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Region: Japan
Sumitomo Mitsui Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 12 Jun 2025After reorganising and building up capital for the full impact of Basel 3, SMFG has in the past few years been acquisitive to build its next phase of growth, and now has a lower capital buffer than Mizuho.
It has a strong retail, mid and large corporate franchise in Japan, but its securities arm SMBC Nikko punches below weight.
Given its size and systemic importance, SMFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 12 Jun 2025- The core unit of SMFG is Sumitomo-Mitsui Banking Corp (SMBC), whose main predecessors were Sumitomo Bank and Mitsui Bank.
- SMFG does not have a large trust business as Sumitomo Trust and Chuo Mitsui Trust chose not to join SMFG, but merged with each other to form the separate Sumitomo Mitsui Trust Holdings.
- SMFG's group companies include the securities firm SMBC Nikko, SMBC Trust Bank, SMBC Card Company, SMBC Consumer Finance, Sumitomo Mitsui Finance and Leasing, SMFG India Credit Company (SMICC), Sumitomo Mitsui DS Asset Management, and SMBC Aviation Capital.
- It has been acquisitive over the years, particularly in emerging Asia and leasing assets. In 2021, the group took a 49% stake in Vietnam's FE Credit, 74.9% of Indian NBFI Fullerton Capital (now called SMICC), 4.99% of Philippines' RCBC, and 4.5% of US investment bank Jefferies. In 2022, it increased its stake in RCBC to 20%. In 2023, it acquired a 15% stake in Vietnam's VP Bank, and said it would increase its stake in Jefferies from 4.5% to 15%, and in 2024 took its stake in SMICC to 100%. In 2025 it announced it would take a 20% stake in India's Yes Bank.
Risk & Catalysts
AS OF 12 Jun 2025Similar to the other megabanks, SMFG aims to focus more on the US, and reduce low return RWAs in Europe and Asia ex-Japan.
SMFG has taken stakes in FE Credit (49%) and VP Bank (15%) in Vietnam, Fullerton in India (100%, now renamed SMICC), RCBC in the Philippines (20%), and is acquiring 20% of India’s Yes Bank, to increase its exposure to emerging growth areas. It had previously acquired a bank (Danamon) and auto NBFIs in Indonesia. However, FE Credit faced losses in 2022/23 as a result of the Vietnam slowdown in 2022, leading to JPY 135 bn of goodwill impairments in FY24. RoE on these investments has been poor.
It increased its 4.5% stake in Jefferies to 15%, to develop revenue opportunities for SMBC Nikko. Further investments in SMBC Nikko will be required.
Credit costs have seen volatility, but it has the lowest NPL ratio amongst the megabanks.
Its CET1 ratio is the lowest amongst peers, and it has been tapped by the rating agencies to increase its CET1 ratio buffer.
Key Metric
AS OF 12 Jun 2025| JPY bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.60% | 0.64% | 0.68% | 0.70% | 0.80% |
| Operating Income/Average Assets | 1.27% | 1.23% | 1.26% | 1.39% | 1.41% |
| Operating Expense/Operating Income | 62% | 62% | 61% | 60% | 58% |
| Pre-Impairment Operating Profit / Average Assets | 0.49% | 0.48% | 0.51% | 0.58% | 0.59% |
| Impairment charge/Average Loans | (0.43%) | (0.31%) | (0.22%) | (0.27%) | (0.32%) |
| ROAA | 0.23% | 0.30% | 0.32% | 0.36% | 0.40% |
| ROAE | 4.5% | 5.9% | 6.5% | 7.0% | 8.0% |
CreditSight View Comment
AS OF 16 May 2025SMFG’s banking business had performed well, while its non-bank subsidiaries had underperformed over FY21-22. The group had a better 2H vs a poor 1H23, with improved trading and fee revenues, partially offset by higher credit costs at the non-bank businesses. The group became acquisitive from 2021, taking a 49% stake in a leading Vietnamese NBFI and 15% of its parent (VP Bank), 20% of RCBC of the Philippines, 74.9% of NBFI Fullerton India (now 100%), 4.5% in US IB Jefferies (increasing to 15%), and 20% of India’s Yes Bank for the next stage of growth. Its high CET1 ratio has been whittled down by acquisitions. FY24 results were boosted by share sales and structured investment trusts. Govt. support is assured. We see 20 bp of upside from current levels.
