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Reset and Rebound: MUFG’s Path to Revaluation

  • peachgardenpartner
  • Mar 25
  • 3 min read

By Danila Zagoruiko



Executive Summary


MUFG posted an exceptionally strong Q1 FY2025, with net profits rising 34.4% YoY to ¥538.6B. Net operating profits grew 17.3% YoY to ¥738.1B, driven by higher lending margins and growth in overseas income. Management reaffirmed its commitment to capital returns through an annual dividend of ¥44 and buybacks.


Trading at 0.66x P/B and delivering 9.2% ROE, MUFG remains deeply undervalued relative to global peers. BoJ’s rate normalisation supporting domestic margins and stable international operations suggests that MUFG will continue to offer upside, defensiveness, and income for investors.



Overview of the Stock


Company Snapshot

  • Name: Mitsubishi UFJ Financial Group, Inc.

  • Ticker: 8306.T (TSE) / MUFG (NYSE ADR)

  • Industry: Diversified Financials – Global Banking

  • Market Cap: ¥17.3 trillion (~$115B) as of March 2025

  • Share Price Performance (YTD): +17.4%, outperforming Topix Bank Index (+9.8%)


Business Overview


MUFG operates Japan’s largest financial conglomerate and ranks among the top global banks. It spans banking, trust services, asset management, and securities operations. Notably, it holds a 21.7% stake in Morgan Stanley and a significant presence in Southeast Asia through Krungsri (Thailand) and Bank Danamon (Indonesia).



Recent Developments


Key News and Events


  • H1 FY2024 Net Profit: ¥983.6 billion (+26% YoY)

  • Interim Dividend: Raised to ¥17/share (from ¥13/share last year)

  • Share Buyback: Additional ¥300 billion programme announced

  • Japan Rate Policy: BoJ ended YCC and negative rates in early 2024


Market Reaction


The stock climbed 4.2% following the earnings release, outperforming the broader Japanese banking sector, as investors welcomed MUFG’s margin expansion and capital returns.



Financial Performance


H1 FY2024 Highlights

Metric

H1 FY2024 Actual

YoY Change

Net Operating Profits

¥1,541B

+13%

Net Income

¥983.6B

+26%

EPS (Basic, ¥)

76.3

+24%

CET1 Ratio

10.5%

+30 bps

Dividend (Interim)

¥17/share

+31%

Segment Analysis


  • Domestic Lending: NIMs widened following BoJ rate hikes.

  • Global Operations: Strong loan growth in Asia and FX gains.

  • Securities: Mixed performance due to volatility in US Treasuries.



Valuation Metrics


Key Ratios

Metric

MUFG

Peer Average (2024)

5Y Industry Average

P/E (Forward)

9.2x

10.2x

10.8x

P/B

0.66x

0.85x

0.80x

Dividend Yield

4.4%

3.2%

3.0%

Price/Revenue

1.5x

2.6x

2.4x

ROA

0.79%

1.2%

1.1%

ROE

9.2%

11.5%

10.8%

Cost of Equity

7.5%

8.0%

8.2%

Beta (5Y Monthly)

0.86

1.10

1.05



Comparable Company Analysis

Company

Market Cap ($B)

P/E

P/B

ROE

MUFG

115

9.2x

0.66x

9.2%

SMFG

78

10.5x

0.72x

8.9%

Mizuho

56

10.1x

0.76x

8.2%

HSBC

156

9.8x

0.94x

9.3%

Analysis: MUFG’s valuation remains relatively low in comparison to its peers. The gap is suggested to be unjustified as improving fundamentals and macro tailwinds led to the stock outperforming the Topix Banks Index year-to-date, possibly due to investor recognition of its ROE expansion and capital return profile.



Source: PGP Investment Group
Source: PGP Investment Group


Market Sentiment and Technical Analysis


Sentiment Indicators


  • Analyst Ratings: 16 Buy / 6 Hold / 1 Sell

  • Short Interest: 0.3% (very low)

  • Institutional Ownership: ~60%


Technical Analysis

  • Price near breakout zone of ¥1,280

  • 50-day MA: rising, RSI at 58 (bullish but not overbought)

  • Volume increases on up days, indicating accumulation



Strategic and Competitive Positioning


Growth Drivers


  • Tailwind from BoJ normalisation lifting domestic margins

  • Overseas loan and fee income diversification (Southeast Asia, US)

  • Digitisation and cost control programmes improving OPEX


Risks and Challenges

  • FX risk: A stronger yen would reduce repatriated profits

  • Credit risk in Asia amid a soft global landing scenario

  • Global yield curve volatility impacting securities income



Projections and Forecasts


Earnings Projections

Metric

FY2024E

FY2025E

FY2026E

Net Income (¥B)

1,550

1,580

1,600

EPS (¥)

118

120

122

DPS (¥)

44

47

50

Valuation Scenarios

  • Base Case: NIM expansion + buybacks → ¥1,480 target price

  • Bull Case: Further BoJ hikes + strong FX → ¥1,600

  • Bear Case: Global slowdown + yen strength → ¥1,200


Source: PGP Investment Group
Source: PGP Investment Group


DDM Valuation


  • ROE: 8.7%

  • Payout Ratio: 38%

  • Cost of Equity: 7.5%

  • Growth Rate (g): 5%

  • Implied Fair Value: ¥1,470/share


In addition, for accurate and unbiased data representation, various valuation methods were used. The results summarised in the graph below point to a target price at least 20% above the current share price, reinforcing the Outperform rating.

 


Source: PGP Investment Group
Source: PGP Investment Group


Risks and Uncertainties


  • Macro: Yen volatility, global recession, US-China risks

  • Company-Specific: Credit losses in Asia, execution of digital strategy

  • Regulatory: Capital buffers and climate risk disclosure mandates


Key Takeaways


  • MUFG delivered strong interim results with top-tier ROE and solid capital ratios.

  • Domestic margins are improving structurally post-BoJ shift.

  • Overseas diversification and stable fee income position MUFG defensively.

  • Analysis grants an Outperform rating with a revised target price of ¥1,480.



Sources

  • MUFG H1 FY2024 Earnings Release (Nov 14, 2024)

  • Bloomberg Company Profile and Financials

  • Bank of Japan Monetary Policy Updates

  • PGP Investment Group Valuation Models

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