Key charts from Asia today

Asia remains an attractive insurance growth market.  Numbers from AIA on Friday showed continued strong growth sourced from their pan-regional exposure as shown in this chart from their corporate presentation:

 

 

The company also continued to generate cash as shown by the current status of its surplus capital, again in a chart taken from their corporate presentation.  The dividend yield of around 1% if well-covered:

 

 

 

This is a thematic growth company due to continued Asian insurance demand and, now that AIG have exited the shareholder base, it has clean ownership.  Currently the company stands at a forward multiple of just over x18 p/e i.e. a peg ratio (at the just declared historic growth rate) of around x1.  Not cheap but high quality.  To buy the company or not becomes more influenced by tactical technical factors.  We have to watch that the share today (HK$36) does not break the all-time high around HK$37.  Outside this, HK$33s and HK$30s are the two buy levels.  I would double-up on the latter. 

 

Staying with financials, we move to Japan and Nomura who had corporate numbers out today.  Results showed good progression, across all three of their divisions, as this chart from their presentation shows:

 

 

Japanese retail remains the key to their business though and additionally they maintain their number one ranking in Japanese equities, bond and capital market activity.  Internationally though progress remains a bit more mixed -

 

 

Return on equity improved year-on-year to 11.3% but with a current book value of Y640 per share this makes a static fair value in the mid Y700s which is where the share currently trades.  Nomura then is a clear buy if you anticipate better Japanese market conditions.  The fact that YTD the share has moved between Y500 and Y1000 shows the volatility of this perception.  With the Nikkei weak in recent sessions as the over-exuberance of earlier in the year continues to unwind, Nomura - down over 5% today - is one to watch closely.  I think we are building into a trading opportunity.

 

Finally in Japan we also had numbers out from Komatsu, the Japanese equivalent of Caterpillar.  Unsurprisingly they talked about similar issues to CAT and were especially negative about trading and sales opportunities in China and Indonesia.  These countries impacted the year-on-year numbers:

 

 

For the current year (their year ends 31st March 2014) Komatsu are hoping for an improvement in operating profit to Y300bn.  I am not entirely sure where this is coming from given the earlier comments about China and Indonesia but clearly just by looking at their big markets, they would be hopeful of progression in Japan and the US plus continued cost reduction and pricing initiatives. 

 

Even using the above operating income number as the prospective one the share currently trades on x9.1 March 2014 EV/ebit.  To help factor in numbers risk I would want to see a valuation of x8 on this measure.  That's Y1900 (current share price Y2165).  Given Y585bn debt and no free cash flow (post dividend) generated during the last year I think this is the correct watch level.