Japanese stock report - Daiwa Securities Group

JAP

Daiwa Securities decreases October 20, 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, has decreased JPY3.60 (0.5%) from its last trading session of October 19 to close at JPY667.20. Compared with the Nikkei 225 Index which rose 9.1 points (0.04%) in the day, the relative price change was -0.6%. The volume was 0.8 times the average daily trading volume of 9 million shares.

Highlights in today's Report:

SECTION 1 BEARISH SIGNALS

Fundamentals, Overvaluation [compared with sector average], Technicals, Low Performance Indicators

SECTION 2 BULLISH SIGNALS

Fundamentals, Undervaluation [compared with sector average], Technicals, High Performance Indicators

SECTION 3 PRICE VOLUME DYNAMICS

Technicals, Moving Annual Return, Beta, Turnover Rate & Turnover Period

SECTION 4 RANKING

Global, Independent Ratings

SECTION 5 FINANCIALS

Financials Summary, Trailing 12 Months Dividends

SECTION 6 PROFILE

Activities, Issued Capital

SECTION 7 STOCK BUZZ

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.

+ As per the Du Pont analysis, Return on Equity of 8.3% is lower than sector average of 8.3%. 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.

+ Net Profit margin is positive but falling in recent quarters. [Quarter ended, all figures in %]

QtrRevenue GrowthNet Profit GrowthNet Profit Margin
Jun 17--12.2
Mar 178.6-16.213.5
Dec 165.6-12.317.4
Sep 16-4.923.921

+ 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 Assets 0.5% [0.8%].

+ Return on Capital Employed 6.2% [7.3%].

1.3 Technicals:

Overbought/Bearish/Resistance Signals:

+ The Relative Strength Index (RSI) of 75.6 has penetrated the overbought line of 70, suggesting the price gain of 4.4% in the last 14 days is unusually high.

1.4 Low Performance Indicators:

DescriptionValueRank In Market
Total Debt to Equity7.6In Bottom 1%
Return on Assets [ROA] %0.5In Bottom 5%
Price/MAP2000.99In Bottom Quartile
Price to Sales1.8In Bottom Quartile

SECTION 2 DAIWA SECURITIES BULLISH SIGNALS

2.1 Fundamentals:

+ The P/E of 10.7 multiplied by the P/NTA of 1 is 10.3. Being less than the Benjamin Graham benchmark of 22.5 the stock appears undervalued.

+ The relative yield of the stock, defined by its yield of 3.9%, divided by average yield of dividend yielding stocks in the Nikkei 225 Index of 3.1% is 126.2%. 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.

2.2 Undervaluation [compared with sector average]:

+ Price/Earnings of 10.7 [11.9].

+ Price to Book of 1 [1.2]. We estimate Daiwa Securities stock is trading at a current year Price to Book of 1 and a forward year Price to Book of 1.

+ Dividend yield of 3.9% [2.8%].

+ Price to EBITDA of 4.3 [6.7].

2.3 Technicals:

+ The present value of JPY1,000 (PV1000) invested one year ago in Daiwa Securities is JPY1,191, comprising a capital gain of JPY148 and dividend reinvested of JPY43.

PV10001-week1-month1-year
8601.TO1,0151,0501,191
Nikkei 225 Index1,0141,0541,245

+ The present value of JPY1,000 (PV1000) invested twenty years ago in Daiwa Securities is JPY1,331, including a capital gain of JPY126 and dividend reinvested of JPY204.

+ 20 years Multiplier in JPY = 1.331x

+ Compound Annual Growth Rate (CAGR) in JPY = 1.4%

Present Value of USD1,000 invested 20 years ago:

+ The present value of USD1,000 (PV1000) invested twenty years ago in Daiwa Securities is $US1,425, including a capital gain of $US206 and dividend reinvested of $US219.

+ 20 years ago USD 1 equalled JPY 120.4819

+ 20 years Multiplier in USD = 1.425x

+ Compound Annual Growth Rate (CAGR) in USD = 1.8%

Oct 20, 2017: USD 1 equals JPY 112.55

2.4 High Performance Indicators:

DescriptionValueRank In Market
EBITDA Margin %42.4In Top 3%
Today's TurnoverJPY4.6 billion (US$41 million)In Top 3%

SECTION 3 PRICE VOLUME DYNAMICS

3.1 Technicals:

+ Volume: there were 6,910,000 shares worth JPY4.6 billion (US$41 million) traded today. In the past week, volume was 1.0 times average and the shares were up 1.5%.

+ Daiwa Securities is at a discount of 15.0% to its 12-month high of JPY785.0 on December 12, 2016. It is also at a premium of 19.8% to the 12-month low of JPY556.80 on November 09, 2016.

3.2 Moving Annual Return

Based on a dynamic start date of 5 years ago, the Moving Annual Return has been positive in 3 of the last 5 years. An investment a year ago in 8601 would have produced a return of 19.2%.

8601Close (JPY)Dividends (JPY)Capital Gain / (Loss) %% YieldAnnual Return %
Oct 20667.22614.84.519.2
1 Yr ago581.417(29.7)2.1(27.6)
2 Yrs ago826.93013.44.117.5
3 Yrs ago729.0617(15.3)2(13.3)
4 Yrs ago860.66291919.8200.8

Close 5 years ago JPY295.74

3.3 Beta:

+ Beta: the Beta of Daiwa Securities stock is 1.3. 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 119.6% (or a turnover period of 10 months). This average length of ownership of the stock at 0.8 times the average holding period of 1 year 40 days for stocks in the Nikkei 225 Index suggests a 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 47,820 stocks] and Rank in the Asia Region [out of 22,267 stocks]

DescriptionValueGlobal RankIn Asia Region
MCap (US$)10.1B1,476451
Total Assets (US$)176.2B35379
Revenue (US$)5.5B2,114716
Net Profit (US$)924.6M1,072285
Return on Equity %8.315,6168,328
Net Profit Margin %16.96,8583,021
Price to Book1.010,1485,565
Price/Earnings10.75,7482,966
Yield %3.96,2812,359
PV$1000 (1Year) US$*1,09819,7178,935
US$* Change (1Year) %7.720,3029,308

* 1 year ago USD 1 = JPY 103.27

Oct 20, 2017: USD 1 equals JPY 112.55

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 2460/3465 in BSS News Bites' ranking of Japan performers in the past year, a percentile ranking of 29.

SECTION 5 DAIWA SECURITIES FINANCIALS

5.1 Financials Summary

Year endedMar 2017Mar 2016Mar 2015
Sales (USD B)5.55.86
Pretax (USD B)1.21.51.6
Net (USD)925.6M1B1.4B
EPS (JPY)-67.663786.7246

Sales was down 8.4% from US$6 billion to US$5.5 billion and Net profit was down 32.6% from US$1.4 billion to US$925.6 million.

5.2 Trailing 12 Months Dividends

Trailing 12 Months ToValue (JPY)
20 Oct 201726
20 Oct 201617
20 Oct 201530
20 Oct 201417
20 Oct 201329

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 JPY1,134.2 billion (US$10.1 billion).

SECTION 7 STOCK BUZZ

Corporate Wire

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September 01: Daiwa Securities: Corporate Governance Report

The corporate governance of Daiwa Securities Group Inc. (the "Company") is described below.

I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

August 22: Notice Regarding the Issue of Daiwa Securities Group Inc.'s Unsecured Bonds

DSGI has priced its 30th and 31st Series of Unsecured Bonds--ranking pari passu solely with other series of debentures or bonds-- (the Bonds). The conditions of the Bonds have been set as below.

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: 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

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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