Mitsubishi Ufj Financial Group Inc Expected To Post Earnings Of 26 Cents A Share - Earnings

Mitsubishi UFJ Financial Group, Inc. MUFG is optimistic regarding the growth potential of India and is seeking acquisition opportunities to strengthen its presence in the world's most populous country.

According to Yasushi Itagaki, head of Mitsubishi UFJ’s global commercial banking business, MUFG’s goal is to increase its investments and acquisitions in India and boost its annual returns from them to 20% over the next 10 years.

MUFG’s Strategic Expansion in Asia

Itagaki is leading MUFG’s growth strategy in Asia, prioritizing expansion in India and the enhancement of digital operations across the Asia-Pacific (APAC) region, as these areas are crucial for driving higher profits for the company. He compares the expansion strategy to the "Mickey Mouse model," where the face symbolizes MUFG's global banking operations, aiming for a 15% return on equity over the next 10 years. The ears represent India and its digital initiatives, both targeting annual returns of 20%.

In the digital space, MUFG is looking at buying or investing in fintech companies in Asia, such as online consumer lenders. In August 2024, MUFG and its consolidated subsidiary, MUFG Bank, announced an additional investment of $336.6 million in DMI Finance Private Limited, a digital financial services business in India. In the same month, MUFG and MUFG Bank announced their plan to invest $393 million in Globe Fintech Innovations, Inc., the firm that manages GCash, to extend its foothold in Asia’s booming digital financial market.

MUFG also invested in several digital startups and tech firms in the APAC region since 2020. These include investments in Ascend Money, Grab, Home Credit, Akulaku and Garuda Fund. In 2023, the bank launched the MUFG Openly Connected Digital Ecosystem, intending to share knowledge among the companies that Mitsubishi UFJ invested in.

MUFG Aims to Capitalize on India’s Growing Economy

According to Itagaki, the energy demand in India is likely to expand as the country strives to become a manufacturing powerhouse. In addition, the country has various renewable projects in its pipeline, providing valuable opportunities for MUFG as the main finance provider.

He further added that “It has good economic fundamentals and political stability. The financial sector grows in such markets.”

According to Bloomberg data, MUFG topped the country’s foreign currency loans league table in 2024, surpassing other major players like HSBC Holdings plc HSBC and DBS Group Holdings Ltd. DBSDY.

Like HSBC and DBSDY, MUFG also has its back-office business set up in India, providing support services for its global operations. Established in 2020, this unit currently employs approximately 1,500 staff. As part of its expansion plan in India, Itagaki also intends to double the workforce within the next three years.

Parting Thoughts on MUFG

Through such strategic investments in digital startups and tech firms, MUFG aims to reap the benefit of fast-growing digital finance in the APAC region. Also, MUFG is well-poised to gain from the rapid growth opportunities in India and the overall APAC region.

Although India has an impressive economic growth prospect and is a lucrative pick for foreign companies, its GDP of 6.7% showed a slowdown year over year in the April-June quarter from the previous periods. In the banking sector, India has been witnessing an increase in retail loan defaults due to the aggressive lending practices in the country. These unrecovered loans could potentially lead to financial stress in the economy, which could slow down the stock market performance and affect the broader economy.

Nonetheless, with careful navigation of these risks, MUFG is positioned to leverage long-term growth potential in the region.

MUFG’s Price Performance and Zacks Rank

In the past six months, shares of MUFG on the NYSE have gained 12.2% against the industry’s decline of 8.7%.

At present, MUFG sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Zacks Investment Research

Mitsubishi UFJ Financial Group, Inc. MUFG, along with its subsidiaries, MUFG Bank, Ltd. and MUFG Innovation Partners Co., Ltd., has announced an investment agreement with Sakana AI K.K. (“Sakana AI”), an artificial intelligence (AI) research and development company.

With this deal, MUFG has become Sakana AI's largest Japanese corporate investor.

Sakana AI, founded in July 2023 and headquartered in Tokyo, is growing rapidly. Within a year, the company achieved unicorn status with a valuation exceeding $1 billion.

MUFG’s Investment Aligns With Medium-Term Business Plan

In April 2024, the company outlined efforts to expand and refine its growth strategies, drive social and environmental progress, and accelerate transformation and innovation. Through its medium-term business plan, MUFG aims to add products and channels, improve balance sheet profitability and drive growth. With this, it aims to increase return on equity to around 9% in fiscal 2026.

A commitment to advancing AI capabilities and data infrastructure is integral to this plan to enable data-driven management, improve productivity and increase customer value. The latest move by MUFG falls under the theme “Accelerate Transformation & Innovation” pillar, which is one of the three pillars of the medium-term plan.

As part of the same plan, in August, MUFG and MUFG Bank obtained approval for participation in the energy market from Tokyo Commodity Exchange, Inc. and the Japan Securities Clearing Corporation. In addition, MUFG Bank plans to acquire a 49% stake in eClear Co., Ltd., a subsidiary of enechain Co., Ltd., which operates in Japan’s largest power hedge wholesale trading marketplace, offering services for mitigating counterparty risks in wholesale power spot trading.

In the same month, MUFG and MUFG Bank announced that they plan to invest in Globe Fintech Innovations, Inc. (“Mynt”), the firm that manages GCash. MUFG will invest $393 million in Mynt to extend its foothold in Asia’s booming digital financial market.

Our View on MUFG’s Latest Investment

MUFG aims to improve its AI strategy by leveraging Sakana AI's advanced technological skills and innovative model development approaches.

This, along with its previous efforts to expand its services and enter new sectors, positions the company to diversify its income sources, helping its financials in the long term.

In the past three months, shares of MUFG on the NYSE have gained 3.5% against the industry’s decline of 5.6%.

At present, MUFG carries a Zacks Rank #2 (Buy).

Other Foreign Stocks Worth Considering

Some other top-ranked bank stocks worth considering are Banco BBVA Argentina S.A. BBAR and Grupo Financiero Galicia S.A. GGAL, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks Rank #1 stocks here.

Estimates for BBAR’s current-year earnings have jumped 27% in the past 60 days. The company’s shares have jumped 43% over the past six months.

Estimates for GGAL’s current-year earnings have surged 63.9% upward in the past month. The company’s shares have surged 85.2% over the past six months.

Zacks Investment Research