Japanese stock report - Daiwa Securities Group

JAP

Daiwa Securities in 3rd consecutive fall, nears a 13-month low August 18, 2017 15:00 JST

NEWS BITES - JAPAN

Daiwa Securities Group Inc. (TO:8601), the 2nd largest Securities & commodity futures company by market cap in Japan, slipped further on Friday, sliding an additional JPY7.50 (1.2%) to trade at JPY609.40. The stock decreased 0.7% on Wednesday and 0.7% on Thursday. This brought its 3-day fall to 2.5%, compared with the Nikkei 225 Index which fell 282.9 points (1.4%) in the three days for a relative price change of -1.1%. Cumulative volume in the 3 days was 0.9 times the average 3-day volume of 8.7 million shares. The stock is now approaching its 281-day low of JPY605.50.

SECTION 1

DAIWA SECURITIES BEARISH SIGNALS

1.1 Fundamentals:

+ Total Liabilities/EBITDA of 70.8 which compares unfavourably with the Joseph Piotroski benchmark of 5.

+ Revenue growth and EBITDA growth have shown signs of deterioration in recent years. [Year ended, all figures in %]

YearRevenue GrowthEBITDA Growth
Mar 17-5.7-7.8
Mar 1645.918,463.6

1.2 Overvaluation [compared with sector average]:

+ Return on Capital Employed 6.2% [7.2%].

1.3 Technicals:

+ The Moving Average Convergence Divergence (MACD) indicator of 12-day Exponential Moving Average (EMA) of 627.31 minus the 26-day EMA of 639.51 is negative 12.21 suggesting a bearish signal. Both EMA prices are falling, another bearish signal.

1.4 Low Performance Indicators:

DescriptionValueRank In Market
Price to Sales1.7In Bottom Quartile
Price/MAP500.91In Bottom Quartile
Price/MAP2000.88In Bottom 7%
Return on Assets [ROA] %0.5In Bottom 5%
Total Debt to Equity7.6In Bottom 1%

SECTION 2

DAIWA SECURITIES BULLISH SIGNALS

2.1 Fundamentals:

+ The relative yield of the stock, defined by its yield of 4.3%, divided by average yield of dividend yielding stocks in the Nikkei 225 Index of 2.1% is 203.3%. This suggests the stock is undervalued in dividend yield terms.

+ Net profit margin has averaged 23.4% in the last 3 years. This is considered superior and suggests a high margin of safety.

+ As per the Du Pont analysis, Return on Equity of 8.3% is better than sector average of 6.0%. This is computed as net profit margin of 16.9% times asset turnover [sales/assets] of 0.03 times leverage factor [total assets/shareholders' equity] of 15.7.

2.2 Undervaluation [compared with sector average]:

+ Price to Book of 0.9 [1.1]. We estimate Daiwa Securities stock is trading at a current year Price to Book of 0.9 and a forward year Price to Book of 0.9.

+ Return on Equity 8.3% [6.0%].

+ Price to EBITDA of 4 [5.2].

2.3 Technicals:

+ The present value of JPY1,000 (PV1000) invested twenty years ago in Daiwa Securities is JPY1,177, including a capital loss of JPY3 and dividend reinvested of JPY181.

+ 20 years Multiplier in JPY = 1.177x

+ Compound Annual Growth Rate (CAGR) in JPY = 0.8%

Present Value of USD1,000 invested 20 years ago:

+ The present value of USD1,000 (PV1000) invested twenty years ago in Daiwa Securities is $US1,266, including a capital gain of $US72 and dividend reinvested of $US194.

+ 20 years ago USD 1 equalled JPY 117.6471

+ 20 years Multiplier in USD = 1.266x

+ Compound Annual Growth Rate (CAGR) in USD = 1.2%

Aug 18, 2017: USD 1 equals JPY 109.42

2.4 Oversold/Bullish/Support Signals:

+ The Relative Strength Index (RSI) of 12.3 has breached the oversold line of 30, suggesting the price decrease of 4.2% in the last 14 days is unusually high.

+ The stock is oversold according to the Williams % R indicator of -89.5, suggesting the price is close to its 14-day low of JPY605.50.

+ The Stochastic indicator of 6.7 has pierced the oversold line of 20; this indicates the price is close to its 14-day low and is likely to revert to an uptrend.

2.5 High Performance Indicators:

DescriptionValueRank In Market
Today's TurnoverJPY5.2 billion (US$47.6 million)In Top 3%
EBITDA Margin %42.4In Top 4%
Volatility %0.8In Top Quartile

SECTION 3

PRICE VOLUME DYNAMICS

3.1 Technicals:

+ Volume: there were 8,550,000 shares worth JPY5.2 billion (US$47.6 million) traded today. The volume of 8.7 million shares was close to average trading.

+ Daiwa Securities is at a discount of 22.4% to its 12-month high of JPY785.0 on December 12, 2016. It is also at a premium of 9.4% to the 12-month low of JPY556.80 on November 09, 2016.

+ The present value of JPY1,000 (PV1000) invested one year ago in Daiwa Securities is JPY1,094, comprising a capital gain of JPY54 and dividend reinvested of JPY40.

