EUR 850.00 For Business Accounts Only

Morningstar | MUFG Posts in Line 1Q Result

Mitsubishi UFJ's first quarter was largely in line with expectations with net profit of JPY 315 billion higher against the same period last year and fourth quarter last year. Higher net interest income helped offset lower fee and commission income and trading income while the result also benefited from a reversal in written back loans. Credit costs declined to JPY 27.2 billion from JPY 55.9 billion last quarter and JPY 59 billion the same period last year. This is tracking in line with our forecast of JPY 133 billion for the full year but much better if write-backs are included. With the Bank of Japan maintaining its ultra-relaxed monetary policy and a low interest environment persisting, credit cost is expected to remain low domestically. We reiterate our view that any surprise in credit cost will likely come from its overseas loan portfolio though the absolute level of credit cost and nonperforming loans will remain moderate as global economic conditions is resilient.

First-quarter loan growth of 30 basis points, or annualized rate of 1.11%, underpinned net interest income growth and offset lower domestic loan spreads. The bank's loan spreads returned to a negative trajectory after steadying last quarter. With three-month Tibor flat during the quarter, the decline is likely due to a compression in margin as demand for loans remains sluggish. Peer Mizuho saw a one basis point decline in loan spread across both the corporate and SMEs segment. Our loan growth forecast of 1% for fiscal 2018 is maintained, along with our net profit forecast of JPY 894 billion. The latter remains ahead of management's guidance of JPY 850 billion, despite our more conservative credit cost assumption. Our fair value of JPY 880 is reaffirmed and factors in a slight increase in net interest margin over the next five years. The bank remains undervalued with any tightening in Bank of Japan's monetary policy a key catalyst for its share price, in our view.