Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>I wrote <a href="https://www.smartkarma.com/insights/japan-h1-bank-earnings-interest-fees-up-expenses-credit-costs-down-opportunity-abounds-still" target="_blank" data-smartkarma-citation="insights:116534" rel="noopener">Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down - Opportunity Abounds, Still</a> last week mentioning the trends in guidance revisions.</li>
<li>Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%. </li>
<li>Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.</li>
</ul>


I wrote Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down - Opportunity Abounds, Still last week mentioning the trends in guidance revisions.
Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%. 
Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.


Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

The unexpected cut to FY3/2021 guidance announced by <a href="https://www.smartkarma.com/entities/gunma-bank-ltd" target="_blank" data-smartkarma-citation="entities:15777:1" rel="noopener">Gunma Bank (8334 JP)</a>, the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, is a reminder that the coronavirus pandemic continues to exact a heavy toll on Japanese industry, despite substantial efforts by the Japanese government and private commercial banks to support their clients wherever feasible.  Despite the likely dent in FY3/2021 earnings (to be formally announced in the next 2-3 weeks) caused by additional credit provisioning, we expect earnings to recover in FY3/2022.  The bank is maintaining its dividend unchanged at ¥13/share, suggesting a dividend payout ratio of around 45%.  On a prospective PER (using the bank’s revised guidance) of 12.5x and a low PBR of 0.31x, the stock remains attractive against peers.  We maintain our positive view on this stock.

The unexpected cut to FY3/2021 guidance announced by Gunma Bank (8334 JP), the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, is a reminder that the coronavirus pandemic continues to exact a heavy toll on Japanese industry, despite substantial efforts by the Japanese government and private commercial banks to support their clients wherever feasible.  Despite the likely dent in FY3/2021 earnings (to be formally announced in the next 2-3 weeks) caused by additional credit provisioning, we expect earnings to recover in FY3/2022.  The bank is maintaining its dividend unchanged at ¥13/share, suggesting a dividend payout ratio of around 45%.  On a prospective PER (using the bank’s revised guidance) of 12.5x and a low PBR of 0.31x, the stock remains attractive against peers.  We maintain our positive view on this stock.

Gunma Bank  (8334 JP):  Compressed Guidance

Financial entrepreneur Yoshitaka Kitao and his flagship company <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">Sbi Holdings (8473 JP)</a> have just netted their sixth and seventh regional banks, namely secondary regional banks Kirayaka Bank and Sendai Bank from the Tohoku Region of northern Japan.On Friday 20 November 2020, the holding company for these two banks, tiny <a href="https://www.smartkarma.com/entities/jimoto-holdings-inc" target="_blank" data-smartkarma-citation="entities:5763:1" rel="noopener">Jimoto Holdings (7161 JP)</a>, finally announced its interim results for FY3/2021.  Interim net profits collapsed 91% YoY to just ¥64 million (US$615,000), and the group’s revised full-year guidance now warns of a full-year consolidated net loss of around ¥3 billion: largely the result of accumulated valuation losses in the securities portfolio of principal subsidiary Kirayaka Bank.  To rub salt into investors’ wounds, Jimoto Holdings simultaneously announced that it was issuing 3.65 million new shares to a subsidiary of <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">Sbi Holdings (8473 JP)</a>  for a consideration of around ¥3.4 billion (US$33.6 million).  The SBI Group will control just over 18% of Jimoto Holdings’ outstanding shares when the transactions are completed.Jimoto Holdings is the latest investment by financial entrepreneur Yoshitaka Kitao in Japan’s struggling regional banking sector, and another ‘stepping-stone’ for the SBI Group’s president towards his goal of creating a “fourth megabank”.Foreign investors would be well advised to steer clear.  The future for Jimoto Holdings is far from certain, despite the capital injection.  Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2020.

