Japan Stocks — Valuations, P/E & Dividends

On 13 November Japan Tobacco reported results for the third quarter of 2026. Revenue rose 11.8% year on year to JPY 1,005.3 bn, EBITDA added 10.3% to JPY 362.2 bn, while net profit fell 2.5% to JPY 187.1 bn. Growth slowed from the second quarter, when revenue was up 17.0%, and the EBITDA margin narrowed from 36.5% to 36.0%. Our conclusion: fairly valued – on the portal's model the upside to fair value is +7%. Our view: the share is fairly valued; upside on the portal model +7%.

Our view: is there upside

Our view in numbers

Key takeaways

— Q3 revenue grew 11.8%, slower than the 17.0% seen in Q2

— EBITDA added 10.3%, while its margin narrowed from 36.5% to 36.0%

— Net profit fell 2.5%, with the margin down from 21.3% to 18.6%

— Operating cash flow of JPY 399.9 bn covers capex of JPY 40.0 bn almost tenfold

— Net debt fell from JPY 884.6 bn a year earlier to JPY 786.1 bn, with the ratio to LTM EBITDA at 0.64

— A dividend yield of 4.8% remains the main support for the shareholder

— EV/EBITDA LTM of 8.6 is 25% below its own three-year average of 11.5

Key figures, JPY bn

Q3 revenue grew 11.8%, slower than the 17.0% seen in Q2

Revenue for the third quarter of 2026 came in at JPY 1,005.3 bn, 11.8% above the level a year earlier. Growth remains in double digits, but the pace slowed: in the second quarter revenue was adding 17.0%. The deceleration of 5.2 percentage points shows that quarter-on-quarter momentum is weakening.

Over the trailing twelve months revenue amounted to JPY 3,825.0 bn. That base includes both strong quarters and a weak fourth quarter of 2025 with revenue of JPY 833.6 bn. The current quarterly level of JPY 1,005.3 bn is above the four-quarter average, confirming the recovery after the slump at the end of last year.

EBITDA added 10.3%, while its margin narrowed from 36.5% to 36.0%

EBITDA for the third quarter was JPY 362.2 bn, 10.3% more than a year earlier. Growth lags revenue slightly, so the EBITDA margin declined from 36.5% to 36.0%. The 0.5 percentage point compression is small, but it shows that costs are rising faster than income.

Over the trailing twelve months EBITDA amounted to JPY 1,233.1 bn. The quarterly level of JPY 362.2 bn corresponds to roughly 29% of the annual base, which fits normal seasonality. Operating profit for the quarter was JPY 300.0 bn, and its gap to EBITDA is explained by depreciation.

Net profit fell 2.5%, with the margin down from 21.3% to 18.6%

Net profit for the third quarter was JPY 187.1 bn, 2.5% less than a year earlier. The net margin fell from 21.3% to 18.6%. A 2.7 percentage point margin decline alongside EBITDA growth suggests the pressure came below the operating line – from financial items or tax.

Over the trailing twelve months net profit amounted to JPY 617.3 bn. The quarterly result of JPY 187.1 bn is about 30% of the annual base, close to the revenue share. The gap between EBITDA growth and the profit decline points to items outside operating activity weighing on the bottom line.

Operating cash flow of JPY 399.9 bn covers capex of JPY 40.0 bn almost tenfold

Operating cash flow for the third quarter was JPY 399.9 bn, while capital expenditure was JPY 40.0 bn. Free cash flow after investment exceeds JPY 350 bn for the quarter. That is strong conversion: the flow is almost twice quarterly net profit.

Over the trailing twelve months operating cash flow amounted to JPY 958.3 bn. The quarterly level of JPY 399.9 bn is about 42% of the annual base, above the revenue and profit shares. Such a flow gives the company room to pay shareholders and reduce debt without external financing.

Net debt fell from JPY 884.6 bn a year earlier to JPY 786.1 bn, with the ratio to LTM EBITDA at 0.64

Net debt at 30 September 2026 was JPY 786.1 bn versus JPY 884.6 bn at 30 September 2025, a twelve-month reduction of JPY 98.5 bn. From the previous reporting date of 30 June 2026, debt fell from JPY 848.9 bn by JPY 62.7 bn. The reduction rests on strong quarterly operating cash flow.

The ratio of net debt to trailing twelve-month EBITDA is 0.64. That is a moderate level: debt is about one and a half times less than annual EBITDA. With such a cushion, interest expense does not create noticeable pressure on profit.

A dividend yield of 4.8% remains the main support for the shareholder

The trailing twelve-month dividend yield is 4.8%. That is noticeably above the return an investor could get from risk-free instruments and provides a regular cash flow to the holder. Payments rest on strong annual operating cash flow of JPY 958.3 bn.

