Sumitomo Mitsui Trust: No Change to Our View, Fair Value Estimate Remains at JPY 3,420

Sumitomo Mitsui Trust Holdings, or SMTH, saw December-quarter net income of JPY 49.2 billion, which appears to be coming in short of our full-year expectation of JPY 86 billion and the company's guidance. However, we keep our earnings forecasts unchanged, and our fair value estimate remains at JPY 3,420 as we do not think the gap is insurmountable nor does it impact our longer-term assumptions. SMTH is seeing losses on sales of its bear funds due to the rising values in the Japanese stock market. This is not surprising, but it does eat into the bottom-line performance for the quarter. The company is aiming to complete sales of these funds, and we do not expect it to be an issue in future years. We think SMTH is slightly undervalued but note that its business mix means that it doesn't benefit from growing net interest margins relative to pure banks like Sumitomo Mitsui Financial Group while the current financial year's dip in profit is keeping investors sidelined. However, we think SMTH's expanding net assets per share is a better gauge of its business fundamentals.