Market normalization will create further upside for
some of the ‘other financials’ industry stocks:
Market normalization benefits two groups. The first
group includes the firms that can improve the near-term
profit outlook thanks to the increase capital market
activities. The other group includes those whose
near-term outlook does not improve drastically, but
where the decline in balance sheet risk concern is
leading a valuation multiple recovery.
Market ‘normalization’: What does this mean? We
interpret normalization in this report as a recovery in the
stock market and liquidity of retail investor financial
assets, a recovery in capital markets activity (fundraising,
etc.), and reversion of credit spreads to historical levels.
It will take time for the term structure of interest rates and
overall real estate market to get back to normal, but here
we consider the impact on earnings and share prices if
views regarding the market start to normalize or
sentiment bottoms out. We think “Normalization” is not
yet fully priced in, and the current market correction
does not change our view.
We continue to focus on Nomura (8604) and Orix
(8591): After the nice recovery from the bottom, we
think there is still room for further multiple expansion. In
Nomura’s case, we believe a near-term ROE recovery
that is better than expected or better than its peers’ will
be the driver. In Orix’s case, accelerated asset risk
reduction via asset reshuffling will lead to shrinkage of
the discount to book. We lower our rating on Aeon Credit
(8570) from OW to EW, as the stock does not appear to
discount balance sheet concerns.