Japan's largest bank$Mitsubishi UFJ Financial Group (8306.JP)$The fourth quarter results for fiscal year 2023 and the full year results for fiscal year 2023 will be announced on May 15, Tokyo time.

*Note: The Mitsubishi UFJ financial year is out of sync with the natural year. It starts on April 1 of each year and ends on March 31 of the following year

Earlier, when Mitsubishi UFJ Finance announced its interim results, it expected net operating income for the full year of fiscal year 2023 to be 1.45 trillion yen, down 9.0% year on year; recurring revenue of 1.85 trillion yen, up 81.2% year on year; and net profit to mother of 1.3 trillion yen, up 16.4% year on year.

In the first three fiscal quarters, Mitsubishi UFJ Finance recorded cumulative operating profit of 1.52 trillion yen, recurring revenue of 1.80 trillion yen, and net profit to mother of 1.30 trillion yen. In terms of profit, the company's first three quarters surpassed the full year of the previous fiscal year, and net earnings reached a record high.

Furthermore, Mitsubishi UFJ Finance may provide additional shareholder returns for situations where the net market ratio is less than 1 times. If the company's profit growth rate continues at the same rate as in the third quarter and achieves the 40% dividend target in FY23, there is still room to increase dividends.

A total of 12 analysts recently rated Mitsubishi UFJ Finance. The average target share price is 1655.42 yen, which is 3.9% higher than the closing price on May 10.

How much profit can be increased at most?

Due to a change in the fiscal year end date of the equity law affiliate Morgan Stanley, Mitsubishi UFJ Finance added an additional three months of revenue for the 2023 fiscal year, so the company's cumulative net income for the first three fiscal quarters has already exceeded the highest profit in history. There is only 2.1 billion yen left until the annual target of 1.3 trillion yen, and further growth is expected. The annual target for ROE (return on equity) is 7.5%, which has reached approximately 6.9% as of the third fiscal quarter.

Continue to monitor the level of interest rates in Japan

During the third fiscal quarter of Mitsubishi UFJ Finance, interest rates in Japan showed an upward trend, and banks' net interest spreads increased. Compared with the company's second fiscal quarter, net interest spreads for SMEs fell 0.01 percentage points to 0.56%, while net interest spreads for large companies rose 0.04 percentage points to 0.64%. Although the interest rate level in the fourth fiscal quarter was lower than the third fiscal quarter, it is likely to remain close to the level of interest spreads in the third fiscal quarter.

Overseas operating companies have also made significant contributions to improving the performance of Mitsubishi UFJ Finance. By the end of December, subsidiaries Ayutthaya Bank of Thailand, Danamon Bank of Indonesia, and Morgan Stanley, an affiliate of Australia's Shouyuan Investment and Equity Law affiliate, had contributed more than 390 billion yen in the first three fiscal quarters.

Will shareholder returns be further enhanced?

Although Mitsubishi UFJ Finance's stock price has risen by more than 30% this year, President Hironori Kamezawa said it has not reached the “passing point” — the net market ratio is still less than 1 times.

The company is likely to use its strong cash flow to stimulate higher stock prices by increasing dividends and share repurchases.

According to the company's basic shareholder return policy, with regard to dividends, “Our basic policy is to increase dividends per share steadily and continuously through profit growth. The goal for fiscal year 2023 is to gradually increase the dividend payment rate to 40%.”

Assuming that net profit for the fourth fiscal quarter grew at the same rate as the previous fiscal quarter, Mitsubishi UFJ Finance's final profit for fiscal year 2023 was about 1.73 trillion yen, and earnings per share were about 144 yen. When the dividend payment ratio was calculated at only 40%, the dividend amount per share was about 57 yen.

The current dividend forecast is 20.5 yen each for the mid-term and year-end, for a total of 41 yen. If the dividend ratio is set at 40%, the dividend will increase by about 16 yen.

On the other hand, Mitsubishi UFJ Finance stated that it will flexibly implement a stock repurchase plan based on performance, capital conditions, investment opportunities, and market conditions. The company has continued to maintain share buybacks over the past 10 years.

However, according to market opinion, the company just completed a 400 billion yen share repurchase plan in March of this year. As a result, the probability of stock repurchases after this fiscal season is low.

The market focuses on the next fiscal year's performance forecast

Another focus of the market is Mitsubishi UFJ Finance's performance forecast for the 2024 fiscal year. As in the past, the company doesn't expect to disclose detailed data, but the key is whether it will raise its net profit target starting in FY2023.

Due to the change in Morgan Stanley's fiscal year end date, Mitsubishi UFJ Finance increased its revenue for an additional three months in fiscal year 2023. Although the company had some downside risks in FY2024, there were also some upside factors compared to FY2023.

One important upward factor is the level of interest rates in Japan. The Bank of Japan lifted negative interest rates in March of this year, and the market generally anticipates the possibility of raising interest rates. Therefore, considering that the average interest rate in Japan rises in the future, the company is expected to improve profit forecasts.

Furthermore, the earnings of Asian portfolio companies positioned as “secondary markets” and the expected level of growth in asset management businesses aimed at establishing the “fourth pillar” will have a certain impact on performance prospects.

editor/tolk