Exporters and equipment makers—especially those withbig China businesses--took big hits. Komatsu (6301:JP; NYSE ADR: KMTUY) lost 3.42 percent. Hitachi Construction Machinery (6305:JP) dropped 4.17 percent. Life insurers with big stock portfolios suffered. Daiichi Life (8750:JP) lost 4.46 percent. The defensive stock that bucked the trend was Ajinomoto (2802:JP: PINK ADR: AJINY) closing in Tokyo unchanged near its 52 week high.
Banks declined, especially Aozora Bank (8304:JP) which plunged 6.8 percent on rumored large shareholder dumping. Among the megabanks, Mizuho Financial Group (NYSE ADR: MFG) was down 1.50 percent; Sumitomo Mitsui Financial Group (NYSE ADR: SMFG) dropped 2.14 percent; while MUFG fell a relatively far 2.93 percent.
I have noted in previous posts, and will elaborate in future ones, that there are overall similarities, but also significant differences, among the three megabank groups. On one level, these groups can be taken as proxies for (or plays on) Japan’s real economy. What makes MUFG different is its relatively robust and successful internationalization, notably the business of Union Bank in the U.S. and the increasingly close alliance with Morgan Stanley (NYSE:MS).
All the megabanks are ‘internationally active”—and all want to be more so—and hence are obliged to meet rising Basel capital standards. How
they do this will impact the stock price. Particularly worth following is how aggressive they are in divesting low-yielding keiretsu cross-shareholdings and otherwise adjust Tier One and Tier Two capital.
Here are some metrics. After yesterday’s Tokyo close, MUFG’s stock price had an actual price-to-book ratio (PBR) of 0.65 times, and a forward
price-earning ration (PER) of 9.65 times. The dividend yield was 2.93 percent. For SMFG the numbers were: PBR 0.70 times, forward PER 8.91 times, and dividend yield 3.97 percent. For MFG: PBR 0.67 times, forward PER 6.30 times, and dividend yield 4.51 percent. (By the way, the numbers for Aozora are: PBR 0.56 times, forward PER 9.55 times, and dividend yield 1.05 percent.)
Do I like MUFG stock? Yielding a cash dividend near 3 percent, it is attractive. But it is less attractive on this basis than its two megabank competitors. At 4.51 percent yield, Mizuho is stellar, but we must suspect that capital-building requirements will bring this down. Look, though, at the PBRs! More than in most other industries, valuation of assets is a day-to-day task in banking. I admit that banks everywhere, and no less in Japan, have often over-valued risk assets by under-provisioning and or not marking to market. The three megabanks are sitting on huge portfolios of JGBs (for MUFG it was JPY 44 trillion at FY2010 B/S s date) which contain a lot of price risk. But I do not think the situation for the three megabanks, and for MUFG in particular, is as fraught with risk as the huge discount in the PBR would indicate.
Rather, I sense a lot of unrecognized value. So, to answer the question, do I like MUFG as a stock? Yes I do.
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