, foreign currency loans, rediscounting loans, specialized lending programs, export packing credit loans, trust receipt financing, consumer lending, and guarantee programs, as well as auto, home, personal, and SME loans. The company also provides investment and wealth management products, such as trust products; treasury products; and other services, including safe deposit boxes, manager's checks, and gift checks. In addition, it offers cash management solutions, such as check writing and check warehousing facilities, deposit pick-up services, payroll services, SSS Net, tax link or BIR electronic filing and payment systems, Bancnet bills payment, and other payment and collection services; and staff provident fund and retirement/pension fund services. Further, the company provides trade-related services, such as commercial letters of credit, stand-by letters of credit, bank guaranty, trust receipts, export packing credit/export bills purchase, clean and documentary collections, import bills/customer�s liabilities under acceptances, and trade receivables and payables financing. It offers its products and services through 82 branches and 11 other banking offices. Philippine Bank of Communications was incorporated in 1939 and is based in Makati, the Philippines.

Philippine Business Bank, Inc., a savings bank, provides various banking and financial services in the Philippines. It operates through Consumer Banking, Corporate Banking, and Treasury Operations segments. The company offers deposits and investment services, including savings and checking accounts, automatic transfer accounts, payroll accounts, CASA, campus savers, time deposits, hi-green funds, Hi-5 TDs, and FCDU savings and time deposits. It also provides commercial, industrial, and developmental loans comprising bills purchase, term loans, omnibus line, discounting line, trade finance, agricultural loans, bus loans, and floor stock/inventory financing products, as well as specialized lending facilities for small and medium enterprises. In addition, the company offers consumer loans consisting of auto loans, salary loans, housing loans, and personal loans. Further, it provides trust products and services, including diamond funds; living trusts; employee benefit plans under trust; trustee of pre-need plans; escrow agency; mortgage trusts; investment management arrangements for both individual and commercial clients; security, safekeeping, and depository arrangements; and funds management of employee benefit and pre-need plans. Additionally, the company offers cash management services, remittance services, local payment orders, foreign drafts, safety deposit box facilities, night depository boxes, group payroll services, bills payment/collection services, and SSSPayments/PhilHealth products. As of February 5, 2015, it had approximately 116 branches in the Philippines. Philippine Business Bank, Inc. was founded in 1997 and is headquartered in Caloocan, the Philippines.

China Banking Corporation is a commercial bank. The Bank provides products and services such as deposit products, loans and trade finance, treasury products, trust products, corporate finance and other investment banking services.

Philtrust Bank provides various commercial banking products and services in the Philippines. The company offers checking accounts, savings accounts, time deposits, money market placements, business loans, transfer of funds and collections, remittances, securities investments, and safety deposit boxes. It also provides commercial letters of credit, collections and remittances, foreign exchange services, traveler�s checks, and foreign currency deposit unit transactions. In addition, the company offers trust services, such as trust placement, investment management, estate administration/trustee of bond issues, savings and pension plan administration, and insurance trust services, as well as acts as escrow agent, and stock registrar and transfer agent. It operates a network of approximately 57 branches and 57 automated teller machines. The company was founded in 1916 and is headquartered in Manila, the Philippines.

UnionBank of the Philippines, together with its subsidiaries, provides various commercial banking products and services in the Philippines. It operates through Consumer Banking, Corporate and Commercial Banking, and Treasury segments. The company offers various personal banking products and services, such as savings and checking accounts, and time deposits; auto loans; debit and credit cards; trust and investment products; remittance products and services; and mobile banking services, as well as foreclosed properties and vehicles. It also provides corporate and small and medium scale enterprise products and services that consist of cash management services; various small business products and services; and treasury products. In addition, the company offers corporate and commercial banking loans; salary and mortgage loans; consumer finance products; pre-need insurance products and services; funds transfer facilities; retail and trust banking products and services; and capital markets products, as well as handles transactions in the financial markets covering foreign exchange and fixed income trading, and investments and derivatives products. Further, it provides insurance, securities, and foreign currency brokerage services; data processing services; venture capital products; financial products marketing services; and real estate administration services, as well as acts as a thrift banker. The company serves retail, middle market, corporate, and institutional customers, as well as small and medium enterprises and government institutions. As of December 31, 2014, it had 253 branches; and 243 on-site and 39 off-site automated teller machines. The company was formerly known as Union Savings and Mortgage Bank and changed its name to UnionBank of the Philippines in January 1982. UnionBank of the Philippines was founded in 1968 and is based in Pasig City, the Philippines.

