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Mitsubishi UFJ Initiated At Neutral - Analyst Blog

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We are initiating our coverage on Mitsubishi UFJ Financial Group Inc. ( MTU ) with a Neutral recommendation. The company provides broad range of domestic and international financial operations to individual and corporate customers. Mitsubishi UFJ is very active in emerging markets for expansion though the global economy remains susceptible to economic and political developments.

Mitsubishi UFJ's net income for the six months ended September 30, 2011 was ¥696.1 billion ($8.8 billion) versus ¥356.8 billion ($4.0 billion) in the year-ago period. Net income per share came in at ¥48.51 (61 cents) versus ¥24.53 (27 cents) in the prior-year period.

Results reflected a drop in general and administration expenses and significant decline in consolidated credit costs driven by a decrease in losses on loan write-off and a reversal of provision for credit losses. Mitsubishi UFJ has the target of ¥900 billion ($11.34 billion) of consolidated net income for the fiscal year ending March 31, 2012.

Mitsubishi UFJis increasingly dynamic, 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 the emerging economies will help Mitsubishi UFJ to expand.

The company continues to pursue global growth opportunities and expand Union Bank's business through acquisitions of community banks. Mitsubishi UFJ further plans to continue to selectively review and consider growth opportunities that will enhance global competitiveness. In December 2010, Mitsubishi UFJ entered into an agreement with The Royal Bank of Scotland Group plc ( RBS ) to acquire around £3.3 billion of project finance-related assets consisting of loans for natural resource, power and other infrastructure projects in Europe, the Middle-East and Africa. The transaction is expected to be completed by the end of calendar year 2011.

Moreover, the company entered into a strategic alliance with Morgan Stanley ( MS ) in October 2008 for a long-term cooperation with the investment firm. Mitsubishi UFJ currently plans to strengthen its strategic alliance, which is expected to broaden Mitsubishi UFJ's scope in new geographies and businesses.

On the flip side, though there are some signs of recovery, the global economy remains vulnerable to political and economic improvements. The United States and some European nations continue to experience lack of employment and large financial deficits and hence are struggling to stimulate their economies.

Moreover, the Japanese economy began to weaken in the later part of calendar year 2010 and the situation has not yet reversed. Moreover, the Great East Japan Earthquake, which occurred on March 11, 2011, significantly affected the Japanese economy. Therefore, it is quite difficult for Mitsubishi UFJ to offset the negative effects of the deteriorating economic conditions in Japan.

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 the increasing competition and the volatility of the Japanese economy.

Mitsubishi UFJ currently retains its Zacks #3 Rank, which translates into a short-term 'Hold' rating.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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