Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Yamaguchi Financial Group In / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/yamaguchi-financial-group-inc" target="_blank" data-smartkarma-citation="entities:15836:1" rel="noopener">Yamaguchi Financial Group In (8418 JP)</a> is the holding company for three western Japan regional banks. Cheapish/overcapitalised, restructuring painfully, but aimed at 5% ROE and capital efficiency.</li>
<li>To that end, it is buyback back a lot of stock. </li>
<li>Compared to its Real World Float, it really is a lot of stock, and it is on-market.</li>
</ul>



Yamaguchi Financial Group In (8418 JP) is the holding company for three western Japan regional banks. Cheapish/overcapitalised, restructuring painfully, but aimed at 5% ROE and capital efficiency.
To that end, it is buyback back a lot of stock. 
Compared to its Real World Float, it really is a lot of stock, and it is on-market.


Yamaguchi Financial (8418) - Big On-Market Buyback for Middling Not Too Expensive Regional Bank

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Most of Japan’s 77 TSE-listed regional banking entities are expected to announce their interim results from 10-12 November this year, but <a href="https://www.smartkarma.com/entities/hachijuni-bank-ltd" target="_blank" data-smartkarma-citation="entities:20244:1" rel="noopener">Hachijuni Bank (8359 JP)</a> has once again announced its interim results well ahead of the rest.  While results comfortably beat initial guidance, there were no surprises thanks to an upward revision to guidance a week ago. Moreover, an examination of those ‘much improved’ numbers shows that the bank was once again heavily reliant on loan-loss reserve write-backs and ‘selling the family silver’ to keep profits up.The stock is currently just +3.0% higher than it was six months ago; most peers are up around +9% over the same period.  Indeed, Hachijuni Bank has been a conspicuous underperformer against the Topix Banks Index for much of CY2021.  Currently trading on a FY3/2022  PER of 8.3x and PBR of 0.21x, the stock is not especially compelling.  The bank’s woefully low RoE and RoA remain serial disincentives for investors, although some 17% of total shares outstanding continue to be held by die-hard foreigners.There are other regional bank stocks (such as <a href="https://www.smartkarma.com/entities/chiba-bank-ltd" target="_blank" data-smartkarma-citation="entities:1048:1" rel="noopener">Chiba Bank (8331 JP)</a>, <a href="https://www.smartkarma.com/entities/shizuoka-bank-ltd" target="_blank" data-smartkarma-citation="entities:4437:1" rel="noopener">Shizuoka Bank (8355 JP)</a> and <a href="https://www.smartkarma.com/entities/fukuoka-financial-group-inc" target="_blank" data-smartkarma-citation="entities:3712:1" rel="noopener">Fukuoka Financial Group (8354 JP)</a> more deserving of investor interest than this one.  For those who are not yet holders of Hachijuni Bank stock, our position is clear: Caveat emptor!  (May the buyer beware!)<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/238/644/original/8359-Hachijuni-2021-1029+8359RelvsTPNBNK.jpg?1635648829" class="editor-image img-responsive" data-smartkarma-image-id="238644"></figure></section>

Most of Japan’s 77 TSE-listed regional banking entities are expected to announce their interim results from 10-12 November this year, but Hachijuni Bank (8359 JP) has once again announced its interim results well ahead of the rest.  While results comfortably beat initial guidance, there were no surprises thanks to an upward revision to guidance a week ago. Moreover, an examination of those ‘much improved’ numbers shows that the bank was once again heavily reliant on loan-loss reserve write-backs and ‘selling the family silver’ to keep profits up.The stock is currently just +3.0% higher than it was six months ago; most peers are up around +9% over the same period.  Indeed, Hachijuni Bank has been a conspicuous underperformer against the Topix Banks Index for much of CY2021.  Currently trading on a FY3/2022  PER of 8.3x and PBR of 0.21x, the stock is not especially compelling.  The bank’s woefully low RoE and RoA remain serial disincentives for investors, although some 17% of total shares outstanding continue to be held by die-hard foreigners.There are other regional bank stocks (such as Chiba Bank (8331 JP), Shizuoka Bank (8355 JP) and Fukuoka Financial Group (8354 JP) more deserving of investor interest than this one.  For those who are not yet holders of Hachijuni Bank stock, our position is clear: Caveat emptor!  (May the buyer beware!)

