Continue to Favor Bank Stocks in Positive Cycle for Earnings and Returns

Research evidence excerpt

Continue to Favor Bank Stocks in Positive Cycle for Earnings and Returns

IdeaM

Focus points ahead: Quarterly earnings run-rates and measures for added returns at

individual banks will be important. We forecast 25%/higher run-rates in 1Q NP for all, and

good prospects of interim guidance hikes for some banks. On shareholder returns, we

think Shizuoka may announce buybacks with 1Q results and expect added buybacks by

Mizuho, SMFG and Resona when they report for 2Q. We also see scope for added

buybacks in 2H by Yokohama barring investment moves. We see domestic interest rate

trends, corporate funds demand and capital policy changes remaining the main drivers of

industry shares.

What are the major changes?

We update each bank’s model to reflect F3/26 results and extend forecasts to F3/29. We

have also rolled forward the base for our price target calculations from F3/27 to F3/28,

when we expect the impact of rate hikes will become fully visible. On earnings forecasts,

we have increased assumptions for domestic net interest income and now also expect

solid growth in non-funding revenues, including asset management-related income and

corporate solutions income, leading us to revise profit forecasts upward overall. Banking

earnings momentum remains intact overall, and against a backdrop of improving ROE and

stronger shareholder returns, we have also raised the multiples used in target price

calculations in most cases. As for the impact of rate hikes, our base case assumes the

policy rate will be raised to 100bps in F3/27 2Q and to 125bps in F3/28 2Q. We expect

earnings growth to continue this fiscal year and next, supported not only by the benefits

of higher rates but also by company-specific initiatives to improve profitability, alongside a