Recommendation Reviewed: May 16, 2025
Recommendation Changed: January 27, 2025
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Search topics about wealth insights and investments.Mitsubishi UFJ Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 12 Jun 2025MUFG is the largest of Japan’s three megabanks, and has the most diversified operations by business line and geography. It has also been the most acquisitive until recently.
Core profitability had been weak due to Japan’s ultra-low interest rates and growth; that improved post an efficiency drive and a CEO change in April 2020; the bank has improved international margins and benefits from rising domestic interest rates.
Given its size and systemic importance, MUFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 12 Jun 2025- The 2 main banks of MUFG are MUFG Bank (earlier Bank of Tokyo-Mitsubishi UFJ or BTMU) & Mitsubishi UFJ Trust & Banking. In the early stages of Japan's long banking crisis, Bank of Tokyo merged with Mitsubishi Bank, and in the late stages they absorbed UFJ (former Sanwa Bank & Tokai Bank) while Mitsubishi Trust absorbed Toyo Trust & Nippon Trust.
- The group includes consumer lenders Mitsubishi-UFJ NICOS & ACOM, and securities/IB joint ventures with Morgan Stanley. MUFG invested in Morgan Stanley in 2008 and now has a ~20% stake. In Dec-22, it completed the sale of its US retail and commercial bank, MUFG Union Bank, to US Bancorp.
- It has a majority stake in Thailand's Bank of Ayudhya (now Krungsri), 20% stakes in Vietnam's Vietinbank and Philippines' Security Bank, and 100% of Indonesia's Bank Danamon.
- In August 2019, it acquired Colonial First State from Commonwealth Bank of Australia to strengthen its global asset management business, in 2020 it invested $700 mn in SE Asia's Grab, and more recently has bought Home Credit's Philippine and Indonesian subsidiaries, Link (an Australian pension fund administrator), auto loan companies in Indonesia, Albacore Capital, StanChart's Indonesian retail operations, and an Indian NBFI.
Risk & Catalysts
AS OF 12 Jun 2025Its recent divisional performance has been strong, with the domestic businesses benefiting from higher BOJ rates, and robust growth in fee income.
Credit costs have been rising because of increased exposure to personal unsecured loans in Japan and Southeast Asia, as well as higher-risk lending in Southeast Asia.
Its close relationship with Morgan Stanley has led it to take large positions in US corporate finance loans, which could have proven problematic.
We see limited risk from rising JGB and USD yields as the large equity unrealised gains dwarf the unrealised losses on the bond portfolio.
Key Metric
AS OF 12 Jun 2025| JPY bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.56% | 0.57% | 0.79% | 0.64% | 0.73% |
| Operating Income/Average Assets | 1.16% | 1.11% | 1.22% | 1.23% | 1.22% |
| Operating Expense/Operating Income | 68% | 69% | 65% | 61% | 67% |
| Pre-Impairment Operating Profit / Average Assets | 0.37% | 0.34% | 0.43% | 0.48% | 0.40% |
| Impairment charge/Average Loans | (0.48%) | (0.30%) | (0.61%) | (0.44%) | (0.09%) |
| ROAA | 0.23% | 0.32% | 0.30% | 0.39% | 0.47% |
| ROAE | 4.7% | 6.7% | 6.5% | 8.1% | 9.3% |
| CET1 post Basel 3 reforms excl. secs gains | 9.7% | 10.4% | 10.3% | 10.1% | 10.8% |
CreditSight View Comment
AS OF 16 May 2025MUFG is the largest of the megabanks with more diversified business lines. Digitalisation and operational efficiency improvements, in addition to higher rates in Japan and the US, has led to much better results in FY24. Lending discipline has lifted international margins, which are now well higher than the other two. Its ~20% shareholding in Morgan Stanley has been a boon. Acquisitions have become more targeted. Its $ liquidity is also the best amongst its peers, and government support is assured. Accelerated sales of its shareholdings accompanied by buybacks may pressure its CET1 ratio buffer, which is in line with its peers at ~230 bp. We see 20 bp of upside from current levels for its TLAC senior paper.
Recommendation Reviewed: May 16, 2025
Recommendation Changed: January 27, 2025
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Korea Gas Corp.
