Asia Pacific Equity Research

20 July 2023

Mitsubishi UFJ Financial Group

Overweight
(8306) 8306.T, 8306 JP
Price: ¥1,071
Investors Day: Updated on seven business segments; 20 Jul 2023
MUFG is our top recommendation in the sector Price Target: ¥1,180
PT End Date: 31 Dec 2023

Mitsubishi UFJ Financial Group (MUFG) held its Investors Day on July 20, and Japan Equity Research
provided updates on conditions in its seven business segments. The previous Banks
Investors Day was held on July 15, 2022, about a year ago. We were left with a
Takahiro Yano, CFA AC
positive impression of (1) management’s outlook for continued improvement in
(81-3) 6736-8616
foreign deposit spreads in FY2023, and (2) management’s confidence of [email protected]
achieving full year target of treasury revenue in Global Markets Segment. Our Bloomberg JPMA YANO <GO>
view, the plateauing of interest rates set by the US Fed is likely to be a tailwind JPMorgan Securities Japan Co., Ltd.
for MUFG in the context of not only a weak yen, but also better foreign deposit-
loan spreads, does not change. Below, we discuss the key highlights for each
business segment. At the end of this report, we show a breakdown of profits by
segment.
 Digital service (DS) segment: In this segment, MUFG provides financial
services in mainly domestic mass retail. Net operating profit (before deducting
credit costs; same hereinafter) was ¥209.7 billion (+¥27.1 billion YoY) in
FY2022, and guidance is for ¥215.0 billion (+¥5.3 billion YoY) in FY2023,
which assumes growth in consumer finance loan and credit card balances. The
segment has a broad lineup of products in banking, credit cards, consumer
finance, in-person securities brokerage, online securities brokerage, and BNPL.
MUFG aims to enhance digital marketing that combines data from banking,
credit cards, consumer finance, and online securities services.
 Retail & commercial banking (R&C) segment: This segment mainly offers
financial services to wealthy individuals in Japan, and domestic corporates. Net
operating profit was ¥146.8 billion (+¥53.9 billion) in FY2022, and FY2023
guidance is for ¥180.0 billion (+¥33.2 billion YoY). In FY2022, earnings on
foreign currency deposits increased nearly ¥20.0 billion YoY, and profit
expanded by ¥13.0 billion YoY in wealth management (WM). Both of these
areas are likely to be major drivers of profit growth again in FY2023. In WM,
contract prices have been increasing alongside growth in the number of
proposals made to customers as the bank deepens coordination among banking,
trust banking and securities services through the deployment of its WM digital
platform.
 Japanese corporate & investment banking (JCIB) segment: This segment
mainly offers financial services to large domestic corporations. In FY2022, net
operating profit was ¥412.2 billion (+¥127.5 billion YoY), and the company’s
forecast for FY2023 is ¥455.0 billion (+¥42.8 billion). The interest rate spread
on foreign currency deposits improved considerably from 0.43% in FY2020 and
0.44% in FY2021 to 1.04% in FY2022. In FY2023, management expects the
spread to improve further. MUFG said that it is likely to achieve its target for
reducing strategic shareholdings by March 31, 2024 (targeting a reduction of
¥500 billion compared with March 31, 2021, based on acquisition cost; it had
already reduced these shareholdings by ¥323 billion as of March 31, 2023). The
expansion in capital financing and balances of non-recourse real estate loans has
helped improve the lending spread for yen-denominated loans (0.37% in
FY2020, 0.41% in FY2021, and 0.47% in FY2022).