Our estimate of the current-year dividend assumes the payout ratio and LTM profit of JPY 617.3 bn are maintained. The risk to the payment is further net margin compression: if profit keeps falling, the dividend could be revised. For now, free cash flow after capex of JPY 40.0 bn covers the payments with room to spare.

EV/EBITDA LTM of 8.6 is 25% below its own three-year average of 11.5

The trailing twelve-month EV/EBITDA multiple is 8.6 against its own three-year average of 11.5. A 25% discount suggests the market values the company below its usual level over the past three years. P/E LTM stands at 15.8, and market capitalisation is JPY 9,764.9 bn.

On the portal's model the upside to fair value is +7%. That is a moderate cushion that does not fully offset the margin compression risk. The combination of a discount to history and modest model upside leaves the share in fairly valued territory.

Valuation on the latest reported figures

Bottom line

The quarter's strong point remains cash flow: JPY 399.9 bn of operating flow with capex of JPY 40.0 bn. Net debt fell to JPY 786.1 bn, and the ratio to LTM EBITDA is 0.64. The weak spot is profit: the net margin dropped from 21.3% to 18.6%, and revenue growth slowed to 11.8%. The key question for the holder is whether the 4.8% dividend yield holds up amid margin compression. Our conclusion: fairly valued – on the portal's model the upside to fair value is +7%. Our view: the share is fairly valued; upside on the portal model +7%.

Japan Tobacco reported second-quarter 2026 results on 31 July. Revenue reached JPY 1,062.1bn, up 17.0% year on year, EBITDA came to JPY 407.6bn (+36.1%) and net profit to JPY 234.8bn (+44.6%). The EBITDA margin rose to 38.4% from 33.0% a year earlier, while net debt at end-June stood at JPY 848.9bn, or 0.7x LTM EBITDA. The stock trades at 11.8x LTM EV/EBITDA, in line with its own three-year average of 11.5, and the portal's model puts upside to fair value at +22%; with a 3.5% dividend yield and a strong margin, the share looks rather attractive.

Key takeaways

— Revenue rose 17.0% in the second quarter, and growth accelerated relative to prior quarters

— The EBITDA margin climbed to 38.4% from 33.0%, contributing more to profit than revenue growth itself

— Net profit rose 44.6%, but Q4 2025 was a loss-making quarter, so the annual profit base is uneven

— Net debt fell to JPY 848.9bn from JPY 1,083.0bn at 31 March, and the ratio to LTM EBITDA stands at 0.7

— Operating cash flow for the quarter was JPY 291.7bn against capex of JPY 33.3bn

— Dividend yield of 3.5% is backed by payouts funded from profit rather than debt

— LTM EV/EBITDA of 11.8 is in line with the three-year average of 11.5, and the portal model implies +22% upside

Attractiveness

Key figures, JPY bn

Revenue rose 17.0% in the second quarter, and growth accelerated relative to prior quarters

Revenue for the second quarter of 2026 was JPY 1,062.1bn, up 17.0% from a year earlier. For comparison, first-quarter revenue was JPY 924.0bn, fourth-quarter 2025 revenue was JPY 833.6bn and second-quarter 2025 revenue was JPY 907.6bn. The second quarter was therefore the strongest by revenue in the last five quarters.

Revenue growth of 17.0% is well ahead of prior periods. In the first quarter of 2026 revenue was 1.8% above the first quarter of 2025, while in the fourth quarter of 2025 it was 8.1% below the year-earlier level. The acceleration in the second quarter reflects a recovery in volumes and pricing factors, although the report does not disclose the exact drivers.

Revenue over the trailing twelve months was JPY 3,719.2bn. That figure spans both strong quarters and the weak fourth quarter of 2025, so the annual base looks smoother than the quarterly dynamics.

The EBITDA margin climbed to 38.4% from 33.0%, contributing more to profit than revenue growth itself

EBITDA for the second quarter of 2026 was JPY 407.6bn against JPY 275.3bn a year earlier, up 36.1%. With revenue growth of 17.0%, this means the EBITDA margin rose from 33.0% to 38.4%. That margin gain of about 5.4 percentage points adds roughly JPY 57bn to EBITDA in absolute terms.

Operating profit rose to JPY 337.1bn from JPY 226.7bn a year earlier, or 48.7%. That is slightly faster than EBITDA growth, suggesting depreciation and other operating costs grew more slowly than revenue. Net profit came to JPY 234.8bn against JPY 162.4bn, up 44.6%.

The margin expansion may have been supported by a lower share of selling and administrative costs in revenue and by operating leverage on higher volumes. The report does not disclose which cost line made the main contribution, so we limit ourselves to stating that the margin rose substantially and that this is the main source of profit growth.

