Mitsubishi UFJ (MUFG) Reports Impressive Earnings in Q1

Mitsubishi UFJ Financial Group Inc. MUFG reported profits attributable to owners of parent for first-quarter fiscal 2019 (ended Jun 30), of ¥391 billion ($3.5 billion), up 24.1% year over year.

For the reported period, increased gross profits, higher net trading profits, low credit costs and strong capital drove the upside, while elevated general & administrative expenses, acted as a headwind. Further, lower net interest income, along with reduced net fees and commissions, were negatives.

Gross Profits Up, General & Administrative Expenses Escalate

Gross profits for the quarter being reported were ¥958.4 billion ($8.6 billion), up 1.6% year over year. The upsurge was mainly owing to higher net gains on debt securities, partly offset by lower net interest income due to fall in interest rates.

The fiscal first quarter reflected decline of around 7.5% in net interest income, which came in at ¥444.3 billion ($4 billion). Further, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥335.2 billion ($3 billion), down 2.4% year over year. However, net trading profits came in at ¥178.8 billion ($1.6 billion), surging 50.3% year over year.

Mitsubishi UFJ’s total credit costs, at the quarter end, came in at a positive ¥34.1 billion ($0.3 billion), up 39.2% year over year, owing to a rise in the reversal of allowance.

Net gains on equity securities declined significantly year over year to ¥23.9 billion ($0.22 billion). Gains decreased primarily due to fall in sale of equity holdings.

Other non-recurring gains came in at ¥27.8 billion ($0.25 billion) as against losses of ¥38 billion incurred in the prior-year period.

G&A expenses flared up 2.1% year over year to ¥670 billion ($6 billion). Rise in expenses for overseas operations due to the expansion of overseas business and elevated expenses for global financial regulatory compliance purposes led to this upswing.

Strong Capital Position

As of Jun 30, 2019, Mitsubishi UFJ reported total loans of ¥108 trillion ($1 trillion), up from ¥107.8 trillion ($0.97 trillion) as of Mar 31, 2019. This uptick can be chiefly attributed to rise in overseas loans.

Deposits escalated to ¥181 trillion ($1.67 trillion) from ¥180.2 trillion ($1.62 trillion) as of Mar 31, 2019, as demand for domestic individuals and overseas deposits increased.

Total assets summed ¥312.8 trillion ($2.9 trillion), up from ¥311.2 trillion ($2.8 trillion) as of Mar 31, 2019. Net unrealized gains on securities available for sale increased to ¥3.4 trillion ($0.03 trillion) from ¥2.7 trillion ($0.02 trillion) as of Mar 31, 2019.

Moreover, total net assets were ¥17.7 trillion ($0.16 trillion), up from ¥17.3 trillion ($0.16 trillion) as of Mar 31, 2019. Non-performing loan ratio contracted 7 basis points from March 2019 to 0.54%, due to reduction in non-performing loans.

Outlook

Mitsubishi UFJ Financial announced its target of ¥900 billion of consolidated net income for the fiscal ending Mar 31, 2020.

Our Viewpoint

Though we are wary about the heightening competition and volatility in the Japanese economy, along with escalating expenses, Mitsubishi UFJ’s robust business model and diversified product mix look encouraging. Furthermore, increase in profits and low credit costs remain tailwinds.

Mitsubishi UFJ Financial Group, Inc. Price, Consensus and EPS Surprise

Mitsubishi UFJ Financial Group, Inc. Price, Consensus and EPS Surprise

Mitsubishi UFJ Financial Group, Inc. price-consensus-eps-surprise-chart | Mitsubishi UFJ Financial Group, Inc. Quote

Mitsubishi UFJ currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

ICICI Bank’s IBN first-quarter fiscal 2020 (ended Jun 30) net income was INR19.08 billion ($276 million) against net loss of INR1.2 billion ($17 million) in the prior-year quarter. Results were driven by rise in revenues and growth in loans and deposits. Further, credit costs declined. However, an increase in operating expenses was a headwind.

Marred by significant restructuring costs, Deutsche Bank DB reported second-quarter 2019 net loss of €3.15 billion ($3.54 billion) against net income of €401 million in the year-ago quarter. Also, the German lender incurred loss before taxes of €946 million ($1.06 billion). Second-quarter results were affected by rise in expenses. Lower revenues and higher provisions were other undermining factors. However, strong capital position and net inflows were tailwinds.

UBS Group AG UBS reported June-end quarter net profit attributable to shareholders of $1.39 billion, up nearly 1% from the prior-year quarter. Notably, the company’s performance reflects lower expenses. Additionally, results were supported by rise in net fee and commission income (up 1% year over year), partially mitigated by lower net interest income (down 15%).

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