See page 5 for analyst certification and important disclosures, including non-US analyst disclosures.
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www.jpmorganmarkets.com
This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.
 JPMorgan Securities Japan Co., Ltd. Asia Pacific Equity Research
Takahiro Yano, CFA 20 July 2023
(81-3) 6736-8616
[email protected]

 Global commercial banking (GCB) segment: Overseas partner banks are the
core component of this segment. The segment is now concentrated in Asia after
US-based MUFG Union Bank was sold in December 2022. It has been 10 years
since MUFG invested in Vietinbank in Vietnam in 2012, entering the Asia
market, and five years since GCB was created as a segment in July 2018. The
main partner banks are Bank of Ayudhya (Krungsri) in Thailand (subsidiary:
77% stake), Bank Danamon in Indonesia (subsidiary: 92% stake), Vietinbank in
Vietnam (equity-method affiliate: 20% stake) and Security Bank in the
Philippines (equity-method affiliate: 20% stake). Segment net operating profit
was ¥194.7 billion (+¥10.0 billion YoY) in FY2022, and management guides for
¥230.0 billion (+¥35.3 billion ) in FY2023. Since MUFG made its investments
in the two equity-method affiliates, profit after goodwill amortization has
increased (from ¥2.6 billion in FY2014 to ¥12.1 billion in FY2022 at
VietinBank, and from ¥0.7 billion in FY2017 to ¥4.2 billion in FY2022 at
Security Bank). As a challenge in the segment, management recognizes it needs
to strengthen retail operations at Bank Danamon.
 Global corporate & investment banking (GCIB) segment: This segment
primarily provides financial services to large international corporations. Net
operating profit (adjusted basis) amounted to ¥237.4 billion (+¥45.6 billion
YoY) in FY2022, and management targets ¥250 billion (+¥12.6 billion) in
FY2023. Low-margin assets have been reduced and replaced, and the lending
spread has improved (1.15% in FY2020, 1.21% in FY2021, 1.36% in FY2022).
In the Americas in particular, MUFG is reinforcing relatively high-margin
business like financing for institutional investors. In the segment, MUFG has set
up investment funds in Asia and is also investing in startup companies.
 Global markets segment: This segment is mainly comprised of sales & trading
(S&T) and Treasury operations. Net operating profit was ¥143.4 billion (-¥61.9
billion YoY) in FY2022, and management targets ¥125.0 billion (-¥18.4 billion)
in FY2023. In FY2022, profit expanded in S&T but not enough to absorb the
profit decline in Treasury operations. In FY2023, MUFG intends to strengthen
foreign currency trading operations in S&T by deepening its alliance with
Morgan Stanley (MS). MUFG has also announced it will enhance collaboration
with MS in the Japan equities business for institutional investors. In Treasury
operations, losses on the sale of foreign bonds were a drag on earnings in
FY2022. Amid inverse yields on foreign currency interest rates, MUFG expects
a negative income gain in FY2023, as high policy interest rates in the US form
headwinds. MUFG aims to absorb the negative income gain with positive capital
gain in FY2023, and the management shows confidence to achieve this target.
 Asset management & investor services (AM/IS) segment: This segment
consists mainly of asset management (AM) and investor services (IS). Net
operating profit was ¥97.2 billion (-¥6.0 billion YoY) in FY2022, and
management targets ¥105.0 billion (+¥7.8 billion) in FY2023. In AM, MUFG is
strengthening its presence in alternative investments and in domestic publicly
offered equity investment trusts, MUFG ranks first in the sector in terms of
balances with a boost from passive investment products. In IS, domestic AUA
(Asset Under Administration) continues to grow, and MUFG now ranks first in
terms of the AUA balance, beating out the previous top player.
 Overview of profit breakdown: MS is not included in one of MUFG’s seven
business segments. Figure 1 breaks down net profit attributable to owners of the
parent in FY2021 and FY2022. Figure 2 shows net operating profit in each of
the seven business segments, as disclosed on Investors Day.

This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.
 JPMorgan Securities Japan Co., Ltd. Asia Pacific Equity Research
Takahiro Yano, CFA 20 July 2023
(81-3) 6736-8616
[email protected]

Figure 1: MUFG: Breakdown of net profit

1,400.0
(JPY bn)
1,200.0
MS MS
1,000.0 contribution, contribution,
421.0 317.3
Global Markets,
800.0 Global Markets,
94.0 AM/IS, 71.0
138.0 GCB, 66.4
600.0 AM/IS, 75.6
GCIB, 160.4
GCB, 159.6
400.0 GCIB, 144.2 JCIB, 338.0
200.0 JCIB, 186.4
R&C, 66.8 R&C, 97.1
- DS, 42.5 DS, 62.2
Adjustments, Adjustments,
(200.0) (103.3) (90.0)
FY2021 FY2022

