Mitsubishi UFJ Group Earnings: Raising Our Fair Value to JPY 1,760 From JPY 1,315; Shares Attractive

Mitsubishi UFJ’s March 2024 earnings were within our estimates, and we lifted our fair value estimate to JPY 1,760 from JPY 1,315 (USD 11.25 from USD 9.00 per ADR) as we lowered our weighted average cost of capital to 8.0% from 8.5%, to be in line with its Japanese peers. At our fair value estimate, MUFG would trade at 1.0 times the fiscal 2024 price/book, which we think is fair given that our expectation for return on equity is 8%-9%. With MUFG in 4-star territory, we think the shares are attractive. We expect improved domestic interest rates will help offset the impact of easing US interest rates on its overseas lending and see MUFG’s net interest margin rising to 94 basis points in fiscal 2028 from 84 basis points in fiscal 2023. Coupled with an assumed share buyback of up to JPY 400 billion per year, we see a three-year average earnings per share growth of 8.6%.