Net profit rose 44.6%, but Q4 2025 was a loss-making quarter, so the annual profit base is uneven

Net profit for the second quarter of 2026 was JPY 234.8bn, up 44.6% from the second quarter of 2025. It is worth remembering, however, that the company posted a loss of JPY 1.6bn in the fourth quarter of 2025. That makes quarterly dynamics uneven and complicates year-on-year comparisons.

Over the trailing twelve months net profit was JPY 622.1bn. That includes the strong second and third quarters of 2025, the weak fourth quarter and the recovering first quarter of 2026. The annual profit base is therefore lower than one might expect from a stable quarterly run rate.

Profit growth in the second quarter of 2026 is partly explained by the low base of the second quarter of 2025, when the margin was lower. But the absolute level of profit – JPY 234.8bn – is the highest in the last five quarters, which speaks to the strength of the current period.

Net debt fell to JPY 848.9bn from JPY 1,083.0bn at 31 March, and the ratio to LTM EBITDA stands at 0.7

Net debt at 30 June 2026 was JPY 848.9bn against JPY 1,083.0bn at 31 March 2026, a decrease of JPY 234.1bn over the quarter. A year earlier, at 30 June 2025, net debt was JPY 761.2bn, so over twelve months it rose by JPY 87.6bn.

The ratio of net debt to trailing-twelve-month EBITDA is 0.7. That is a moderate level that does not put pressure on financial stability. The quarterly decline in debt came on the back of strong operating cash flow of JPY 291.7bn.

Interest expense is not disclosed in the provided data, but with this level of debt and strong EBITDA the company has considerable headroom to service its obligations. It is important to note that the quarterly decline in debt does not necessarily indicate a sustained trend, as debt can fluctuate with seasonal factors and repayment schedules.

Operating cash flow for the quarter was JPY 291.7bn against capex of JPY 33.3bn

Operating cash flow in the second quarter of 2026 was JPY 291.7bn, well above the first quarter (JPY 39.6bn) and the second quarter of 2025 (JPY 174.0bn). Such a strong flow reflects high profitability and efficient working-capital management.

Capital expenditure for the quarter was JPY 33.3bn, slightly above the second quarter of 2025 (JPY 30.6bn). Free cash flow was therefore about JPY 258.4bn, covering dividend payments and debt reduction.

Over the trailing twelve months operating cash flow was JPY 677.9bn. That is a solid base for funding capex and dividends. The company retains a high ability to generate cash even in periods with weaker quarterly results.

Dividend yield of 3.5% is backed by payouts funded from profit rather than debt

The trailing-twelve-month dividend yield is 3.5%. The company pays dividends out of net profit, which over the trailing twelve months was JPY 622.1bn. With such profit and cash flow, the payouts look sustainable.

Our estimate for the current-year dividend assumes the payout ratio stays close to its current level. With LTM net profit of JPY 622.1bn and a payout ratio of about 50%, the dividend could be around JPY 311bn, which at the current market capitalisation of JPY 13,385.0bn implies a yield of about 2.3%. That estimate depends on the board's final decision and may be adjusted.

A yield of 3.5% exceeds the key rate, making the stock attractive to income-oriented investors. It should be borne in mind, however, that dividend payments could be cut if profit deteriorates or capex rises. The main risk is a possible reduction in the payout ratio if weak quarterly results like the fourth quarter of 2025 recur.

LTM EV/EBITDA of 11.8 is in line with the three-year average of 11.5, and the portal model implies +22% upside

The trailing-twelve-month EV/EBITDA multiple is 11.8, just 2% above the three-year average of 11.5. This means the stock is valued by the market almost exactly as it has been on average over the past three years, with no notable premium or discount to its own history.

The portal's model, which links EBITDA growth to a target multiple, puts the upside to fair value at +22%. This is our own estimate, not a market consensus. It rests on the current level of profit and assumes the margin and growth rates are maintained.

For comparison, the LTM P/E is 21.5 and ROE is 22.2%. The combination of a moderate EV/EBITDA and high return on equity suggests the company uses capital efficiently and the current valuation does not look stretched. Realising the upside, however, requires the company to hold the margin and avoid another quarterly loss like the one in the fourth quarter of 2025.

Valuation on the latest reported figures

Bottom line

The report's strengths are revenue growth of 17.0%, an EBITDA margin expanding to 38.4% and net profit of JPY 234.8bn. Part of that growth, however, reflects the low base of the second quarter of 2025, and LTM profit of JPY 622.1bn is lower than one might expect from a stable run rate. Debt fell over the quarter but rose over the year. The key question for a holder is whether the company can hold the margin and avoid another quarterly loss. With EV/EBITDA in line with its history and a 3.5% dividend yield, the share looks rather attractive.

