In this briefing:
- Tochigi Bank (8550JP): Red Flags but No White Flags (Yet)
- LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies
1. Tochigi Bank (8550JP): Red Flags but No White Flags (Yet)
If one were looking for evidence of the inherent dangers of risk concentration in the banking industry, one need only look to tiny secondary regional bank Tochigi Bank (8550 JP), which reported its earnings for the nine months to end-December 2018 on 31 January 2019. Having made consolidated net profits of ¥1.57 billion in 1H FY3/2019, the bank plunged into the red in 3Q by ¥1.80 billion as a result of losses on disposing of fixed-rate US$-denominated securities. Rather surprisingly, foreign investors own just over 21% of outstanding shares. Tochigi Bank may not be the only small Japanese bank to run into trouble with its foreign securities portfolio in CY2019. Caveat emptor! (May the buyer beware)!
2. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies
LG Uplus (032640 KS) shares have fallen around 20% from the highs of January when the market was excited by 5G. That always seemed overly optimistic given the lack of viable business cases and unknown investment requirements and we were comfortable with our Sell rating from mid October and KRW15,000 target price. Following weak results, an easing of 5G enthusiasm and the recently announced CJ Hello (037560 KS) deal the share price has fallen to around the KRW15,000. Alastair Jones now thinks a lot of bad news is in the price and the available synergies from CJ Hello offset a weaker earnings outlook.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
