Brief Japan: Japan Post Holdings and Japan Post Bank – Early Thoughts on a Choice of Two Trades and more

In this briefing:

1. Japan Post Holdings and Japan Post Bank – Early Thoughts on a Choice of Two Trades
2. Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL
3. Japan 5G Spectrum Allocations In-Line With Expectations
4. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success
5. NTT DoCoMo: Sale of HTHK Mobile Stake Is the End of an Era (Thankfully)

1. Japan Post Holdings and Japan Post Bank – Early Thoughts on a Choice of Two Trades

Post market close on 9th of April, as per media reports, the Japanese government said that it plans to sell another 1.06bn share of Japan Post Holdings (6178 JP) (JPH). The government aims to do so as soon as Sep 2019. The sale, at around US$12bn, would amount to 23.5% of the company and nearly 41% of the government’s current shareholding. It would mark the second sell down by the government since JPH listed in 2015. Post the news release, JPH shares closed down 3% on 10th of April. They are now trading below the IPO price, below the last placement price and just off their all-time lows.

The postal service privatization act seems to be in full swing, with JPH about to enter its third round of selling and Japan Post Insurance (7181 JP) (JPI) in the midst of its first post IPO sell down. However, Japan Post Bank (7182 JP) (JPB) has yet to see a sell down even though the recent deposit ceiling revision required JPH to reduce its holding in JPB. Were JPH to sell some of its JPB stake ahead of the government sale of JPH, it could mitigate a large part of its own placement using the cash that it generates from JPI and possible JPB stake sale to buyback some stock. Thus, there is a possibility that JPB placement might come before JPH’s next placement.

For people interested in reading more about the history and background, I’ve covered the IPO and JPH sell down in the below series of insights:

• All three IPOs: When the bank is cheap and holdco discount makes the mothership cheaper, then who needs insurance?
• JPH IPO: Final call to board the mothership. They don’t come much cheaper than this
• JPH Placement: Japan Post Holdings Placement – Similar Reasons, Similar Price Will Probably Yield Similar Returns
• JPI IPO: Three’s a crowd – A minnow amongst giants risks getting lost in the chatter
• JPI Placement: Japan Post Insurance Placement – 3x the IPO Size – Basics and Index Impact
• JPI Placement: Japan Post Insurance Placement – Performance of Other Big Deals Indicates a Need for Correction
• JPB IPO: Dividend yield looks enticing versus JGBs yield, while risks are similar

2. Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL

• Asset Quality recognition is something of a black art with varied definitions for non-performing loans (“NPLs”).
• Firstly, we analyse what a NPL is.
• We then evaluate provisioning changes across Asia. We rank countries.
• We further analyse specific underlying NPL recognition issues in China.
• We then rank a sample of regional banks and countries by NPL recognition.
• Later, we take a look at how different systems come under NPL stress and how they cope often in a crisis environment.
• Finally, we wrap things up with some concluding insights about the cultural backdrop which defines systemic asset quality.

3. Japan 5G Spectrum Allocations In-Line With Expectations

The Ministry of Industry Affairs and Communications (MIC, the regulator) announced 5G spectrum allocations today with KDDI and NTT DoCoMo securing three bands and Rakuten and Softbank two, in line with one of the two expected scenarios we discussed last month.  This dramatically expands the spectrum portfolio for the industry and sets the stage for the deployment of 5G services in later this year and in 2020. We think all operators benefit although sentiment may favor Rakuten for receiving two more bands and KDDI/DoCoMo for receiving the highest allocations. 

4. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success

China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities.  This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.

This second part of the series explains how China chose commodity semiconductors (DRAM and NAND flash memory chips) as the best technology to pursue.

5. NTT DoCoMo: Sale of HTHK Mobile Stake Is the End of an Era (Thankfully)

NTT Docomo Inc (9437 JP) recently announced it would sell its 25% stake in Hutchinson Telecom Hong Kong’s ( Hutchison Telecommunications Hk Hld (215 HK)  mobile unit for US$60mn with closing expected at the end of May. This ends a 20-year association with Hutchinson forged in the initial excitement over 3G in 1999 but it hasn’t been a good ride for DoCoMo which lost close to 90% on its Hutchison investments and its other international forays were not much better.  On a related note, the HK mobile sale follows soon after DoCoMo’s exit from its credit card joint venture with Sumitomo Mitsui but we would not read anything into this beyond a rationalization of its non-core investments.