Asset Light Is the Right Strategy for Undervalued SMFG; Lifting the FVE to JPY 5,000 Per Share

SMFG: 花より団子 "Dumplings Rather than Flowers"

SMFG (8316 JP):  Standing Out in a Crowd

1H16 Better-Than-Expected Results Suggest Earnings Inflection Points; Positive For Japanese Banks

Lack of Term Premium Continues to Cost Japanese Banks with Limited Financial Flexibility

Sumitomo Mitsui Trust Holdings' More Stable Earnings Base Has yet to Offset Market Pressures

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Equity Bottom-Up

Sumitomo Mitsui Financial Group / Equity Bottom-Up

Sumitomo Mitsui Financial Group (8316 JP)

We raise our fair value estimate for Sumitomo Mitsui Trust Holdings, or SMTH, to JPY 4,300 per share, from JPY 3,600 per share previously due to our upgraded long-term growth forecast for Japanese banks. Our new fair value represents forward price/tangible value around 0.5. Under our updated estimates, we assume the impact from the negative interest rate environment has already bottomed out, increasing returns on interest earning assets from 0.5% to 0.6% at the end of our five-year forecast horizon. On capital, we also assume the regulatory capital requirement would increase, but expect full implementation could be delayed by several more years. We maintain our no-moat rating and stable outlook as the bank is unlikely to generate return above its cost of capital of 10% during our explicit forecast horizon.Analyst: Mari Kumagai

We raise our fair value estimate for Sumitomo Mitsui Trust Holdings, or SMTH, to JPY 4,300 per share, from JPY 3,600 per share previously due to our upgraded long-term growth forecast for Japanese banks. Our new fair value represents forward price/tangible value around 0.5. Under our updated estimates, we assume the impact from the negative interest rate environment has already bottomed out, increasing returns on interest earning assets from 0.5% to 0.6% at the end of our five-year forecast horizon. On capital, we also assume the regulatory capital requirement would increase, but expect full implementation could be delayed by several more years. We maintain our no-moat rating and stable outlook as the bank is unlikely to generate return above its cost of capital of 10% during our explicit forecast horizon.Analyst: Mari Kumagai

SMTH Seeks Higher Margin Assets to Offset Rising Pressures from Higher Costs of Dollar Funding