Hachijuni Bank (8359 JP):  Ahead of the Peloton

<a href="https://www.smartkarma.com/entities/fidea-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:17012:1" rel="noopener">Fidea Holdings (8713 JP) </a>from Miyagi Prefecture in Japan’s northern Tohoku Region has announced that Iwate-based <a href="https://www.smartkarma.com/entities/tohoku-bank-ltd" target="_blank" data-smartkarma-citation="entities:8169:1" rel="noopener">Tohoku Bank (8349 JP)</a> will become a wholly-owned subsidiary in October 2022, in an all-share deal.   The announcement, which was reported during market trading hours, sent both stock prices up almost 10% on Friday 2 July.  However, rather than presaging a new paradigm for these banks, the spike in the stock prices was simply a reminder of how essentially illiquid these stocks are. The shares retreated to their pre-announcement levels in the following week.Fidea Holdings is the holding company for the smallest of three banks from Yamagata Prefecture, Shonai Bank, and the smallest of two banks from Akita Prefecture, Hokuto Bank.  Tohoku Bank, from Iwate Prefecture, is the smallest of three banks based there, and roughly one-third the size of Fidea Holdings.  Far from being a ‘Band of Brothers’, the enlarged Fidea Holdings will, in effect, be little more than a school of minnows whose combined branch network of 149 branches, while nominally  covering the whole of the Tohoku Region, has little overlap; thus little opportunity to cut costs through closing competing branches or reducing the headcount significantly.  Significant inherent weaknesses in all three banks remain largely unaddressed.  It is difficult to see how simply integrating operations under a holding company structure will resolve them.While the announcement no doubt comes with the advance approval of the financial authorities, who are keen for regional banks to merge to strengthen their operations, it creates something of a dilemma for the Financial Services Authority (FSA) in that both institutions still owe taxpayers a combined total of ¥20 billion (US$181.8 million) in public funds.  Neither seems in a position to repay that capital any time soon, as we explain in this Insight.The Bank of Japan’s own ‘bad bank’, the Resolution &amp; Collection Corporation (RCC), is effectively the largest shareholder in both Fidea Holdings and Tohoku Bank through convertible preferred stock.  Will their debts be forgiven as part of the integration, or will the due date for the public funds repayment simply be extended for a further decade or so?  Will the RCC force conversion of its preferred stock into ordinary shares because of the merger, becoming overtly by far the largest shareholder?  What will be the impact of such a decision on investor sentiment for existing shareholders?  These are all important (and, for the time being, unanswerable) questions for investors.Foreign institutional investors own 12% of Fidea Holdings, and 4% of Tohoku Bank.  We fail to understand the attraction, given all the underlying weaknesses, as we detail in this Insight.  We view Friday’s ‘bounce’ in the stock prices of both Fidea Holdings and Tohoku Bank, on an unusual surge in trading volume, as a narrow ‘opportunity window’ for frustrated shareholders to exit both stocks and stay away thereafter.  That surge is over.  To those who were tempted to pile in we say:   Caveat Emptor! (May the Buyer Beware!).

