Tokyo Kiraboshi Financial Group (7173) FY2027 Q1 Earnings Report

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Executive Summary

The expansion of interest income and fee income outpaced the increase in expenses, resulting in higher revenue and earnings accompanied by improved profit margins. Ordinary revenue was ¥51.10B (+31.5% YoY), ordinary income was ¥12.06B (+44.7%), and quarterly net income attributable to owners of the parent was ¥8.12B (+40.9%). The ordinary income growth rate exceeded the ordinary revenue growth rate by more than 13 percentage points, indicating that revenue expansion translated efficiently into earnings. Meanwhile, progress against the full-year ordinary income forecast of ¥58.60B was only 20.6%, below the standard benchmark of 25%.

Factors Affecting Performance

【Revenue】Ordinary revenue increased 31.5% YoY to ¥51.10B. Ordinary revenue from external customers in the core Banking Business segment increased 32.8% to ¥42.42B, driving the increase in revenue. The Leasing Business recorded a modest 6.2% increase to ¥3.90B, while Other Businesses grew substantially by 45.9% to ¥4.80B. Funds investment income increased 22.4% to ¥31.42B, including an 18.1% increase in interest on loans to ¥24.56B. Fee and commission income also increased 16.6% to ¥7.49B, with non-interest income contributing to the increase in revenue.

【Profit and Loss】Ordinary income increased 44.7% YoY to ¥12.06B. General and administrative expenses increased only 2.6% to ¥17.65B, substantially below the rate of revenue growth, resulting in positive operating leverage. However, funding expenses increased 48.3% YoY to ¥8.62B, outpacing the growth in funds investment income, and the increase in funding costs may put pressure on spreads going forward. Extraordinary gains and losses declined from a net gain of ¥0.12B in the same period of the previous year to zero in the current period, indicating a limited impact from one-time factors. The gap between ordinary income and net income is attributable to the normal tax burden, reflected in an effective tax rate of 32.6%; no non-recurring factors were identified. In conclusion, the Company delivered higher revenue and earnings.

Segment Analysis

The Banking Business led earnings growth as the core business, with ordinary revenue of ¥42.42B (+32.8%) and segment profit of ¥11.15B (+38.8%). The Leasing Business recorded ordinary revenue of ¥3.90B (+6.2%) and segment profit of ¥0.15B (+58.5%); although small in scale, its profit margin improved. Other Businesses—including consulting, information services, and credit cards—recorded ordinary revenue of ¥4.80B (+45.9%) and segment profit of ¥51.81B. However, this figure includes internal ordinary revenue of ¥53.31B, and its effective contribution to consolidated profit after elimination of intersegment transactions (△¥51.00B) is limited. It should therefore be noted that the Banking Business was the primary driver of the underlying earnings growth.

Key Financial Indicators

【Profitability】The ordinary income margin was 23.6%, improving by approximately 2.2pt from 21.4% in the same period of the previous year. The net income margin was 15.9%, improving by approximately 1.1pt from 14.8%. 【Cash Flow Quality】Comprehensive income was ¥14.80B, exceeding net income of ¥8.12B by ¥6.68B. Other comprehensive income made a significant contribution, including ¥4.12B in valuation differences on securities and ¥2.99B in deferred hedge gains and losses, indicating broad-based growth that includes valuation-related factors relative to net income for the period. 【Investment Efficiency】Annualized ROE was 8.2%, while the loan-to-deposit ratio was 84.8%, calculated as loans of ¥536.48B divided by deposits of ¥632.38B, which is within an appropriate range. 【Financial Soundness】The equity ratio was 5.2%, down from 5.7% in the same period of the previous year, reflecting a ¥40.00B decrease in capital surplus associated with the exercise of acquisition rights and cancellation of preferred shares. Net assets were ¥395.32B, a decrease of ¥28.12B YoY.

Cash Flow Analysis

As the data do not include cash flow statement items, funding trends are analyzed based on changes in the balance sheet. Deposits increased 2.2% YoY, or ¥13.83B, to ¥632.38B, indicating an expansion of the stable funding base. Loans increased 1.7%, or ¥8.72B, to ¥536.48B, indicating that the Company expanded asset deployment within the range of deposit growth. Securities increased 18.6%, or ¥16.33B, to ¥104.14B, suggesting that part of the funds was allocated to securities investments. Cash and due from banks decreased slightly to ¥79.25B from ¥82.60B in the same period of the previous year, indicating a shift in the composition of liquid assets toward securities and loans.