Financial entrepreneur Yoshitaka Kitao and his flagship company Sbi Holdings (8473 JP) have just netted their sixth and seventh regional banks, namely secondary regional banks Kirayaka Bank and Sendai Bank from the Tohoku Region of northern Japan.On Friday 20 November 2020, the holding company for these two banks, tiny Jimoto Holdings (7161 JP), finally announced its interim results for FY3/2021.  Interim net profits collapsed 91% YoY to just ¥64 million (US$615,000), and the group’s revised full-year guidance now warns of a full-year consolidated net loss of around ¥3 billion: largely the result of accumulated valuation losses in the securities portfolio of principal subsidiary Kirayaka Bank.  To rub salt into investors’ wounds, Jimoto Holdings simultaneously announced that it was issuing 3.65 million new shares to a subsidiary of Sbi Holdings (8473 JP)  for a consideration of around ¥3.4 billion (US$33.6 million).  The SBI Group will control just over 18% of Jimoto Holdings’ outstanding shares when the transactions are completed.Jimoto Holdings is the latest investment by financial entrepreneur Yoshitaka Kitao in Japan’s struggling regional banking sector, and another ‘stepping-stone’ for the SBI Group’s president towards his goal of creating a “fourth megabank”.Foreign investors would be well advised to steer clear.  The future for Jimoto Holdings is far from certain, despite the capital injection.  Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2020.

Jimoto Holdings (7161 JP):  Kirayaka Cracks

Interim results for <a href="https://www.smartkarma.com/entities/gunma-bank-ltd" target="_blank" data-smartkarma-citation="entities:15777:1" rel="noopener">Gunma Bank (8334 JP)</a>, the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, comfortably beat the bank’s own guidance despite hefty COVID-19-related loan loss provisioning taken in 1Q.  The bank has left its full-year guidance unchanged, expecting consolidated net profits of ¥20.5 billion, or ¥49/share, with dividends for the year of ¥13/share, suggesting a dividend payout ratio of around 27%.  On a prospective PER (using the bank’s revised guidance) of 7.0x and a low PBR of 0.30x, the stock remains inexpensive against peers despite having risen some 30% since touching a 2020 low in mid-March.  Surprisingly, foreign investors own in aggregate less than 18% of this undervalued Japanese regional bank.  Worth considering.

Interim results for Gunma Bank (8334 JP), the dominant bank in Gunma Prefecture northwest of the Japanese capital Tokyo, comfortably beat the bank’s own guidance despite hefty COVID-19-related loan loss provisioning taken in 1Q.  The bank has left its full-year guidance unchanged, expecting consolidated net profits of ¥20.5 billion, or ¥49/share, with dividends for the year of ¥13/share, suggesting a dividend payout ratio of around 27%.  On a prospective PER (using the bank’s revised guidance) of 7.0x and a low PBR of 0.30x, the stock remains inexpensive against peers despite having risen some 30% since touching a 2020 low in mid-March.  Surprisingly, foreign investors own in aggregate less than 18% of this undervalued Japanese regional bank.  Worth considering.

Gunma Bank (8334 JP):  Hiding in Plain Sight

The stock price of the tiny, embattled <a href="https://www.smartkarma.com/entities/towa-bank-ltd" target="_blank" data-smartkarma-citation="entities:18283:1" rel="noopener">Towa Bank (8558 JP)</a>, a small Japanese secondary regional bank from Gunma Prefecture just north of Tokyo, at one point jumped 13.5% on Friday on 17x normal trading volume after the bank confirmed it was in “co-operative discussions” with online financial specialist <a href="https://www.smartkarma.com/entities/sbi-holdings-inc" target="_blank" data-smartkarma-citation="entities:10928:1" rel="noopener">Sbi Holdings (8473 JP)</a>.Financial media have suggested the bank is considering a tie-up with SBI through a small mutual shareholding (1% of Towa Bank stock  -  worth roughly ¥275 million  -  for up to ¥200 million in SBI shares) and the establishment of  a jointly-managed fund to support local businesses.  Towa Bank has stated that nothing has been decided as yet.  If media reports are correct, this would be the fifth such investment by financial entrepreneur Yoshitaka Kitao in Japan’s struggling regional banking sector.  However, there are some important differences with this tie-up.Towa Bank has a long and unenviable history of poor credit decisions and consequent hefty losses, prompting a taxpayer-funded bail-out in FY3/2010.  The current president has been working hard to turn the bank’s fortunes around, managing to repay ¥20.0 billion in public funds in FY3/2019.  Even so, Towa Bank still has ¥15.0 billion (US$143 million) in public funds to repay, and profits have been shrinking rapidly.While this may be seen as another ‘stepping-stone’ for SBI Group’s president and financial entrepreneur Yoshitaka Kitao in his bid to create a “fourth megabank”, investors should bear in mind that the net risk investment amount is little more than chump change for an enterprise like SBI.  Moreover, the apparent emphasis on support for local industry, rather than support for Towa Bank itself, suggests that this tie-up is not a ‘rescue’ of Towa Bank by a ‘white knight’, but an opportunity for a financial entrepreneur to gain valuable access to Towa Bank’s retail client base for a very modest cash outlay.  As such, foreign investors would be well advised to steer clear of Towa Bank stock, as valuations are already demanding.  Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2020.

