Kiyo Bank (TSE:8370) Pushes Beyond Lending On A Valuation That Looks About Right

Kiyo Bank (TSE:8370) shares are in focus after the board approved the creation of Kiyo Mirai Investment Co., Ltd., a wholly owned investment advisory subsidiary, signaling a push beyond traditional lending.

See our latest analysis for Kiyo Bank.

That push beyond traditional banking comes after a strong run in Kiyo Bank’s stock, with a year to date share price return of 42.99% and a 1 year total shareholder return of 76.86%. However, the 7 day share price return declined 5.16%, suggesting some short term momentum is cooling against a still powerful multi year total shareholder return of 276.45% over five years.

If this kind of business shift has your attention, it can be a good moment to see what else is changing in the market and check out 9 top founder-led companies

After a sharp multi year run and a recent move into investment advice, Kiyo Bank now looks less obviously cheap. Does the current valuation still leave enough upside to justify the risk for new buyers?

Price to Earnings of 13.8x: Is it justified for Kiyo Bank?

On simple numbers, Kiyo Bank trades on a P/E of 13.8x, which screens slightly below both the wider JP market at 14x and the JP Banks industry at 15x.

The P/E ratio compares the current share price to earnings per share. For a bank such as Kiyo Bank, it is a quick way to see how the market is valuing current profits in relation to peers. A lower P/E than the market and sector suggests investors are not paying a premium for those earnings.

Here, the picture is mixed. Earnings have grown 7.6% per year over the past 5 years and 23.8% over the past year, with current net profit margins at 23.5% compared with 20.4% last year. That points to improving profitability, yet the share price still sits only modestly below market and sector P/E levels. The stock is also trading above the SWS DCF estimate of future cash flow value of ¥4,330.15, while the last close sits at ¥4,690. This suggests the market is willing to pay a bit more than that cash flow based estimate.

Compared with other Japanese banks, Kiyo Bank looks slightly cheaper on earnings at 13.8x versus the 15x industry average, yet its 1 year return fell short of the JP Banks industry which returned 72.5%. That mix of improving earnings and some underperformance against sector returns may explain why the P/E does not fully match the higher industry level.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 13.8x (ABOUT RIGHT)

However, investors still face risks if Kiyo Bank’s move into investment advice leads to higher costs without matching fee income, or if recent share price gains reverse.

Find out about the key risks to this Kiyo Bank narrative.

Another view on Kiyo Bank’s value

The P/E of 13.8x paints Kiyo Bank as slightly cheaper than peers, but the SWS DCF model tells a different story. On that cash flow view, the estimated fair value sits at ¥4,330.15 while the share price is ¥4,690. That points to a stock trading above this model’s estimate. Which lens do you trust more for the next decision?

For investors who want to see how that cash flow based view is built and stress tested, Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Kiyo Bank for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 18 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If Kiyo Bank’s mixed signals have you undecided, it can help to move quickly, review the data for yourself, and weigh both sides. To see the balance of risks and rewards that investors are focused on, check out the 3 key rewards and 1 important warning sign

Looking for more investment ideas beyond Kiyo Bank?

Once you have an opinion on Kiyo Bank, do not stop there. Fresh ideas from different corners of the market can sharpen your next decision.

• Spot potential value opportunities early by reviewing companies highlighted in the 18 high quality undervalued stocks.
• Strengthen your focus on financial resilience by scanning the solid balance sheet and fundamentals stocks screener (37 results).
• Hunt for under-the-radar potential by checking the screener containing 62 high quality undiscovered gems.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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