Chugin Financial Group (5832) FY2026 FY Earnings Report

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Executive Summary

This was a set of results in which both ordinary revenue and profit increased substantially, primarily due to an improved interest income environment. Ordinary revenue was ¥2,490.7B (+17.6% YoY), Ordinary Income was ¥560.4B (+46.2%), and Net Income attributable to owners of the parent was ¥397.1B (+44.7%). While the expansion of funds investment income in the banking business drove higher revenue and profit, the sharp increase in interest on deposits (+88.9%) warrants attention as a factor that could influence future net interest margins.

Factors Affecting Performance

【Revenue】Ordinary revenue of ¥2,490.7B increased +17.6% YoY. The banking business, which accounts for 90.8% of consolidated ordinary revenue, led growth with an increase of +18.8%, while funds investment income expanded YoY to ¥1,699.6B (interest on loans +8.6%, with an increase in interest on securities). The securities business posted strong growth in ordinary revenue of ¥49.5B (+27.6%), whereas the leasing business declined slightly to ¥144.2B (△0.9%) and was essentially flat.

【Profit and Loss】Ordinary Income of ¥560.4B increased +46.2% YoY, outpacing revenue growth and indicating operating leverage. Segment profit in the banking business was ¥524.8B (+46.6%), primarily because the growth in funds investment income (+13.2%) exceeded the increase in funding costs (+2.3%). Special income was ¥0.1B compared with special losses of ¥3.9B, resulting in a net loss of ¥3.7B and having a limited impact on Profit Before Tax of ¥556.7B. Net Income of ¥397.1B (+44.7%) was broadly consistent with the growth in Ordinary Income, resulting in higher revenue and profit.

Segment Analysis

The banking business led the Group with ordinary revenue of ¥2,260.7B (+18.8% YoY) and segment profit of ¥524.8B (+46.6%), representing a profit margin of 23.2%. The securities business maintained a profit margin of 27.5%, with ordinary revenue of ¥49.5B (+27.6%) and profit of ¥13.6B (+56.7%); although small in scale, it has high profitability. The leasing business reported ordinary revenue of ¥144.2B (△0.9%) and profit of ¥5.5B (△19.7%), with its profit margin declining to 3.8%, indicating continued lower profitability compared with the other businesses. Other businesses, including the credit card and investment advisory businesses, generated profit of ¥382.9B (+96.5%); however, because this includes intra-Group dividends, fees received, and the elimination of intersegment transactions, it would not be appropriate to interpret the apparently high profit margin as the earnings power of external businesses.

Key Financial Indicators

【Profitability】The Net Income margin was 15.9%, improving from 13.0% in the prior year, while the Ordinary Income margin was 22.5%, indicating that profit growth outpaced revenue growth. ROE was 6.4%, and the Equity Ratio was 5.5%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥709.0B, equivalent to 1.79 times Net Income of ¥397.1B, and the accrual ratio was negative, indicating solid cash support for earnings. 【Investment Efficiency】Capital expenditures were ¥66.5B, compared with depreciation and amortization of ¥52.7B, indicating continued investment exceeding depreciation and amortization, including investment above replacement levels. Intangible assets were ¥50.9B and goodwill was ¥11.4B, both modest in scale, limiting the risk of goodwill-related impairment. 【Financial Soundness】The loan-to-deposit ratio was 80.5% (loans of ¥6,797.0B ÷ deposits of ¥8,445.0B), within an appropriate range; however, the Equity Ratio of 5.5% is at a level requiring ongoing monitoring as an indicator of bank soundness. Borrowings increased to ¥851.9B (+11.5% YoY), while bonds increased to ¥400.0B (+33.3%), indicating growth in market-based funding and warranting attention to changes in the funding composition.

Cash Flow Analysis

Operating Cash Flow (OCF) increased +51.0% YoY to ¥709.0B, equivalent to 1.79 times Net Income of ¥397.1B, providing solid cash support for earnings. OCF before changes in working capital was ¥857.5B, with changes in other assets and increases in liabilities contributing to actual OCF. Investing CF was a substantial outflow of minus ¥2,931.8B, apparently reflecting transactions in financial assets, including securities investments in the banking business; therefore, comparison with general operating companies on the same basis would not be appropriate. Financing CF was minus ¥61.1B, with share repurchases of ¥30.0B and dividend payments being the primary outflows. Free cash flow, calculated as OCF plus investing CF, was minus ¥2,222.7B, and cash and cash equivalents decreased ¥2,283.9B from the prior year to ¥973.3B.

