Tokyo Kiraboshi Financial Group (7173) FY2026 FY Earnings Report

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Executive Summary

The Company posted higher revenue and profit, with Ordinary Income, Ordinary Revenue, and Net Income all increasing, driven by expanded investment income amid rising interest rates and growth in fee and commission income. Revenue (Ordinary Revenue) was ¥1,992.6B (+23.8% YoY), Ordinary Income was ¥604.8B (+45.1%), and Net Income attributable to owners of the parent was ¥423.7B (+35.1%). While expansion in loans and growth in investment income in the Banking Business segment led revenue growth, funding costs surged by +155.6% YoY, making resilience to rising funding costs a key focus for the next fiscal year.

Factors Affecting Performance

【Revenue】Ordinary Revenue increased 23.8% YoY to ¥1,992.6B. The Banking Business segment led growth, generating Ordinary Revenue from external customers of ¥1,620.7B (+24.2%), equivalent to 81.3% of the total. Loans expanded to ¥5,277.51B (+5.6%), while interest on loans increased to ¥86.06B (+20.4%). The Leasing Business and Other Businesses also contributed to revenue growth, with revenue of ¥15.84B (+10.3%) and ¥21.45B (+28.9%), respectively.

【Profit and Loss】Ordinary Income increased 45.1% YoY to ¥604.8B, while Net Income increased 35.1% to ¥423.7B, securing higher profit. General and administrative expenses were ¥69.58B, increasing only +6.2% YoY and remaining below the growth rate in Ordinary Revenue; consequently, positive operating leverage was achieved. However, funding costs rose sharply to ¥26.26B (+155.6%), substantially offsetting the increase in investment income, and growth in net interest income was limited to ¥87.09B (+1.1%). Net fee and commission income increased 18.4% to ¥23.79B, with growth in fee income also contributing to higher profit. Extraordinary income and losses were ¥0.50B and ¥0.14B, respectively, and were immaterial on a net basis, having no impact on the conclusion of higher revenue and profit. Overall, the Company posted higher revenue and profit, primarily driven by cost control and expansion of non-interest income.

Segment Analysis

The Banking Business segment led overall performance, generating Ordinary Revenue of ¥1,620.7B (+24.2%), segment profit of ¥57.54B (+45.1%), and a profit margin of 35.5%. The Leasing Business generated Ordinary Revenue of ¥15.84B (+10.3%), segment profit of ¥0.47B (+11.6%), and a profit margin of 3.0%, indicating relatively lower earnings resilience compared with the Banking Business and Other Businesses. Other Businesses, including consulting and card operations, generated Ordinary Revenue of ¥21.45B (+28.9%), segment profit of ¥12.56B (+4.5%), and a high profit margin of 58.5%, although profit growth slowed. The Banking Business accounts for 81.3% of Ordinary Revenue, representing a concentrated structure in which changes in regional financial conditions and credit costs can have a significant impact on consolidated performance.

Key Financial Indicators

【Profitability】The Ordinary Income margin expanded to 30.4% from 25.9% in the previous fiscal year, while the Net Income margin also improved to 21.3% from 19.5%. ROE was 10.0%, improving by approximately 1.5pt from 8.5% in the previous fiscal year, primarily due to the higher Net Income margin and improved cost efficiency.【Cash Flow Quality】Operating Cash Flow (OCF) was negative ¥137.81B. Its comparison with Net Income reflects the banking-specific structure resulting from changes in loan and deposit balances and securities holdings. This represents an improvement from negative ¥237.38B in the previous fiscal year.【Investment Efficiency】Capital expenditures of ¥5.09B were below depreciation and amortization of ¥7.46B, with the scale of investment remaining within the range of depreciation and amortization. ROA, based on Ordinary Income, was 0.8%.【Financial Soundness】The Equity Ratio was 5.8%, while the loan-to-deposit ratio was 85.3%, indicating that lending operations remained within the deposit funding base. Retained earnings increased 18.4% YoY to ¥235.93B, reflecting continued capital accumulation through retained internal funds.

