We have upgraded our recommendation on
Mitsubishi UFJ Financial Group, Inc.
(
MTU
) to 'Outperform' from 'Neutral'. The upgrade is based on the
company's impressive earnings results for the fiscal year ended
March 31, 2012. Moreover, Mitsubishi UFJ's strategic alliance
with
Morgan Stanley
(
MS
) gives it scope for expansion in new geographies and businesses.
Mitsubishi UFJ provides a broad range of domestic and international
financial operations to individual and corporate customers.
Moreover, the company is successful in expanding amidst the
unsettled global economy.
Mitsubishi UFJ's net income for the fiscal year ended March 31,
2012 was ¥981.3 billion ($12.5 billion) versus ¥583.1 billion ($6.8
billion) in the year-ago period. Net income per share came in at
¥67.94 (86 cents) as against ¥39.89 (47 cents) in the prior-year
period.
Results reflected a fall in G&A expenses and a significant
decline in consolidated credit costs. Moreover, loans and deposits
growth were the positives for the period. Yet, the dip in gross
profits and net interest income were the offsets. Mitsubishi UFJ is
targeting ¥670 billion ($8.3 billion) of consolidated net income
for the fiscal year ending March 31, 2013.
The company is performing dynamically through a network of branches
and subsidiaries in the emerging markets, particularly in countries
like Asia, Latin America, Central and Eastern Europe and the Middle
East. Therefore, we believe that the advancement of emerging
economies will help Mitsubishi UFJ expand further.
On the flip side, though there are some signs of recovery, the
global economy remains vulnerable to political and economic
changes. The Japanese economy marked negative growth toward the end
of 2011, as overseas economies deteriorated and the JPY
appreciated. The stock market also struggled due to a number of
negative factors but started stabilizing towards the end of the
fiscal year 2012, as the JPY pressure eased.
In such an economic scenario, Mitsubishi UFJ's consolidated gross
profits for the fiscal year ended March 31, 2012 decreased by ¥20.4
billion ($0.3 billion). Therefore, weak volume of financial
transactions may lead to lower revenue generation in the coming
quarters.
Going forward, we expect Mitsubishi UFJ's strong business model,
diversified product mix and lower credit costs to support its
bottom line. However, we are concerned about increasing competition
and volatility of the Japanese economy.
Mitsubishi UFJ currently retains a Zacks #2 Rank, which translates
into a short-term 'Buy' rating.
MORGAN STANLEY (MS): Free Stock Analysis Report
MITSUBISHI-UFJ (MTU): Free Stock Analysis
Report
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