Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

J. Brian Waterhouse has been covering the Japanese financial sector as an analyst continuously since 1976, working for CLSA, Japaninvest, Rabobank, HSBC Securities, James Capel, Marine Midland Bank of New York and National & Grindlays Bank.  He has been ranked No.1 overall in Japanese banks research in Japan by Asiamoney for 6 of the past 9 years and was runner-up in 2015.  He was awarded the coveted Starmine prize as top Japanese bank stock picker in 2012 and 2014 and was runner-up in 2013.  He frequently appears on TV, radio and in international print media as a commentator on Japanese banking.

Senior Bank Analyst - Japanese Banks

Nanto Bank (8367 JP):  A None Too Cheerful Outlook

Windamee Research

Japanese Banks

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/nanto-bank-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:13217:1">Nanto Bank (8367 JP)</a>’s recent share price performance has been nothing short of remarkable, rising 38.5% in the last six months thanks, in part, to buying by foreign investors.  Gravity may be about to re-exert itself on the share price, however: FY3/2019 consolidated net profits were down over 15% YoY, results for 1H FY3/2020 were down 23% YoY and management has now slashed full-year guidance for consolidated net profits by 52% from ¥9.0 billion to ¥5.3 billion.  This not only suggests a 53% YoY decline but also implies that any 2H profits may be offset almost entirely by heavy write-downs and other expenses.  Management now has no hope of coming anywhere close to achieving the key operating targets contained in the bank’s 3-Year Business Plan that ends in FY3/2020.  Moreover, with its dividend guidance suggesting a pay-out ratio of as high as 50%, the year-end dividend may be at some risk.Nanto Bank is plagued by serious structural issues that may take years to resolve.  It is overstaffed, has too many branches relative to available business, and its operations are inefficient.  The bank has lost money on its core operations for 11 years straight.  Net loan growth has effectively ground to a halt, and credit costs are on the rise.  To cap it all, Nanto Bank has an unhealthy appetite for investments in ‘exotic’ foreign securities whose valuation is highly volatile and eyebrow-raising.  Caveat emptor!  (May the buyer beware!)

Nanto Bank (8367 JP)’s recent share price performance has been nothing short of remarkable, rising 38.5% in the last six months thanks, in part, to buying by foreign investors.  Gravity may be about to re-exert itself on the share price, however: FY3/2019 consolidated net profits were down over 15% YoY, results for 1H FY3/2020 were down 23% YoY and management has now slashed full-year guidance for consolidated net profits by 52% from ¥9.0 billion to ¥5.3 billion.  This not only suggests a 53% YoY decline but also implies that any 2H profits may be offset almost entirely by heavy write-downs and other expenses.  Management now has no hope of coming anywhere close to achieving the key operating targets contained in the bank’s 3-Year Business Plan that ends in FY3/2020.  Moreover, with its dividend guidance suggesting a pay-out ratio of as high as 50%, the year-end dividend may be at some risk.Nanto Bank is plagued by serious structural issues that may take years to resolve.  It is overstaffed, has too many branches relative to available business, and its operations are inefficient.  The bank has lost money on its core operations for 11 years straight.  Net loan growth has effectively ground to a halt, and credit costs are on the rise.  To cap it all, Nanto Bank has an unhealthy appetite for investments in ‘exotic’ foreign securities whose valuation is highly volatile and eyebrow-raising.  Caveat emptor!  (May the buyer beware!)

Nanto Bank  (8367 JP):  Gravity Defying