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Mitsubishi UFJ (MUFG) Earnings Improve Y/Y in Fiscal 2020

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Mitsubishi UFJ Financial (MUFG - Free Report) reported profits attributable to owners of parent for fiscal 2020 (ended Mar 31) of ¥777 billion ($7.3 billion), up 47.2% year over year.

In the reported period, lower general & administrative (G&A) expenses and higher deposits balance were tailwinds. Increased gross profits, higher net trading profits and a strong capital drove the upside. However, rise in credit costs and decline in loans balance acted as headwinds.

Gross Profits Up, G&A Expenses Fall

Gross profits in the period uner review were ¥4 trillion ($0.04 trillion), up marginally year over year. The upsurge was mainly due to the establishment of sales activities and consolidation of overseas subsidiaries.

The results reflect marginal increase in net interest income, which came in at ¥1.91 trillion ($18 billion). Net trading profits were ¥350.1 billion ($3.3 billion), surging significantly year over year. Also, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥1.48 trillion ($14 billion), up marginally.

Mitsubishi UFJ’s total credit costs, at the period end, were ¥515.5 billion ($4.9 billion) compared with ¥222.9 billion witnessed a year ago. This was on account of rise in credit risk globally due to the pandemic and adoption of new accounting methodology in overseas subsidiaries.

Net gains on equity securities increased substantially year over year to ¥130.2 billion ($1.23 billion). Other non-recurring losses totaled ¥131.3 billion ($1.24 billion) compared with losses of ¥34.2 billion ($0.32 billion) recorded in the prior-year period.

G&A expenses declined 1.9% year over year to ¥2.75 trillion ($0.03 trillion). The fall was primarily due to a decline in domestic and overseas expenses.

Expense ratio was 68.7%, down from 70.2% in the prior-year period. A decrease in ratio indicates an increase in profitability.

Strong Capital Position

As of Mar 31, 2021, Mitsubishi UFJ reported total loans of ¥107.6 trillion ($972 billion), down from ¥109.5 trillion ($1.02 trillion) as of Mar 31, 2020. This decline can be chiefly attributed to fall in overseas loans.

Deposits escalated to ¥211.5 trillion ($1.91 trillion) from ¥187.6 trillion ($1.74 trillion) as of Mar 31, 2020, as demand for domestic individuals, corporate and overseas deposits increased.

Total assets summed ¥359.5 trillion ($3.25 trillion), up from ¥336.6 trillion ($3.13 trillion) as of Mar 31, 2020. Net unrealized gains on securities available for sale increased to ¥3.75 trillion ($0.03 trillion) from ¥2.9 trillion ($0.03 trillion) as of Mar 31, 2020.

Moreover, total net assets were ¥17.7 trillion ($0.16 trillion), up from ¥16.9 trillion ($0.16 trillion) as of Mar 31, 2020. Non-performing loan ratio expanded 20 basis points from March 2020 to 0.85%, on rise in non-performing loans.

Outlook

Mitsubishi UFJ Financial expects ¥850 billion of consolidated profits attributable to owners of parent for fiscal 2021 (ending Mar 31, 2022).

Our Viewpoint

Though we are wary about heightening competition, high credit costs, volatility in Japan’s economy and escalating expenses, Mitsubishi UFJ’s robust business model and diversified product mix look encouraging. Furthermore, increase in profits is a tailwind.

 

 

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

Itau Unibanco Holding S.A. (ITUB - Free Report) delivered recurring earnings of R$6.4 billion ($1.17 billion) in first-quarter 2021, significantly up year over year. Including non-recurring items, net income came in at R$5.4 billion ($0.98 billion), up 59.2% year on year.

UBS Group AG (UBS - Free Report) reported first-quarter 2021 net profit attributable to shareholders of $1.82 billion, up 14% from $1.60 million in the prior-year quarter.

Deutsche Bank’s (DB - Free Report) first-quarter 2021 net income of €1.04 billion ($1.25 billion) rose substantially from the year-ago quarter’s €66 million. Also, the German lender reported profit before taxes of €1.59 billion ($1.91 billion) compared with $206 million in the year-ago quarter.

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