Quality of Earnings

All earnings for the current period were derived from recurring business activities. Extraordinary losses were zero, and one-time factors recorded in the same period of the previous year, such as losses on disposal of fixed assets, totaling approximately ¥0.12B on a net basis, had been eliminated in the current period. In the portion corresponding to non-operating income, the increase in funding expenses (+48.3% YoY) offset part of the increase in funds investment income, indicating that the quality of revenue growth incorporates pressure from higher funding costs. Comprehensive income of ¥14.80B significantly exceeded net income of ¥8.12B, with valuation-related other comprehensive income, such as valuation differences on securities and deferred hedge gains and losses, making a contribution. Accordingly, evaluating earnings power based solely on net income for the period may understate the actual effects of changes in capital. From an accruals perspective, the 2.6% increase in general and administrative expenses was substantially below the 31.5% increase in revenue, and no significant change was observed in the conservatism of expense recognition.

Earnings Forecast and Guidance

The full-year ordinary income forecast remains unchanged at ¥58.60B (-3.1% YoY), with no revisions to the earnings forecast. Progress against first-quarter ordinary income of ¥12.06B was 20.6%, below the simple one-quarter benchmark of 25%. However, first-quarter ordinary income increased substantially by 44.7% YoY, and the Company’s plan may not fully incorporate the current strong performance into its full-year forecast. In the Banking Business, securities-related gains and losses and credit costs tend to fluctuate during the fiscal year. Therefore, failure to meet the full-year target cannot be determined solely from the low progress rate; trends in net interest income and credit costs in the second half of the fiscal year will be key to achieving the plan.

Shareholder Returns

The full-year dividend forecast is ¥30.0 per share, while forecast EPS is ¥143.11, resulting in an expected payout ratio of approximately 21.0%. The payout ratio based on total dividends relative to the full-year forecast net income attributable to owners of the parent of ¥40.00B also remains broadly at the same level, indicating a relatively low dividend burden relative to forecast earnings. There has been no revision to the dividend forecast for the current quarter. In May 2026, all Series 1 and Series 2 Class A preferred shares were eliminated through the exercise of acquisition rights and cancellation. Future dividends should therefore be evaluated primarily based on the policy for common shares. In addition, an 8-for-1 stock split of common shares was implemented effective July 1, 2026, and split-adjusted figures are required when comparing per-share dividends and EPS with prior fiscal years.

Risk Factors

1. Risk of narrowing interest spreads: Funding expenses increased 48.3% YoY to ¥8.62B, exceeding the 22.4% increase in funds investment income. If deposit interest rates continue to rise, the sustainability of the current improvement in profit margins may decline.

2. Decline in the equity ratio: The equity ratio declined to 5.2% from 5.7% in the same period of the previous year. The decline in capital surplus of ¥40.00B associated with the exercise of acquisition rights and cancellation of preferred shares was a contributing factor. Capital accumulation, valuation differences, and changes in capital policy need to be monitored continuously.

3. Risk of fluctuations in securities and market prices: Securities totaled ¥104.14B, accounting for 13.8% of total assets, an increase of 18.6% YoY. Fluctuations in interest rates and market prices may affect comprehensive income and net assets through valuation differences.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (bank)

Profitability and Returns

Growth and Capital Efficiency

※Source: Company analysis

Key Points from the Earnings Results

1. The trend of higher revenue and earnings is clear, with ordinary revenue up 31.5% and ordinary income up 44.7%. Profit margins improved as the increase in general and administrative expenses was limited to 2.6%. Growth in the Banking Business segment’s profit (+38.8%) drove consolidated performance, demonstrating the resilience of the core business.

2. Funding expenses increased at a faster pace than funds investment income (+48.3% vs. +22.4%), indicating intensifying funding cost pressure behind the revenue expansion. Whether this trend continues in the coming quarters will determine the sustainability of profit margin improvements.

3. The equity ratio declined from 5.7% in the same period of the previous year to 5.2%, against the backdrop of a decrease in capital surplus associated with the cancellation of preferred shares. Together with the 20.6% progress rate against the full-year ordinary income forecast, capital levels and second-half performance trends will be key areas to monitor going forward.

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not constitute a recommendation to invest 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 professionals as necessary.

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