The stock price of the tiny, embattled Towa Bank (8558 JP), a small Japanese secondary regional bank from Gunma Prefecture just north of Tokyo, at one point jumped 13.5% on Friday on 17x normal trading volume after the bank confirmed it was in “co-operative discussions” with online financial specialist Sbi Holdings (8473 JP).Financial media have suggested the bank is considering a tie-up with SBI through a small mutual shareholding (1% of Towa Bank stock  -  worth roughly ¥275 million  -  for up to ¥200 million in SBI shares) and the establishment of  a jointly-managed fund to support local businesses.  Towa Bank has stated that nothing has been decided as yet.  If media reports are correct, this would be the fifth such investment by financial entrepreneur Yoshitaka Kitao in Japan’s struggling regional banking sector.  However, there are some important differences with this tie-up.Towa Bank has a long and unenviable history of poor credit decisions and consequent hefty losses, prompting a taxpayer-funded bail-out in FY3/2010.  The current president has been working hard to turn the bank’s fortunes around, managing to repay ¥20.0 billion in public funds in FY3/2019.  Even so, Towa Bank still has ¥15.0 billion (US$143 million) in public funds to repay, and profits have been shrinking rapidly.While this may be seen as another ‘stepping-stone’ for SBI Group’s president and financial entrepreneur Yoshitaka Kitao in his bid to create a “fourth megabank”, investors should bear in mind that the net risk investment amount is little more than chump change for an enterprise like SBI.  Moreover, the apparent emphasis on support for local industry, rather than support for Towa Bank itself, suggests that this tie-up is not a ‘rescue’ of Towa Bank by a ‘white knight’, but an opportunity for a financial entrepreneur to gain valuable access to Towa Bank’s retail client base for a very modest cash outlay.  As such, foreign investors would be well advised to steer clear of Towa Bank stock, as valuations are already demanding.  Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2020.

Towa Bank (8558 JP):  Another Notch in the Bedpost

Japan

The Towa Bank Ltd is a regional bank that mainly operates in Saitama, Gunma, and Tochigi prefectures.  The Bank provides banking services such as deposits, loans, and exchange transactions.  Towa Bank also provides other financial services including leasing and credit cards.

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Towa Bank (8558 JP)

Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well

Since last week's piece, 5 banks have reported strong H1 results, ahead of guidance and up yoy. 7 more have amended H1 guidance up an average of...

Travis Lundy

Gunma Bank (8334 JP): Compressed Guidance

The surprise cut to FY3/2021 guidance announced by Gunma Bank (8334 JP) is a reminder that the pandemic continues to take a heavy toll on Japanese...

J. Brian Waterhouse

Jimoto Holdings (7161 JP): Kirayaka Cracks

Financial entrepreneur Yoshitaka Kitao and his flagship company SBI Holdings (8473 JP) have just netted their sixth and seventh regional banks,...

J. Brian Waterhouse

Gunma Bank (8334 JP): Hiding in Plain Sight

On a PER of 7.0x and a PBR of 0.30x, the stock remains inexpensive against peers despite being up some 30% since touching a low in mid-March. This...

J. Brian Waterhouse

Towa Bank (8558 JP): Another Notch in the Bedpost

The evidence suggests that this is not a 'white knight' riding to the rescue, but another opportunity for Yoshitaka Kitao to gain access to a...

J. Brian Waterhouse

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