Fukuoka Financial Group, Inc. (8354.T) fair value

ACCE thesis

Fukuoka Financial Group is a regional bank holding company whose core business is retail and corporate lending, deposit-taking and fee income from its home base in Kyushu, the southwestern Japanese island that includes Fukuoka City. The franchise is concentrated in one of Japan's faster-growing regional economies, which gives it a more favourable loan demand backdrop than many of its peers in the shrinking northeast and central prefectures. The main near-term driver is margin recovery as Japanese rates have moved off their long-running floor, which should widen net interest income on a deposit base that has been slow to reprice. The stock trades at 14.7 times trailing earnings and 16.9 times forward earnings, so the market is pricing in earnings growth in the second year rather than the first, which is worth testing against the 13.1% revenue growth in the data. The 8.7% return on equity is the weak point: it is adequate for a Japanese bank but leaves little room for error, so the question for a deeper look is whether rate-driven income can lift returns without a rise in credit costs.