PV10001-week1-month1-year
8601.TO9221,094
Nikkei 225 Index9879701,181

3.2 Moving Annual Return

8601Close (JPY)Dividends (JPY)Capital Gain / (Loss) %% YieldAnnual Return %
August 18609.4265.44.59.9
1 Yr ago57817(36.6)1.9(34.7)
2 Yrs ago911.63010.83.614.5
3 Yrs ago822.4345.74.410.1
4 Yrs ago778.0815169.25.2174.3

3.3 Beta:

+ Beta: the Beta of Daiwa Securities stock is 1.5. A Beta greater than 1 suggests this is a high risk, high return stock with volatility greater than that of the market.

3.4 Turnover Rate & Turnover Period:

+ The turnover rate in the 12 months to date was 127.9% (or a turnover period of 9 months). This average length of ownership of the stock at 0.7 times the average holding period of 1 year 51 days for stocks in the Nikkei 225 Index suggests a slightly larger number of speculators on the share register, making it less safe for long-term investors.

SECTION 4

RANKING

4.1 Global Rank [out of 47,593 stocks] and Rank in the Asia Region [out of 22,146 stocks]

DescriptionValueGlobal RankIn Asia Region
MCap (US$)9.5B1,464448
Total Assets (US$)181.2B34474
Revenue (US$)5.6B2,044685
Net Profit (US$)951.1M1,021270
Return on Equity %8.315,3978,181
Net Profit Margin %16.96,7512,933
Price to Book0.99,5375,306
Yield %4.25,6592,099
PV$1000 (1Year) US$*1,00323,20911,204
US$* Change (1Year) %-3.324,52911,891

* 1 year ago USD 1 = JPY 100.28

Aug 18, 2017: USD 1 equals JPY 109.42

4.2 Independent Ratings

Daiwa Securities Group Inc. was ranked 132 in the Brand Finance list of the world's 500 Valuable Banking brands by brand value in 2015; a deterioration over a year from rank 131 in 2014. Brand Finance valued the brand at US$1,309 million.

It is the 1285th largest by revenue in the Forbes Global 2000.

It is placed 2936/3415 in BSS News Bites' ranking of Japan performers in the past year, a percentile ranking of 14.

SECTION 5

DAIWA SECURITIES FINANCIALS

5.1 Financials Summary

Year endedMar 2017Mar 2016Mar 2015
Sales (USD B)5.65.96.1
Pretax (USD B)1.31.51.7
Net (USD)946.2M1.1B1.4B
EPS (JPY)-67.663786.7246

5.2 Trailing 12 Months Dividends

Trailing 12 Months ToValue (JPY)
18 Aug 201726
18 Aug 201617
18 Aug 201530
18 Aug 201434
18 Aug 201315

SECTION 6

DAIWA SECURITIES PROFILE

6.1 Activities

Daiwa Securities Group Inc. is a Japan-based security company engaged in the securities, investment, financing and service businesses. The Company, comprised of 46 consolidated subsidiaries and six associated companies, is engaged in the trading and brokerage of securities and derivatives, as well as the the underwriting, sale, offering and private offering of securities. It is also involved in the investment trust, information service, real estate leasing, venture capital, financing and clerical service businesses. The Company has operations in both domestic and overseas financial markets, including Japan, North America, Europe, Asia and Oceania. Daiwa Securities Group has a global network.

6.2 Issued Capital

Based on 1,700,000,000 issued shares the market capitalisation is JPY1,036 billion (US$9.5 billion).

SECTION 7

STOCK BUZZ

Corporate Wire

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August 09: Daiwa Securities: Report Regarding Consolidated Liquidity Coverage Ratio Situation of Soundness in Liquidity Management as of First Quarter in Fiscal Year 2017

In accordance with the Financial Instruments and the Exchange Act Article 57-17, "Notification, etc. of Documents Describing Status of Soundness in Management", Daiwa Securities Group Inc. reports situation ofsoundnessin liquiditymanagement as of first quarter in fiscal year 2017.

July 27: Daiwa Securities: Summary of Financial Results for the first quarter 2018

Consolidated financial results (April 1, 2017 to June 30, 2017)

July 27: Daiwa Securities: 1Q FY2017 Earnings Announcement

July 27: Daiwa Securities: Report Regarding Consolidated Capital Adequacy Ratio And Consolidated Leverage Ratio Situation of Soundness in Management as of March 31, 2017

In accordance with the Financial Instruments and the Exchange Act Article 57-17, "Notification, etc. of Documents Describing Status of Soundness in Management", Daiwa Securities Group Inc. reports situation ofsoundnessin management as of March 31, 2017

June 28: Daiwa Securities: Position and policies concerning the reduction of the minimum investment unit

1. Position concerning reduction of the number of shares in an investment unit

Contact: 81 35 55 51 11 1

Physical Address: 1-9-1 Marunouchi Chiyoda-ku Tokyo, 100-6751 Japan

State/Province/Country: TKY, Japan

Country of Incorporation: Japan

Exchange: Tokyo Stock Exchange

ISIN: JP3502200003

TO:8601; TYO:8601; T:8601; JP:8601; 8601.T

Daiwa Securities Group Inc

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