Fidea Holdings (8713 JP) from Miyagi Prefecture in Japan’s northern Tohoku Region has announced that Iwate-based Tohoku Bank (8349 JP) will become a wholly-owned subsidiary in October 2022, in an all-share deal.   The announcement, which was reported during market trading hours, sent both stock prices up almost 10% on Friday 2 July.  However, rather than presaging a new paradigm for these banks, the spike in the stock prices was simply a reminder of how essentially illiquid these stocks are. The shares retreated to their pre-announcement levels in the following week.Fidea Holdings is the holding company for the smallest of three banks from Yamagata Prefecture, Shonai Bank, and the smallest of two banks from Akita Prefecture, Hokuto Bank.  Tohoku Bank, from Iwate Prefecture, is the smallest of three banks based there, and roughly one-third the size of Fidea Holdings.  Far from being a ‘Band of Brothers’, the enlarged Fidea Holdings will, in effect, be little more than a school of minnows whose combined branch network of 149 branches, while nominally  covering the whole of the Tohoku Region, has little overlap; thus little opportunity to cut costs through closing competing branches or reducing the headcount significantly.  Significant inherent weaknesses in all three banks remain largely unaddressed.  It is difficult to see how simply integrating operations under a holding company structure will resolve them.While the announcement no doubt comes with the advance approval of the financial authorities, who are keen for regional banks to merge to strengthen their operations, it creates something of a dilemma for the Financial Services Authority (FSA) in that both institutions still owe taxpayers a combined total of ¥20 billion (US$181.8 million) in public funds.  Neither seems in a position to repay that capital any time soon, as we explain in this Insight.The Bank of Japan’s own ‘bad bank’, the Resolution &amp; Collection Corporation (RCC), is effectively the largest shareholder in both Fidea Holdings and Tohoku Bank through convertible preferred stock.  Will their debts be forgiven as part of the integration, or will the due date for the public funds repayment simply be extended for a further decade or so?  Will the RCC force conversion of its preferred stock into ordinary shares because of the merger, becoming overtly by far the largest shareholder?  What will be the impact of such a decision on investor sentiment for existing shareholders?  These are all important (and, for the time being, unanswerable) questions for investors.Foreign institutional investors own 12% of Fidea Holdings, and 4% of Tohoku Bank.  We fail to understand the attraction, given all the underlying weaknesses, as we detail in this Insight.  We view Friday’s ‘bounce’ in the stock prices of both Fidea Holdings and Tohoku Bank, on an unusual surge in trading volume, as a narrow ‘opportunity window’ for frustrated shareholders to exit both stocks and stay away thereafter.  That surge is over.  To those who were tempted to pile in we say:   Caveat Emptor! (May the Buyer Beware!).

Fidea Holdings (9713 JP):  A School of Minnows

<a href="https://www.smartkarma.com/entities/chugoku-bank-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:11177:1">Chugoku Bank (8382 JP)</a>, based in Okayama Prefecture in the Chugoku region of western Japan, is the 10th-largest Japanese regional bank in terms of market capitalisation.  It has a long-standing reputation for solid earnings thanks to conservative management and a strong financial position.  But, as the old Japanese proverb goes, even monkeys fall out of trees sometimes.  At first glance, things look fine: the bank is well-capitalised with a CAR of 13.62%, and interim results beat guidance convincingly.  Yet the bank has lowered its full-year forecast: one of only a handful of regional banks to do so when interim results were announced earlier this month.  Why?  Probably because interim results were still down 11% YoY, core earnings are down 24% YoY, the bank’s key net return on domestic funds deployed is now in negative territory, and credit costs are rising sharply.  Oh dear.  That reputation is looking distinctly undeserved these days.Make no mistake: not long ago, Chugoku Bank was an exceptionally strong bank. It may again be one some day.  Right now, however, the long-standing premium rating on its stock price (PER of 15.4x against a peer average of 10.9x) is unjustifiable given the deterioration in its core profitability.Foreign investors in aggregate continue to own just short of 17% of outstanding shares.  With Chugoku Bank’s performance ratios continuing to decline, its reputation for solid earnings in question, and in light of the recent profit warning for FY3/20 earnings from the bank, one wonders how long it will be before more foreign investors in Chugoku Bank head for the exits.  For those considering investing in this bank, perhaps unaware of the worrying deterioration in the bank’s basic domestic business but attracted by the disarmingly tantalising combination of strong capitalisation, high market share in its home prefecture, and a long history of conservative management, our advice is:  Caveat emptor!  (May the buyer beware!)