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Fundamental View
AS OF 27 May 2025Nissan unveiled their second strategic plan in as many years, with the Re: Nissan Recovery Plan under new CEO Ivan Espinosa focused on sweeping changes to the company’s manufacturing footprint and cost structure. We believe the plan comes with a high degree of execution risk considering execution has been a major organizational weakness in recent years. Lacking in the recovery plan, in our view, was updated details of its hybrid vehicle development and introduction targets, which would address a hole in its product lineup in a fast-growing global segment. While we are hopeful the Re: Nissan Recovery Plan succeeds, and we will be rooting for management to flawlessly execute the plan, we view currently view the plan as a “show me” story until we gain confidence in their ability to execute.
Business Description
AS OF 27 May 2025- Nissan, with headquarters in Yokohama, Japan, is a leading global automotive manufacturer with a market presence in many countries around the globe. The company’s growth investments are focused primarily on Japan, North America, and China, core markets with large profit pools in which Nissan has a meaningful market share. The company’s business in China is conducted through a joint venture with Dongfeng Motor Corporation.
- Nissan’s Sales Financing segment supports the sale of its vehicles by providing financing solutions to its customers and dealers. To enhance their creditworthiness, Nissan maintains keepwell (support) agreements with its wholly owned financial subsidiaries including Nissan Motor Acceptance Corporation (NMAC) in the United States and Nissan Financial Services (NFS) in Japan.
- The Renault-Nissan-Mitsubishi Alliance was established in 1999 to enhance member company scale in product development and raw material purchasing. The alliance includes equity participation, which led to Nissan holding ownership stakes in Renault (15% non-voting) and Mitsubishi (34%) and Renault holding an ownership stake in Nissan (43%). The Alliance’s automobile production volume is the third largest globally behind Toyota and Volkswagen.
Risk & Catalysts
AS OF 27 May 2025Management provided FY25 guidance for production volumes, retail sales, and consolidated operating profit, noting the guidance excludes tariff impacts. However, it noted its guidance for operating profit, net income, and automotive free cash flow is preliminary owing to uncertainty related to the potential impact of tariffs and additional restructuring costs that are currently being assessed. More broadly, the company is viewing FY25 as a year of transition that will set the stage for achieving positive automotive operating profit and free cash flow by FY26.
The company expects to produce and sell 3% fewer vehicles in FY25 than it did in FY24. The retail sales decline expectation is driven by lower projected sales in China, which management expects to decline by about 18%. Global production volume is expected to decline to 3.0 mn units to manage dealer inventories based on the company’s lower retail sales outlook. The company expects revenue to decrease 1% in FY25 as lower volumes are partially offset by improved sales incentive management and favorable pricing related to new model launches in 2H25.
Key Metric
AS OF 27 May 2025| JPY bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Revenue | 6,843 | 7,393 | 9,573 | 11,524 | 11,371 |
| EBIT | (471) | (42) | 242 | 409 | (54) |
| EBIT Margin | (7%) | (1%) | 3% | 4% | (0%) |
| EBITDA | (201) | 247 | 559 | 760 | 309 |
| EBITDA Margin | (2.9%) | 3.3% | 5.8% | 6.6% | 2.7% |
| Total Liquidity | 4,096 | 3,601 | 3,658 | 4,196 | 4,272 |
| Net Debt | (636) | (728) | (1,213) | (1,546) | (1,499) |
| Total Debt | 1,260 | 973 | 687 | 468 | 661 |
| Gross Leverage | n/m | 3.9x | 1.2x | 0.6x | 2.1x |
| Net Leverage | 3.2x | -2.9x | -2.2x | -2.0x | -4.8x |
CreditSight View Comment
AS OF 07 Jul 2025Our Underperform recommendation on Nissan Motor and Nissan Motor Acceptance Corporation (NMAC) notes is based on our view the notes are subject to downside risk from the recently enacted US auto import tariffs that could thwart its profit improvement initiatives in the US and potentially extend its recovery process. The major risk to our underperform recommendation is a potential partnership with Foxconn, KKR, Tesla, or Honda, the latter of which could lead to expectations for a near-term rating upgrade back to investment grade.
Recommendation Reviewed: July 07, 2025
Recommendation Changed: February 26, 2025
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Sultanate of Oman
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Fundamental View
AS OF 27 May 2025Toyota’s financial guidance for FY26 reflects expectations for higher vehicle production and wholesales but lower consolidated operating profit. Most of the decline in profit is attributable to currency that is projected to go from a tailwind in FY25 to a material headwind in FY26. The other major profit headwind is tariffs, which we estimate could be a 200 bp automotive EBITDA margin headwind based upon management’s estimates. While significant, we believe the tariff headwind – if realized – would not push its profit margin below the rating agency downgrade triggers. Management noted tariff impacts are difficult to estimate based on ongoing negotiations, including government-to-government dialog between Japan and the US.