Cash Flow Analysis

Operating Cash Flow (OCF) was negative ¥137.81B, but improved by ¥99.56B from negative ¥237.38B in the previous fiscal year. In banking, changes in deposit, loan, and securities balances have a significant impact on OCF; therefore, it is inappropriate to evaluate this deficit on the same basis as a cash-conversion indicator for general operating companies. Investing Cash Flow was negative ¥11.03B, including capital expenditures of ¥5.09B, resulting in negative Free Cash Flow of ¥148.84B. Financing Cash Flow was negative ¥5.32B and included share repurchases of ¥0.09B. Cash and cash equivalents decreased by ¥154.16B from the end of the previous fiscal year, reflecting the shift in the deployment of funds associated with loan growth in the movement of the funding position.

Earnings Quality

The current fiscal year’s profit growth was supported by improvements in the recurring earnings structure. Investment income increased +21.4% YoY due to loan growth and improved yields, while net fee and commission income also rose +18.4%, confirming growth in the fee-based business. Meanwhile, funding costs surged +155.6% YoY, and the effective growth in net interest income was limited to +1.1%; this is an important consideration in evaluating earnings quality. Extraordinary income of ¥0.50B and extraordinary losses of ¥0.14B were both small on a net basis, and there was no material contribution from temporary factors to current-period profit. The difference between Profit Before Tax of ¥60.85B and Ordinary Income of ¥604.8B was immaterial, while the gap between Ordinary Income and Net Income was limited to the ordinary burden of income taxes and other taxes of ¥18.48B. Comprehensive Income of ¥57.55B exceeded Net Income of ¥423.7B, with positive valuation differences on securities, deferred hedge gains and losses, retirement benefit adjustments, and other items contributing to the result.

Earnings Forecast and Guidance

The Company’s forecast for the fiscal year ending March 2027 calls for Ordinary Income of ¥586.0B (-3.1% versus current-period actual results) and Net Income of ¥400.0B (-5.6%), representing lower profit than the current fiscal year. Forecast EPS is ¥143.11, and the dividend forecast is ¥30. However, the dividend forecast is presented after reflecting the conversion of preferred shares into common shares and a stock split at a ratio of 1 share for 8 shares; the annual dividend before taking the split into account is stated as ¥240. The Company does not appear to assume the current high rate of profit growth for the next fiscal year and has formulated a plan that conservatively incorporates rising deposit funding costs and slower growth in net interest income.

Shareholder Returns

The annual dividend on common shares was ¥170, corresponding to a Payout Ratio of 12.3%. The return relative to Net Income of ¥423.7B was low, indicating substantial capacity for earnings-based shareholder returns. Share repurchases were small at ¥0.09B, and the Total Return Ratio, including dividends, was approximately 12.5%. For the next fiscal year, a dividend forecast of ¥30 has been presented after reflecting the conversion of preferred shares into common shares and the stock split; before taking the split into account, the dividend is ¥240. The merits of an effective dividend increase policy will be determined after considering the status of capital adequacy.

Risk Factors

1. Sharp increase in funding costs: Funding costs rose sharply to ¥26.26B, up +155.6% YoY. If higher deposit rates outpace improvements in lending and investment yields, net interest income could come under pressure.

2. High earnings concentration in the Banking Business: The Banking Business segment accounts for 81.3% of Ordinary Revenue, creating a structure in which changes in regional loan demand, the competitive environment, and credit costs can have a significant impact on consolidated performance.

3. Relatively low profit margin in the Leasing Business: The Leasing Business segment’s profit margin was 3.0%, lower than the 35.5% recorded by the Banking Business and the 58.5% recorded by Other Businesses, indicating relatively limited resilience to rising interest rates, residual value risks, and credit risks.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

The Net Income margin exceeds the industry median by 9.4pt and is positioned within the upper range.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median by 13.8pt, indicating high growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Ordinary Income margin expanded by approximately 4.5pt YoY to 30.4%. The fact that the expense growth rate of +6.2% was substantially below the Ordinary Revenue growth rate of +23.8% demonstrates cost discipline during a period of earnings expansion.

2. While funding costs surged +155.6% YoY, growth in net interest income was limited to +1.1%. The ability to absorb higher funding costs resulting from rising interest rates is a key structural area of focus and a factor behind the forecast for lower Ordinary Income in the next fiscal year.

3. The Payout Ratio of 12.3% and Total Return Ratio of approximately 12.5% were both low relative to Net Income, while retained earnings increased +18.4% YoY. Capital accumulation has progressed with priority given to retained internal funds.

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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, after consulting with a professional where necessary.

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