Daily Equities Bottom-Up: Global Banks – DBS Frail Against Global Peers and more

In this briefing:

1. Global Banks – DBS Frail Against Global Peers
2. Korean Government and Hyundai Motor Group’s Grand Ambitions to Expand Hydrogen Fuel Cell Vehicles
3. Belluna: Growing by Selling Gentility to the Expanding Older Market in Japan
4. SoftBank Group (9984 JP): SoftBank Corp IPO Has Failed to Meaningfully Narrow the Holdco Discount

1. Global Banks – DBS Frail Against Global Peers

Oil prices are now similar to where they were during 2017 when Singapore’s banks faced significant credit quality stresses. This was due to oil service sector lending, where bad loans here have generally not even declined. With a key driver of this sector distress in the past showing radical weakness yet again, the risk is resurgence in credit costs at Singapore banks during 4Q18. At the same time, global banks are telling a story. It is one not of a robust global economy, but one that is weakening. We have written at length about our concerns of rising rates due to policy rather than real demand, and it remains core to our global bank view. Perhaps Canada’s weak inflation rate – coming below target – is just another global example in addition to countries in Europe and UK, that underlying demand is simply not that robust?

2. Korean Government and Hyundai Motor Group’s Grand Ambitions to Expand Hydrogen Fuel Cell Vehicles

• On December 18th, the Korean government announced numerous measures to reduce fine dust levels, including a significant increase in the number of hydrogen powered vehicles, including expanding hydrogen vehicles to 65,000 units by 2022 (cumulative). 
• The Korean government wants to encourage the growth of hydrogen powered economy and position the country as one of the global leaders in this segment. The Korean government plans to spend about 3.5 trillion won to support the Korean auto industry. The Korean government’s new plan is to expand the hydrogen vehicles to 65,000 units by 2022, which is a big increase from the previous plan of expanding the hydrogen vehicles to 15,000 units by 2022.
• The Hyundai Motor Group also recently announced a grand plan to expand its fuel cell vehicles with the announcement of its ‘FCEV Vision 2030.’ The Hyundai Motor Group plans to increase its annual production capacity for fuel cell systems to 0.7 million units by 2030, with plans to invest about $7 billion in the next 10 years to develop hydrogen fuel cell systems. 

3. Belluna: Growing by Selling Gentility to the Expanding Older Market in Japan

While Nissen and Senshukai (8165 JP) have hit new lows in the past five years, Belluna (9997 JP) has gone from strength to strength by sticking with printed catalogues and tying these to e-commerce and retail store expansion.

The company’s strategy is also helped by the core customer demographic being women over the age of 50, one of the few population segments that is still growing.

As a result, group sales have risen by 28.8% in five years and operating profit has almost doubled from ¥7.8 billion to ¥13 billion.

The acquisition of Sagami, a kimono retailer that suffered from lack of attention under Uny’s management, could also result in a boost to profits in the next year.

4. SoftBank Group (9984 JP): SoftBank Corp IPO Has Failed to Meaningfully Narrow the Holdco Discount

Softbank Group (9984 JP)’s market cap has consistently traded below its NAV. A popular expectation was that the Softbank Corp (9434 JP) IPO should be a catalyst to narrow the conglomerate discount (holdco discount). On its trading debut today, SoftBank Corp’s shares fell 14.5% from its IPO price of JPY1,500 to JPY1,282 per share – the worst first-day decline ever for a major IPO in Japan since the Japan Display (6740 JP) IPO in 2014.