Chugoku Bank (8382 JP), based in Okayama Prefecture in the Chugoku region of western Japan, is the 10th-largest Japanese regional bank in terms of market capitalisation.  It has a long-standing reputation for solid earnings thanks to conservative management and a strong financial position.  But, as the old Japanese proverb goes, even monkeys fall out of trees sometimes.  At first glance, things look fine: the bank is well-capitalised with a CAR of 13.62%, and interim results beat guidance convincingly.  Yet the bank has lowered its full-year forecast: one of only a handful of regional banks to do so when interim results were announced earlier this month.  Why?  Probably because interim results were still down 11% YoY, core earnings are down 24% YoY, the bank’s key net return on domestic funds deployed is now in negative territory, and credit costs are rising sharply.  Oh dear.  That reputation is looking distinctly undeserved these days.Make no mistake: not long ago, Chugoku Bank was an exceptionally strong bank. It may again be one some day.  Right now, however, the long-standing premium rating on its stock price (PER of 15.4x against a peer average of 10.9x) is unjustifiable given the deterioration in its core profitability.Foreign investors in aggregate continue to own just short of 17% of outstanding shares.  With Chugoku Bank’s performance ratios continuing to decline, its reputation for solid earnings in question, and in light of the recent profit warning for FY3/20 earnings from the bank, one wonders how long it will be before more foreign investors in Chugoku Bank head for the exits.  For those considering investing in this bank, perhaps unaware of the worrying deterioration in the bank’s basic domestic business but attracted by the disarmingly tantalising combination of strong capitalisation, high market share in its home prefecture, and a long history of conservative management, our advice is:  Caveat emptor!  (May the buyer beware!)

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)

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in many cases, where they look after corporate interests more than shareholders. Some consider the largest banks in Japan like closed-end mutual funds - but with credit risk -due to their gigantic equity holdings. These all remain valid reasons to shun Japan’s banks in favor of others in the region.  Credit costs are another concern. With BOJ’s new announcement of continuing low rates there remains even less hope that loan volume will support profit and that NIM pressure will remain. A negative delta in credit costs is not easily absorbed by anaemic ROA.

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in many cases, where they look after corporate interests more than shareholders. Some consider the largest banks in Japan like closed-end mutual funds - but with credit risk -due to their gigantic equity holdings. These all remain valid reasons to shun Japan’s banks in favor of others in the region.  Credit costs are another concern. With BOJ’s new announcement of continuing low rates there remains even less hope that loan volume will support profit and that NIM pressure will remain. A negative delta in credit costs is not easily absorbed by anaemic ROA. 

Japan

Yamaguchi Financial Group, Inc. is a holding company established through the merger of Yamaguchi Bank and Momiji Holdings. The Group provides variety of financial services such as deposits, loans, foreign exchange transactions, leasing and credit cards.

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Yamaguchi Financial Group In (8418 JP)

Yamaguchi Financial (8418) - Big On-Market Buyback for Middling Not Too Expensive Regional Bank

Cheapish, large regional bank holdco Yamaguchi Financial Group is cleaning up NPLs, selling some cross-holdings, cutting costs by letting people...

Travis Lundy

Hachijuni Bank (8359 JP): Ahead of the Peloton

Hachijuni Bank's interim results comfortably beat initial guidance, but there were no surprises thanks to an upward revision to earnings guidance a...

J. Brian Waterhouse

Fidea Holdings (9713 JP): A School of Minnows

Fidea Holdings (8713 JP) has announced that Iwate-based Tohoku Bank (8349 JP) will become a wholly-owned subsidiary in October 2022, in an all...

J. Brian Waterhouse

Chugoku Bank (8382 JP): Even Monkeys

Chugoku Bank (8382 JP), based in Okayama Prefecture in the Chugoku region of western Japan, is the 10th-largest Japanese regional bank in terms of...

J. Brian Waterhouse

Japan Banks – Unloved for Many Reasons

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in...

Daniel Tabbush

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