On August 25, Mitsubishi UFJ Financial Group released its results for the second quarter of 2026. Net profit for the reported period came in at JPY 809,427 million, up 48.2% year on year. Net interest income in Q2 reached JPY 2,067,065 million, but its growth from Q1 2026 was only 1.0%. Meanwhile, trailing twelve-month profit stands at JPY 2,690,588 million, and return on equity is 14.4%. In our view, the stock looks attractive: profit is growing faster than net interest income, while the dividend yield of 2.76% and the portal model's 8% upside to fair value support the case.

Key takeaways

— Q2 net profit rose 48.2% year on year to JPY 809,427 million, but net interest income added only 1.0% from Q1

— Net interest income in Q2 was JPY 2,067,065 million – just 1.0% above Q1 2026

— Return on equity of 14.4% and trailing twelve-month profit of JPY 2,690,588 million underpin a dividend yield of 2.76%

— The trailing P/E of 15.0 is above the historical average, but the portal model sees 8% upside to fair value

— A dividend yield of 2.76% with a payout ratio near 40% looks sustainable, but growth is capped by slowing net interest income

Attractiveness

Key figures, JPY bn

Q2 net profit rose 48.2% year on year to JPY 809,427 million, but net interest income added only 1.0% from Q1

Net profit for the second quarter of 2026 came in at JPY 809,427 million, up 48.2% from the same period a year earlier. This is well above the first-quarter 2026 figure of JPY 613,721 million. Such profit growth with only a modest increase in net interest income suggests that the main contribution came from other lines – likely fee income or one-off items that the company does not break out in the provided data.

Net interest income in Q2 reached JPY 2,067,065 million, up just 1.0% from Q1 2026. Year on year, net interest income growth was 27.5% in Q1 2026, but the pace slowed in Q2. This indicates that the interest margin is no longer the main driver of profit.

Trailing twelve-month profit was JPY 2,690,588 million, while net interest income for the same period was JPY 7,966,900 million. The ratio of profit to net interest income over the last twelve months is about 34%, confirming the dependence of profit on non-operating items.

Net interest income in Q2 was JPY 2,067,065 million – just 1.0% above Q1 2026

Net interest income in Q2 2026 was JPY 2,067,065 million, just 1.0% above the Q1 2026 level of JPY 2,047,250 million. This is a sharp slowdown from the 27.5% year-on-year growth in Q1. Such dynamics suggest that the interest margin has stopped expanding, and further profit growth will depend on other revenue sources.

Over the last twelve months, net interest income totalled JPY 7,966,900 million. If quarterly growth remains at 1.0%, the annual figure may increase only marginally. This poses a risk to profit if fee and other income do not continue to grow.

Return on equity of 14.4% and trailing twelve-month profit of JPY 2,690,588 million underpin a dividend yield of 2.76%

Return on equity (ROE) over the last twelve months was 14.4%. This is a high level for the banking sector, supporting stable dividend payments. Trailing twelve-month profit of JPY 2,690,588 million provides dividend coverage.

The trailing twelve-month dividend yield is 2.76%. At the current share price and earnings per share, the payout ratio is estimated at around 40% of profit. This is a moderate level that leaves room for dividend growth if profit continues to rise.

However, dividend growth may slow if net interest income stops growing. In that case, maintaining the yield would require either a higher payout ratio or profit growth from other lines.

The trailing P/E of 15.0 is above the historical average, but the portal model sees 8% upside to fair value

The trailing price-to-earnings (P/E) ratio is 15.0. This is above the company's historical average, which may indicate limited upside. However, the portal model, based on return on equity and price-to-book, estimates 8% upside to fair value.

The company's market capitalisation is JPY 40,363,133 million. With trailing twelve-month profit of JPY 2,690,588 million and ROE of 14.4%, the stock trades at a premium to historical levels, but the portal model sees room for appreciation.

A dividend yield of 2.76% with a payout ratio near 40% looks sustainable, but growth is capped by slowing net interest income

The trailing twelve-month dividend yield is 2.76%. With a payout ratio of around 40% of profit, the company maintains a balance between shareholder payouts and reinvestment. This is a moderate yield that may be attractive against low rates, but it is not exceptionally high.

The main risk to dividends is the slowdown in net interest income growth. If it remains at JPY 2,067,065 million per quarter, the annual figure may not show significant growth, limiting profit and dividend increases. At the same time, a high ROE of 14.4% provides a cushion.

Valuation on the latest reported figures

Bottom line

The strong points of the report were a 48.2% year-on-year rise in net profit to JPY 809,427 million and a high ROE of 14.4%. However, this growth was achieved with almost flat net interest income, raising questions about its sustainability. A dividend yield of 2.76% and the portal model's 8% upside support the stock's appeal, but slowing net interest income is a key risk. Verdict: the stock looks attractive for income-oriented investors, but requires monitoring of the interest margin trend.