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Analyst Blog

On May 30, 2013, we upgraded our long-term recommendation on Mitsubishi UFJ Financial Group, Inc. to Outperform from Neutral based on the rise in gross profits and a strong capital position as of the fiscal year ended Mar 31, 2013. Mitsubishi UFJ, a well established foreign bank, was upgraded to a Zacks Rank #1 (Strong Buy) shortly after reporting impressive results for the fiscal year ended Mar 31, 2013.

Why the Upgrade?

Gross profits for the year ended were ¥3,634.2 billion ($44.0 billion), up 3.8% year over year. Gross profits improved mainly due to net fees and commissions, rise in income from sales and trading, as well as net gains on debt securities.

Mitsubishi UFJ reported total credit costs of ¥115.6 billion ($1.4 billion), which decreased 40% year over year and includes gains on loans written-off. The decline was mainly due to a dip in losses on loan write-offs and provision for specific allowance for credit losses.

As of Mar 31, 2013, Mitsubishi UFJ reported total loans of ¥91.3 trillion ($0.97 trillion), up from ¥84.5 trillion ($1.0 trillion) as of Mar 31, 2012. The increases were primarily due to higher demand in domestic corporate loans and overseas loans. Moreover, deposits climbed to ¥131.7 trillion ($1.4 trillion), rising 5.5% year over year.

Following fiscal-2013 results, the Zacks Consensus Estimate for fiscal 2014 and fiscal 2015 remained stable at 47 cents and 52 cents per share, respectively over the last 7 days. Mitsubishi UFJ Financial is targeting ¥760 billion ($8.1 billion) of consolidated net income for the fiscal year ending Mar 31, 2014.

Apart from strong fiscal-2013 results, Mitsubishi UFJ’s growth story looks compelling. Over the last several years, the company has been striving hard to expand inorganically. Its primary intention is to increase revenues to partly offset the persistent lower loan demand in Japan. Mitsubishi UFJ continues to pursue global growth opportunities and expand Union Bank’s business through the acquisition of community banks.

Other Major Foreign Banks to Consider

Other foreign banks that are currently performing well include Credit Suisse Group AG , UBS AG (UBS) and Deutsche Bank AG . All these companies carry a Zacks Rank #2 (Buy).

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