Source: Compiled J.P. Morgan based on company materials

Figure 2: MUFG: Net operating profit by segment

1,800.0
(JPY bn) AM/IS, 105.0
1,600.0 AM/IS, 97.2
1,400.0 AM/IS, 103.2 Global Markets,
Global Markets, 125.0
1,200.0 143.4 GCIB, 250.0
Global Markets, GCIB, 237.4
1,000.0 205.3 GCB, 230.0
GCIB, 191.8 GCB, 194.7
800.0

600.0 GCB, 184.7 JCIB, 455.0

JCIB, 412.2
400.0 JCIB, 284.7
R&C, 146.8 R&C, 180.0
200.0 R&C, 92.9
DS, 182.6 DS, 209.7 DS, 215.0
-
FY2021 FY2022 FY2023CE

Source: Compiled J.P. Morgan based on company materials t

This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.
 JPMorgan Securities Japan Co., Ltd. Asia Pacific Equity Research
Takahiro Yano, CFA 20 July 2023
(81-3) 6736-8616
[email protected]

Investment Thesis
FY2022 net profit attributable to owners of the parent was ¥1.1 trillion (−¥14.4 billion YoY), with Japan CIB contributing
¥338.0 billion (+¥151.6 billion), global CIB ¥160.4 billion (+¥16.2 billion), and Morgan Stanley ¥317.3 billion (−¥103.7
billion). The key earnings driver in corporate banking and global CIB was growth in deposit and loan NII on higher foreign
currency interest rates, and we look for this to continue as long as U.S. short-term rates remain high. In Japan, we think any
move by the BOJ to adjust or abolish YCC will have banks expanding their yen bond portfolios and expect this to support
ROE of 7.5% in FY2024 and 7.8% in 2025. Management did not announce a share buyback at FY2022 results in May, but
we forecast annual buybacks of ¥300 billion in FY2023 and out. Prospects for strong ROE, sustained shareholder returns,
and normalization of BOJ monetary policy have us bullish on the stock.

Valuation
We assume a fair-value cost of equity of 10.0%. Combining this with FY2024E ROE of 7.5% yields a target P/B of 0.75x,
which we apply to end-FY2024E BPS (¥1,567.7) to arrive at a price target of ¥1,180. The time horizon for our price target
is through December 2023. Our assumed COE references the TOPIX Bank Index’s valuation in 2013–15, when the BOJ
under Governor Kuroda had begun easing but not yet implemented negative interest rates. P/E at that time was around 10x,
so we use the inverse, 10%.

Risks to Rating and Price Target

The key catalyst in our view is improved profitability for the securities and loan portfolios as the BOJ normalizes monetary
policy. With many banks working to lower the cost of capital as part of efforts to boost P/B, we see additional catalysts in
accelerated unwinding of cross-shareholdings and expanded disclosure including detailed quarterly results. Downside risks
include tighter global banking regulations, a decline in U.S. short-term interest rates and a stronger yen, and diminished
expectations for BOJ policy changes.

This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.
 JPMorgan Securities Japan Co., Ltd. Asia Pacific Equity Research
Takahiro Yano, CFA 20 July 2023
(81-3) 6736-8616
[email protected]

