On Monday, BofA Securities adjusted its stance on SBI Sumishin Net Bank Ltd (7163:JP) stock, shifting the rating from Buy to Neutral and revising the price target to ¥3,150 from the previous ¥3,500. The adjustment reflects a change in the bank's short-term outlook, despite expectations of significant profit growth in the coming years.
The bank's anticipated profit growth is based on several factors. BofA Securities predicts a considerable rise in domestic net interest income as the short-term prime rate trends upward.
Additionally, the firm expects a surge in new mortgage originations and growth in Banking as a Service (BaaS) earnings. For the fiscal year ending March 2025, the forecast includes a net profit of ¥28.0 billion, marking a 13% year-over-year increase, and a Tokyo Stock Exchange-standard return on equity (ROE) of 17.6%.
Looking further ahead, projections for the fiscal year ending March 2026 show a 39% increase in net profit to ¥38.9 billion and an ROE of 20.7%. By the fiscal year ending March 2027, the net profit is expected to climb an additional 36% to ¥53.0 billion, with an ROE of 23.0%.
However, these positive long-term projections are tempered by shorter-term concerns. BofA Securities notes that SBI Sumishin Net Bank's progress in the second and third quarters towards its full-year net profit guidance is lower compared to other banks in their coverage. This is attributed to upfront deposit funding costs.
While other banks are considering upward revisions to their full-year guidance due to their strong performance, there is a risk that SBI Sumishin Net Bank's stock might underperform in the near term, especially given its significant year-to-date outperformance.
The revised outlook by BofA Securities suggests a cautious approach to SBI Sumishin Net Bank's stock in the immediate future, while acknowledging the bank's potential for substantial profit growth in the subsequent years. The new price target of ¥3,150 reflects these mixed expectations for the bank's financial performance.
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