Morningstar | Resona's Results in Line, but Recent Share Price Performance Has Been Irregular
Resona's net profit of JPY 175 billion for the period ended March 2019 was in line with our forecast of JPY 174 billion, and its JPY 160 billion guidance for March 2020 is above our previous forecast and consensus. The company left its dividend unchanged at JPY 21 per share after having increased it by JPY 1 in the just-ended year, but it announced a JPY 10 billion share buyback (1.0% of shares outstanding at the current price).Resona faces pressure to prevent its top line from shrinking as bank loan rates in Japan continue to fall around 6-7 basis points a year. It has little choice but to rely on cost synergies at the Kansai-area regional banks it recently consolidated just to maintain its current level of profit.
That said, we think the shares, which were already cheap at the start of the year at 7 times then-consensus forecasts and yielding 4%, now look unreasonably cheap after their 16% year-to-date decline (one of the five worst performers in the TOPIX 100 Index so far in 2019). Resona now trades below 0.5 times book for the first time ever and yields 4.7%, with a price/earnings ratio below 7. We think the main driver of the share price decline has been market concern that Resona could be forced by regulators to rescue regional bank Suruga, which was hit by a scandal related to employee and management misconduct. However, Resona has no particular connection to or responsibility for Suruga, and the idea of a rescue seems more aligned with the convenience of regulators than the interests of Resona shareholders. Resona CEO Kazuhiro Higashi strongly denied to the press that the group would put its capital at risk to support Suruga's turnaround.
We think Resona’s in-line results and decent guidance with a buyback present an opportunity to buy the shares at a unprecedented valuation. Our fair value estimate remains 0.65 times book and rises slightly as we roll forward our model, from JPY 585 per share to JPY 591, 32% above the most recent closing price.
Resona Holdings is a holding company engaged in the management and supervision of banking and other subsidiaries as well as other ancillary activities. As of Mar 31 2017, Co. has total assets of 48,456,133 million. The Resona Group is a financial group comprising three banks (Resona Bank, Ltd., Saitama Resona Bank, Ltd. and The Kinki Osaka Bank, Ltd.) controlled by Co. Co., through its subsidiaries and associated companies, is engaged in the provision of financial services, including banking, trust operation, credit card services, venture capital business, factoring service and investment trust entrusted business.
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