Earnings Quality

Net Income of ¥397.1B was sufficiently supported by OCF of ¥709.0B, and the accrual ratio was negative, indicating limited reliance on accrual-based earnings. Special income was ¥0.1B and special losses were ¥3.9B, including impairment losses of ¥0.3B, resulting in a net loss of ¥3.7B. Their impact on Profit Before Tax of ¥556.7B was minor at approximately 0.7%, indicating that current-period earnings were generally supported by recurring earnings power. Comprehensive income was ¥935.3B, substantially exceeding Net Income of ¥397.1B. The primary factors behind the difference were valuation-related items such as deferred hedge gains and losses of ¥388.5B, adjustments related to retirement benefits of ¥84.1B, and valuation differences on securities of ¥65.6B. These items are susceptible to changes in interest rates and market conditions, and the substantial divergence between Net Income and comprehensive income should be noted when assessing earnings quality.

Earnings Forecast and Guidance

Actual progress against the full-year forecast was equivalent to 94.7% for ordinary revenue, 86.2% for Ordinary Income, and 88.2% for Net Income. The full-year forecast assumes revenue of ¥2,630.0B, Ordinary Income of ¥650.0B (+15.9% YoY), EPS of ¥253.14, and dividends of ¥102.00, implying earnings growth and dividend growth in the coming period from actual EPS of ¥222.95 and actual annual dividends of ¥90. Realizing earnings growth and higher dividends in the coming period will depend on simultaneously sustaining growth in net interest income and accumulating equity capital.

Shareholder Returns

Annual dividends totaled ¥90, consisting of an interim dividend of ¥37 and a year-end dividend of ¥53, resulting in a Payout Ratio of 40.2% against Net Income of ¥397.1B. Share repurchases of ¥30.0B were conducted, bringing the Total Return Ratio, including dividends and share repurchases, to approximately 47.9%. Dividend coverage based solely on dividends remains sufficient, while retained earnings of ¥5,386.3B also provide substantial internal support for dividends. If the full-year forecast of annual dividends of ¥102 is achieved, dividends will increase by ¥12 from the actual ¥90.

Risk Factors

1. Compression of the net interest margin: Interest on deposits increased sharply by +88.9% YoY, substantially exceeding the +8.6% growth in interest on loans. If the rise in deposit interest rates outpaces the improvement in investment yields, growth in net interest income may slow.

2. Concentration of earnings in the banking business: The banking business accounts for 90.8% of consolidated ordinary revenue, creating a structure in which changes in interest rates and the credit environment directly affect consolidated performance. The leasing business declined to ordinary revenue of △0.9% and profit of △19.7%, with its profit margin falling to 3.8%; the earnings contribution from non-banking businesses remains limited.

3. Equity capital level: An Equity Ratio of 5.5% is an important consideration in assessing capital capacity as a deposit-taking financial institution. Market-based funding, including borrowings (+11.5%) and bonds (+33.3%), has also increased, requiring ongoing monitoring together with changes in the funding composition.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The Net Income margin is 4.1pt above the industry median.

Growth and Capital Efficiency

The Revenue growth rate is 7.6pt above the industry median, indicating strong growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Ordinary Income increased +46.2% and Net Income increased +44.7%, with profit growth exceeding revenue growth; the Net Income margin improved by approximately 2.9pt YoY. The expansion of funds investment income in the banking business was the primary driver of profit growth.

2. OCF of ¥709.0B, equivalent to 1.79 times Net Income, was secured, providing solid cash support for current-period earnings. Conversely, the divergence between comprehensive income of ¥935.3B and Net Income of ¥397.1B was largely attributable to valuation-related items such as deferred hedge gains and losses.

3. The sharp increase in interest on deposits (+88.9%) and the leasing business’s decline in revenue and profit, with its profit margin falling to 3.8%, are key points to monitor when considering the sustainability of the earnings structure. The full-year forecast assumes Ordinary Income growth of +15.9% and higher dividends, making progress from the next period onward an important reference point.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional advisor as necessary.

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