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Important Disclosures

 Market Maker/ Liquidity Provider: J.P. Morgan is a market maker and/or liquidity provider in the financial instruments of/related to
Mitsubishi UFJ Financial Group (8306).
 Manager or Co-manager: J.P. Morgan acted as manager or co-manager in a public offering of securities or financial instruments (as
such term is defined in Directive 2014/65/EU) of/for Mitsubishi UFJ Financial Group (8306) within the past 12 months.
 Director: An employee of J.P. Morgan or an executive officer or director of J.P. Morgan Chase & Co. is an officer, director or
advisory board member of Mitsubishi UFJ Financial Group (8306).
 Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: Mitsubishi UFJ Financial
Group (8306).
 Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as investment
banking clients: Mitsubishi UFJ Financial Group (8306).
 Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
entity(ies) as clients, and the services provided were non-investment-banking, securities-related: Mitsubishi UFJ Financial Group (8306).
 Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and
the services provided were non-securities-related: Mitsubishi UFJ Financial Group (8306).
 Investment Banking Compensation Received: J.P. Morgan has received in the past 12 months compensation for investment banking
services from Mitsubishi UFJ Financial Group (8306).
 Potential Investment Banking Compensation: J.P. Morgan expects to receive, or intends to seek, compensation for investment
banking services in the next three months from Mitsubishi UFJ Financial Group (8306).
 Non-Investment Banking Compensation Received: J.P. Morgan has received compensation in the past 12 months for products or
services other than investment banking from Mitsubishi UFJ Financial Group (8306).
 Debt Position: J.P. Morgan may hold a position in the debt securities of Mitsubishi UFJ Financial Group (8306), if any.
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This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.
 JPMorgan Securities Japan Co., Ltd. Asia Pacific Equity Research
Takahiro Yano, CFA 20 July 2023
(81-3) 6736-8616
[email protected]

Date Rating Price (Y) Price Target

(Y)
12-Dec-20 OW 448 650
04-Mar-21 OW 566 700
05-Apr-21 OW 592 800
17-Jun-21 OW 611 900
09-Sep-21 OW 633 800
28-Sep-21 OW 676 930
16-Dec-21 OW 637 860
04-Mar-22 OW 709 820
14-Apr-22 OW 747 900
06-Jul-22 NR 743 --
15-Dec-22 OW 758 910
05-Jan-23 OW 926 1,070
20-Feb-23 OW 981 1,110
23-Mar-23 OW 851 960
31-May-23 OW 934 1,180

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
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Coverage Universe: Yano, Takahiro: Aozora Bank (8304) (8304.T), Chiba Bank (8331) (8331.T), Concordia Financial Group (7186)
(7186.T), Fukuoka financial group (8354) (8354.T), Japan Post Bank (7182) (7182.T), Mebuki Financial Group (7167) (7167.T),
Mitsubishi UFJ Financial Group (8306) (8306.T), Mizuho Financial Group (8411) (8411.T), Resona Holdings (8308) (8308.T), SBI
Holdings (8473) (8473.T), SBI Shinsei Bank Ltd (8303) (8303.T), Shizuoka Financial Group (5831) (5831.T), Sumitomo Mitsui
Financial Group (8316) (8316.T), Sumitomo Mitsui Trust Holdings (8309) (8309.T)

J.P. Morgan Equity Research Ratings Distribution, as of July 08, 2023

Overweight Neutral Underweight
(buy) (hold) (sell)
J.P. Morgan Global Equity Research Coverage* 47% 39% 14%
IB clients** 48% 45% 34%
JPMS Equity Research Coverage* 45% 42% 12%
IB clients** 67% 64% 53%
*Please note that the percentages may not add to 100% because of rounding.
**Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided investment banking
services within the previous 12 months.
For purposes of FINRA ratings distribution rules only, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating
category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
This information is current as of the end of the most recent calendar quarter.

This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.
 JPMorgan Securities Japan Co., Ltd. Asia Pacific Equity Research
Takahiro Yano, CFA 20 July 2023
(81-3) 6736-8616
[email protected]

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This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.
 JPMorgan Securities Japan Co., Ltd. Asia Pacific Equity Research
Takahiro Yano, CFA 20 July 2023
(81-3) 6736-8616
[email protected]

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(81-3) 6736-8616
[email protected]

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This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.
 JPMorgan Securities Japan Co., Ltd. Asia Pacific Equity Research
Takahiro Yano, CFA 20 July 2023
(81-3) 6736-8616
[email protected]

"Other Disclosures" last revised July 08, 2023.

Copyright 2023 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan. #$J&098$#*P

11
Completed 20 Jul 2023 09:19 PM JST Disseminated 20 Jul 2023 09:29 PM JST
This document is being provided for the exclusive use of Charles Zhang at CREDIT FRONTIER HONG KONG LIMITED.