Business Description
AS OF 27 May 2025- Toyota Motor Corp. (TMC) engages in the manufacture and sale of motor vehicles and parts. It operates through the following segments: Automotive, Financial Services, and All Other. The Automotive segment designs, manufactures, assembles and sells passenger cars, minivans, trucks, and related vehicle parts and accessories. Toyota is also involved in the development of intelligent transport systems. The Financial Services segment offers purchase or lease financing to Toyota vehicle dealers and customers. It also provides retail leasing through lease contracts purchased by dealers. The company was founded by Kiichiro Toyoda on August 28, 1937, and is headquartered in Toyota, Japan.
- Toyota Financial Services Corporation (TFSC), a wholly owned subsidiary of TMC, oversees the management of Toyota's finance companies worldwide. Toyota Motor Credit Corporation (TMCC) is the company’s principal financial services subsidiary in the United States. Under terms of the credit support agreement between TFSC and TMCC, TFSC agrees to: (1) maintain 100% ownership of TMCC; (2) cause TMCC and its subsidiaries to have a tangible net worth of at least $100,000; (3) make sufficient funds available to TMCC so that it will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper. The terms of the credit support agreement between TMC and TFSC are very similar to the terms of the TFSC and TMCC credit support agreement.
Risk & Catalysts
AS OF 27 May 2025Toyota unveiled FY26 financial guidance that includes a 5% increase in vehicle wholesales and a 1% increase in automotive revenue but a 21% decrease in consolidated operating income. Consolidated vehicle sales are expected to increase by about 5% YoY based on growth in all regions. FY25 consolidated operating income guidance of ¥3.8 tn is 21% lower on a YoY basis, which would represent the second consecutive double-digit decline from its peak ¥5.4 tn consolidated operating income it reported in FY24.
On tariffs, management stated details of tariffs are still in flux, including ongoing government-to-government negotiations between Japan and the US. It indicated the tariffs that have been imposed to date are reflected in its forecast, but noted it is difficult to forecast the future given the fluidity of global trade negotiations. The company has a long-term plan to increase its local supply percentage ratio in the US as part of its business continuity plan. However, it has no immediate plans to change in its US vehicle production or auto parts sourcing plans in the near term owing to uncertainty in country tariffs and the durability of US vehicle and auto parts tariffs.
Key Metric
AS OF 27 May 2025| JPY bn | FY21 | FY22 | FY23 | FY24 | FY25 |
|---|---|---|---|---|---|
| Automotive Revenue | 24,652 | 28,606 | 33,777 | 41,081 | 42,996 |
| EBIT | 1,778 | 2,519 | 2,486 | 4,890 | 4,047 |
| EBIT Margin | 6.5% | 8.0% | 6.7% | 10.8% | 8.4% |
| EBITDA | 2,654 | 3,526 | 3,671 | 6,159 | 5,425 |
| EBITDA Margin | 9.8% | 11.2% | 9.9% | 13.7% | 11.3% |
| Total Liquidity | 11,557 | 15,864 | 10,090 | 12,401 | 11,599 |
| Net Debt | 597 | (1,719) | (2,825) | (4,025) | (3,355) |
| Total Debt | 3,872 | 2,580 | 2,724 | 2,868 | 2,736 |
| Gross Leverage | 1.5x | 0.7x | 0.7x | 0.5x | 0.5x |
| Net Leverage | 0.2x | -0.5x | -0.8x | -0.7x | -0.6x |
CreditSight View Comment
AS OF 03 Jul 2025Our Underperform recommendation on notes of Toyota Motor Co. and Toyota Motor Credit Corporation is based primarily on relative value, although we consider the Toyota bond complex to be a relatively safe haven for long-term investors.
