Mizuho Financial

Mizuho's first-quarter fiscal 2026 (ending March 2027) net income jumped 46% year on year to JPY 423 billion on broad-based growth in net interest income, net fee income and trading income. Return on equity increased to 12% from 8%, and the bank doubled its buyback program to JPY 200 billion.

Why it matters: Mizuho raised fiscal 2026 net income guidance to JPY 1.4 trillion following a strong start to the year. The updated guidance incorporates an additional Bank of Japan rate hike, which was already reflected in our assumptions. We adjusted our fiscal 2026 forecast to better reflect the guided JPY 360 billion net gain on share sales and stronger trading income. We continue to expect share sale gains to normalize, leaving our long-term forecasts largely unchanged. The larger buyback was within expectations given management's previously stated 50% total payout ratio target. With higher earnings forecasts and unchanged fiscal 2026 dividend guidance of JPY 150 per share, we now expect full-year buybacks of around JPY 313 billion.

The bottom line: Our JPY 6,900 ($8.90 per ADR) fair value estimate for no-moat Mizuho is unchanged after increasing our fiscal 2026 earnings forecast by 10%, as our long-term earnings outlook remains intact. Our valuation implies a fiscal 2026 price/book of 1.42 times, supported by an average return on equity of 12% over fiscal 2026-30 as a more favorable domestic rate environment drives net interest margin expansion. We think shares look expensive at current levels, as the benefits of Bank of Japan policy normalization appear largely priced in.

Key stats: First-quarter domestic average asset yield rose 90 basis points from fiscal 2025 levels, outpacing the 13-basis-point increase in domestic average liability yield. For the overseas portfolio, average liability yields fell 31 basis points, more than the 21-basis-point decline in average asset yields.

Our fair value estimate is $6.05 per share. This is 1.02 times our forecast March 2026 book value per share and represents a 3.3% yield based on Mizuho's plan to pay a JPY 145 dividend for the year ending March 2026.

Our base-case scenario assumes that the net interest margin widens by around three basis points per year as Japanese loan interest rates rise, that fee income and expenses grow at around 3%, and that credit costs, currently lower than at the other two Japanese megabanks, rise toward 20 basis points of loans a decade from now amid higher interest rates in Japan. Our forecasts lead to an average return on equity of 10.2% over the next five years, an improvement over Mizuho's average of around 7% over the past decade. We use an 8.5% cost of equity to derive our fair value estimate.

We do not believe Mizuho has an economic moat. In domestic retail, Mizuho has a smaller presence than its two megabank rivals and lacks a consumer finance business or a credit card subsidiary. In global banking, Mizuho focused on a relatively small number of very large corporates for which the banking market is very competitive, as its strategy has been to use lending as a loss leader for more lucrative fee business, including securities-related business. For the securities business alone, Mizuho's earnings have been near or above our assumed cost of equity, but here it faces substantial competition both domestically, where it is smaller in retail securities business (though not in institutional business) than Nomura and Daiwa, and globally, where a strong point of differentiation has been its ability to use its large balance sheet.

Mizuho’s position is stronger in banking to large corporates in Japan, accounting for around 40% of total profits, where it enjoys strong long-term customer relationships, but the low-interest-rate environment in Japan has limited returns in this area and is likely to do so for the foreseeable future.

Mizuho has significantly improved its previously inferior capital position, allowing it to return more capital to shareholders and invest in growth.

Mizuho's long-term cost-reduction plans should give it room to invest in IT and growth areas, while still reducing its cost/income ratio over time.

Compared with its Japanese megabank peers, expectations for Mizuho remain relatively low, in our view, giving room for upside surprise as long as the group continues to perform well.

Mizuho depends on institutional banking and securities business, with less earnings diversification than peers from areas like consumer finance, leasing, and local banking outside of Japan.

Mizuho's retail business in Japan is less profitable than those of some peers, despite improvement in recent years.

With less capital to spare until recently, Mizuho has not been able to match its Japanese megabank rivals in investments in Southeast and South Asia.