Philippine Savings Bank engages in savings and mortgage banking activities in the Philippines. It operates in Consumer Banking, Corporate Banking, Branch Banking, and Treasury segments. The company provides various deposit products, such as savers accounts, automated teller machine (ATM) savings, regular passbook savings, passbook savings with ATM, overseas Filipino savings, regular checking and premium checking accounts, peso time deposits, prime time deposits, U.S. dollar savings, U.S. dollar time deposits, and Euro savings and time deposits. It also offers consumer loan products, including auto loans, flexi personal loans, home loans, home credit lines, and home construction loans; and commercial loans, such as small and medium enterprise (SME) business credit lines, credit lines, SME term loans, standby credit line certification, and domestic bills purchase lines. In addition, the company provides trust services, which consist of money market funds, investment management accounts, escrow accounts, living trust accounts, and employee benefit/retirement fund management; credit and debit MasterCards; prepaid MasterCard; e-credit facilities; bills payment collection; remittance services; bancassurance products and services; and fund transfer services, overnight depository boxes, payroll services, safety deposit facilities, and SSS pensioner�s remittance programs. As of December 31, 2014, it had a network of 245 branches and 595 ATMs. The company was incorporated in 1959 and is based in Makati City, the Philippines. Philippine Savings Bank is a subsidiary of Metropolitan Bank & Trust Company.

Shengjing Bank Co. Ltd. provides banking services. The Company offers various financial services, funds business, international business, and investment services for individuals and small and medium enterprises.

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.

Habib Bank Ltd operates commercial bank in Pakistan. The Bank offers commercial, corporate, Investment, retail and International Group Banking.

Dah Sing Financial Holdings Ltd through its subsidiaries, offers general banking services. The Company also invests in properties and provides insurance broking and nominee services.

First Community Bancshares, Inc. is the holding company for First Community Bank, N.A.  The Bank generates revenue primarily through commercial, real estate, and consumer lending within its respective market area. The Company also operates investment management and mortgage banking companies.  First Community Bancshares operates in West Virginia, Virginia, and North Carolina.

Univest Corporation of Pennsylvania is the parent company of Univest National Bank and Trust Co., Univest Insurance, Inc., and Univest Investments, Inc.  The Company, through its subsidiaries, provides a range of banking, investments, and insurance services.  Univest has offices throughout Bucks and Montgomery Counties.

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.

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)

Lakeland Bancorp, Inc. is the holding company for Lakeland Bank.  The Bank is a full-service commercial bank offering a range of consumer, commercial, trust services, and equipment leasing.  Lakeland Bank operates in northwestern New Jersey.

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.

Security Bank Corporation offers a wide variety of financial products and services. The Bank's services include peso, dollar and third currency deposits, domestic and international fund transfers, deposit pick-up and payroll services, and ancillary services.  Security Bank also provides working capital financing, term arrangements, loan syndication services.

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Security Bank (SECB PM)

Global Equity Strategy: More Cracks Begin to Show

Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the...

Vermilion Research

MUFG (8306 JP): No Harm in Waiting (1Q FY3/2020 Results Comment)

Overall, Mitsubishi Ufj Financial (8306 JP)’s 1Q FY3/2020 results were encouraging. Japan’s biggest financial group looks well-placed to...

J. Brian Waterhouse

Security Bank: Something Makes Me Feel Insecure

Security Bank (SECB PM) trades at a premium to Asian banks on a P/Book, franchise valuation, earnings yield, and total return ratio basis.The PH...

Paul Hollingworth

Philippine National Bank – A Giant Gem, Still Undiscovered

Philippine National Bank (PNB PM) continues to go unnoticed. We are doubtful that this will last indefinitely. This is especially the case given...

Daniel Tabbush

MUFG – Bank Danamon Deal Makes Little Sense

* Bank Danamon is additive to MUFG’s ASEAN strategy, bringing it's foreign content of EPS to 50%.* From a financial and managerial perspective,...

Thomas J. Monaco

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