Mebuki Financial Group: update on acquisition of own shares

Mebuki Financial Group provided an update on the acquisition of its own shares on June 2, 2025, reporting acquisition of 6,161,200 shares of common stock from May 1, 2025, to May 31, 2025, with a total acquisition cost of JPY4.3bn. This acquisition is part of a resolution dated April 7, 2025, which allows for the acquisition of up to 45,000,000 shares at a cost of up to JPY23bn from April 8, 2025, to June 20, 2025. As of May 31, 2025, the cumulative total of shares acquired is 34,734,000 shares at a cost of JPY19.9bn.

The market perceived the news positively and the stock has delivered returns of around 40% to date, from the low of JPY517.7 on April 7, 2025.

Mebuki Financial Group, Inc., established in 2008 and based in Tokyo, provides comprehensive financial services centered on banking business. In addition, it is engaged in the provision of other business relating to financial services such as leasing business, securities business, credit guarantee business and credit card business.

The group primarily classifies its businesses into six segments – Corporate (local), Individual, Public Sector, Corporate (urban), Structured Finance, and Securities.

Encouraging FY 24 performance

Mebuki Financial Group reported solid performance in FY 24, highlighting significant financial achievements and strategic initiatives aimed at improving corporate value. The group reported a consolidated net income of JPY58.2bn, marking a 34.2% y/y increase, driven by higher interest rates on domestic loans, increased fees from customers, and improved securities income. The group's ordinary profit surged JPY19.7bn to JPY82.8bn, reflecting the positive impact of strategic adjustments in their securities portfolio and the expansion of interest margins between loans and deposits.

Loans to corporate, individuals and public increased by JPY675.8bn y/y to JPY13,019bn as of end-FY 24. Interest income on domestic loans rose by JPY14bn, supported by an increase of 6.8bp in interest yield. In addition, the balance of deposits increased by JPY126.3bn y/y to JPY17,999.2bn as of end-FY 24. Deposits from corporate and individual customers have continued to increase, despite an increase in demand for capital investment and a recovery in personal consumption.

Sustained growth forecasts

Mebuki Financial Group forecasts sustained growth with an expected ordinary profit of JPY100bn in FY 25, and net attributable profit to owners of the parent company of JPY70bn. The group plans to enhance shareholder returns by increasing annual dividends per share to JPY24 and raising the payout ratio to 32.2%. The management paid dividends of JPY16 per share in FY 24, reflecting a yield of 2.2%. Moreover, analysts expect an average dividend yield of 4% over the next two years.

Strategic initiatives under the Fourth Medium-Term Group Business Plan include focusing on high RORA areas, expanding customer services, and leveraging DX investments to drive sustainable growth. The group aims to achieve a consolidated ROE of 9.0% or more by FY 27, positioning itself for long-term value creation and increased profitability.

Moderation in borrowings

The group posted a muted net interest income (NII) CAGR of minus 2.1% over FY 20-23, reaching JPY141bn. However, non-interest income increased at a CAGR of 8% over the same period, reaching JPY126bn in FY 23. In addition, provision for loan losses declined at a CAGR of 36.5% over the same time, reflecting an improvement in asset quality. Net profit rose at a CAGR of 5.9% to JPY43.4bn in FY 23.

The company posted a decrease in cash reserves to JPY4.4tn as of end-FY 23 from JPY6.4tn as of end-FY 20, owing to substantial investments in marketable and equity securities in FY 23. Total debt decreased from JPY5.1tn at end-FY 20 to JPY2.8tn at end-FY 23.

In comparison, Mitsubishi UFJ Financial Group, a local peer, reported a higher NII CAGR of 9% over the past three years, reaching JPY2,594bn in FY 24. Net profit rose at a CAGR of 5.9% to JPY1,328bn in FY 24.

Trading at lower valuation to peer

Over the past one year, the company's stock has delivered solid returns of approximately 21%, reflecting a positive fundamental trajectory. In comparison, Mitsubishi UFJ Financial Group’s stock, delivered returns of 19.4%.

Despite the sharp run-up in the share prices, the company is trading at a discount to Mitsubishi UFJ Financial Group. Mebuki Financial Group is currently trading at a P/B multiple of 0.7x, which is lower than that of Mitsubishi UFJ Financial Group (1.1x). However, it is trading higher than its 3-year historical average of 0.6x.

Mebuki Financial Group is generally liked by four analysts, with three having ‘Buy’ ratings and one having a ‘Hold’ rating for an average target price of JPY805, implying 10.7% upside potential from the current price. Analysts estimate a net profit CAGR of 19.1% over FY 24-26, reaching JPY82.7bn with margins of 19% in FY 26, with EPS expected to increase to JPY87.9 in FY 26 from JPY58.4 in FY 24. Likewise, analysts estimate net profit CAGR of 8.3% for Mitsubishi UFJ Financial Group.

Overall, the group appears to be set to work on its Fourth Medium-Term Group Business Plan (FY 25-27) and achieve the desired business objectives, including consolidated ROE of 9% or more, and consolidated net income of JPY90bn or more. Over the long-term horizon (2030), the company plans for ordinary profit of JPY100bn or more and consolidated fees income ratio of 50% or more. However, Mebuki Financial Group is faced with some challenges including interest rate risk, credit risk, FX volatility and governing risk.