Recommendation Reviewed: July 03, 2025
Recommendation Changed: May 09, 2025
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Fundamental View
AS OF 27 May 2025Virtually all the company’s FY26 profit headwinds stem from currency and tariffs that combined represent a 370 bp consolidated operating profit headwind. The currency headwind is related to the depreciation of emerging market currencies against the US dollar and, in our view, is rarely a consideration in the credit rating decision-making process. The tariff headwind is more concerning, although we note the company’s tariff cost estimates are a worst-case scenario that includes tariffs on parts as the company works to complete the country-of-origin certification process to qualify for the USMCA tariff exemption. Still, we believe the weak guidance and uncertain trade environment may be enough for Moody’s and Fitch to follow S&P’s lead in revising Honda’s outlook to negative.
Business Description
AS OF 27 May 2025- Honda Motor Co., Ltd. engages in the manufacture and sale of automobiles, motorcycles, and power products. It operates through the following segments: Automobile, Motorcycle, Financial Services, and Power Product and Other Businesses. The Automobile segment manufactures and sells automobiles and related accessories. The Motorcycle segment handles all-terrain vehicles, motorcycle business, and related parts. The Financial Services segment provides financial and insurance services. The Power Products and Other Businesses segment offers power products and relevant parts.
- American Honda Finance Corporation (AHFC) is a wholly-owned subsidiary of American Honda Motor Co., Inc. (AHM or the Parent). Honda Canada Finance Inc. (HCFI) is a majority-owned subsidiary of AHFC. Non-controlling interest in HCFI is held by Honda Canada Inc. (HCI), an affiliate of AHFC. AHM is a wholly-owned subsidiary and HCI is an indirect wholly-owned subsidiary of Honda Motor Co., Ltd. (HMC). Honda Motor Co. (HMC) maintains Keep Well (support) agreements with its North American finance subsidiaries, AHFC and HCFI. Under the Keep Well agreements, HMC agrees to (1) maintain at least 80% ownership in AHFC and HCFI, (2) ensure AHFC and HCFI maintain a positive net worth, and (3) ensure both AHFC and HCFI have sufficient liquidity to meet their debt payment obligations.
Risk & Catalysts
AS OF 27 May 2025Management unveiled FY26 guidance that represented higher motorcycle wholesales, lower automobile wholesales, and a steep decline in consolidated operating income based on currency and tariff headwinds. Management expects FY26 motorcycle wholesales to increase 4%, with the change compared to FY25 driven primarily by Asia. It expects automobile wholesales in North America to increase 2% YoY; while management currently expects the North America automobile market size to be about the same as last year, it is concerned about the impact of tariffs on total demand.
FY26 revenue is expected to decline by about 6% as price increases related to “improved product values” are expected to be offset by currency headwinds. Management predicts its FY26 consolidated operating margin would be the same as its FY25 margin of 6.2% when adjusted for warranty, currency, and tariff impacts. However, the expected impacts of currency and tariffs are expected to reduce Honda’s consolidated operating income by 59% in FY26, or 370 bp of margin compression to 2.5%. The currency impacts are driven by projected depreciation of emerging market currencies against the US dollar
Key Metric
AS OF 27 May 2025| JPY bn | FY21 | FY22 | FY23 | FY24 | FY25 |
|---|---|---|---|---|---|
| Revenue | 10,908 | 11,967 | 14,167 | 17,434 | 18,509 |
| EBIT | 576 | 741 | 612 | 1,219 | 899 |
| EBIT Margin | 5.3% | 6.2% | 4.3% | 7.0% | 4.9% |
| EBITDA | 1,175 | 1,334 | 1,294 | 1,964 | 1,630 |
| EBITDA Margin | 10.8% | 11.1% | 9.1% | 11.3% | 8.8% |
| Total Liquidity | 3,717 | 4,612 | 4,926 | 6,150 | 5,387 |
| Net Debt | (2,048) | (2,481) | (2,751) | (3,762) | (3,216) |
| Total Debt | 480 | 837 | 803 | 863 | 646 |
| Gross Leverage | 0.4x | 0.6x | 0.6x | 0.4x | 0.4x |
| Net Leverage | -1.7x | -1.9x | -2.1x | -1.9x | -2.0x |
CreditSight View Comment
AS OF 08 Jul 2025We are lowering our recommendation on Honda Motor Co. and American Honda Finance Corporation notes from Market perform to Underperform based on relative value and projected tariff costs that could lead to negative outlook revisions by Moody’s and Fitch, partially offset by tariff risk mitigation strategies that we believe could improve its profit outlook over the intermediate term.
Recommendation Reviewed: July 08, 2025
Recommendation Changed: May 15, 2025
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