Why Did Mitsubishi UFJ Fall On High 9-Month Earnings?

Mitsubishi UFJ Financial Group Inc. MTU reported profits attributable to owners of parent for the nine-month period (ended Dec 31) of fiscal year ended Mar 31, 2018, of ¥863.4 billion ($7.7 billion), up 9.7% year over year.

For the period under review, increased gross profits and low credit costs drove the results, while elevated general & administrative expenses and decline in net interest income acted as headwinds. Therefore, investors were disappointed on escalating expenses, leading the stock to decline 3.07% on the NYSE following the release.

Gross Profits Up, General & Administrative Expenses Escalate

Gross profits for the period being reported were ¥2.93 trillion ($0.03 trillion), slightly up year over year. The upswing was mainly due to increased net interest income from overseas loans and deposits, and fee associated with corporate and investment banking business, along with the depreciation of Japanese Yen against other currencies, mostly offset by decreased net interest income from domestic loans and deposits, along with bond portfolio and reduced net gains on debt securities.

The period under review reflected a decline of around 2.7% in net interest income, which came in at ¥1.43 trillion ($0.01 trillion). Net trading profits came in at ¥433.5 billion ($3.9 billion), down 3.6% year over year. However, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥1.06 trillion ($0.01 trillion), up 5% year over year.

Mitsubishi UFJ's total credit costs, at quarter end, came in at ¥34.1 billion ($0.18 billion), plunging 33% year over year. The credit costs declined on a consolidated basis, while reported net reversal on a non-consolidated basis.

Net gains on equity securities jumped 40.4% year over year to ¥134.9 billion ($1.2 billion). Gains increased primarily owing to increase in sale of equity holdings.

Other non-recurring losses came in at ¥54.1 billion ($0.48 billion) compared with ¥64.8 billion incurred in the prior-year period. G&A expenses flared up 5.3% year over year to ¥1.97 trillion ($0.02 trillion), mainly on the account of depreciation of the Japanese yen against other currencies, along with elevated expenses in overseas.

Strong Capital Position

As of Dec 31, 2017, Mitsubishi UFJ reported total loans of ¥110.2 trillion ($0.98 trillion), up from ¥109.2 trillion ($0.98 trillion) as of Mar 31, 2017. The increase was chiefly attributed to rise in overseas loans, along with depreciation of the Japanese yen against other currencies.

In addition, deposits climbed to ¥174.8 trillion ($1.55 trillion) from ¥170.7 trillion ($1.53 trillion) as of Mar 31, 2017, as demand for individual and overseas deposits increased.

Total assets summed ¥312.5 trillion ($2.78 trillion), up from ¥303.3 trillion ($2.73 trillion) as of Mar 31, 2017. Net unrealized gains on securities available for sale increased to ¥4.1 trillion ($0.04 trillion) from ¥3.2 trillion ($0.029 trillion) as of Mar 31, 2017. The rise stemmed from increases in domestic equities.

Moreover, total net assets were ¥17.6 trillion ($0.16 trillion), up from ¥16.6 trillion ($0.15 trillion) as of Mar 31, 2017. Non-performing loan ratio contracted 15 basis points from March 2017 to 0.95%, on account of reduction in non-performing loans and increased total exposures.

Outlook

Mitsubishi UFJ Financial announced its target of ¥950 billion of consolidated net income for the fiscal year ending Mar 31, 2018. Total credit costs are estimated at ¥160 billion.

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. Further, increase in gross profits and low credit costs remain tailwinds.

Note: Exchange Rate: 0.008954

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