San ju San Financial Group (7322) FY2027 Q1 Earnings Report

Quick View

Executive Summary

While ordinary revenue grew at a double-digit rate, profit declined, indicating low-quality growth accompanied by a narrowing interest margin. Revenue (ordinary revenue) increased significantly to ¥284.9B, up +31.2% YoY, but ordinary income declined to ¥33.8B (-10.2% YoY), and net income declined to ¥24.4B (-12.4% YoY). The primary factor appears to be margin compression resulting from higher funding costs for deposits and other sources. Although cost efficiency (cost-to-income ratio of approximately 36%) has been maintained, lower profitability is directly reflected in the bottom line.

Factors Affecting Performance

【Revenue】Ordinary revenue increased substantially to ¥284.9B, up +31.2% YoY. By segment, Bank remained the core business (78.6% of the total, ¥225.2B, YoY +25.1%), while Lease (20.0% of the total, ¥57.3B, YoY +56.1%) drove overall growth. Other businesses (including credit card and credit guarantee operations) remained limited at ¥4.0B, up YoY +8.2%.

【Profit and Loss】Ordinary income declined to ¥33.8B (-10.2% YoY), while net income declined to ¥24.4B (-12.4% YoY). Extraordinary items were minor, comprising extraordinary gains of ¥0.02B and extraordinary losses of ¥0.21B, indicating virtually no impact from one-time factors. Ordinary income and pretax income were at nearly the same level (¥33.8B and ¥33.6B, respectively), while the effective tax rate remained within a normal range at approximately 27.3% (corporate income taxes and other taxes of ¥9.2B / pretax income of ¥33.6B). The structure is one in which top-line expansion has not translated into profit growth, leading to the conclusion that the Company achieved higher revenue but lower profit.

Segment Analysis

Segment profit (based on ordinary income) was ¥39.5B for Bank (-10.4% YoY), ¥0.7B for Lease (+166.7% YoY, although the absolute amount remains small), and ¥37.1B for Other businesses (+107.8% YoY). Bank is the largest segment, accounting for 78.6% of revenue, but its profit margin remained at 17.6%, reflecting the challenging interest-margin environment. Lease posted substantial growth in both revenue and profit, but its absolute scale is small and its contribution to overall profit is limited. Other businesses (including credit card and credit guarantee operations) recorded an exceptionally high profit margin of 931.4%; however, this includes the effects of adjustment items and the elimination of intersegment transactions, so caution is required when interpreting this as the segment’s standalone earnings power. Overall profit is structurally highly dependent on interest-margin trends in the Bank segment.

Key Financial Indicators

【Profitability】The net profit margin was 8.6%, down from approximately 12.8% in the previous year. ROE was 1.0% and the equity ratio was 5.0%, both remaining at low levels. 【Cash Flow Quality】Comprehensive income was ¥40.0B, exceeding net income of ¥24.4B, mainly due to a ¥16.4B increase in valuation differences on securities. The impact of extraordinary items was minor, consisting of extraordinary gains of ¥0.02B and extraordinary losses of ¥0.2B, with ordinary income accounting for the vast majority of profit. 【Investment Efficiency】Total assets were ¥4兆6,379B and net assets were ¥2,326B, resulting in a net-assets-to-total-assets ratio of approximately 5.0%, reflecting the high-leverage structure characteristic of the banking industry. Loans increased by +1.6% from the end of the previous fiscal year to ¥3兆1,760B, while deposits increased by +1.0% to ¥3兆8,368B. 【Financial Soundness】The equity ratio of 5.0% was flat from the previous year and represents a level with limited headroom relative to regulatory requirements. Treasury stock increased from ¥4.6B in the previous year to ¥9.1B, indicating progress in share repurchases.

Cash Flow Analysis

Although a cash flow statement has not been disclosed, the flow of funds can be inferred from balance sheet trends. Loans increased by +¥511.6B (+1.6%) from the end of the previous fiscal year, while deposits increased by +¥380.5B (+1.0%), indicating that growth in fund deployment slightly exceeded growth in funding. Borrowings moved from ¥272.4B to around ¥282.5B, with no significant change in the degree of reliance on market funding. Treasury stock increased from ¥4.6B to ¥9.1B, confirming the implementation of shareholder returns funded by retained earnings and surplus. Overall, there are no signs of strained funding, and the expansion of both assets and liabilities is progressing gradually.

Earnings Quality

Ordinary income accounted for the vast majority of profit during the period, while extraordinary items were minor at a net loss of -¥0.19B, limiting distortion from one-time factors. Ordinary income of ¥33.8B and pretax income of ¥33.6B were at nearly the same level, indicating a limited additional contribution from non-operating items. The effective tax rate after deducting corporate income taxes and other taxes of ¥9.2B was approximately 27.3%, within a normal range, with no abnormal tax burden observed. Meanwhile, comprehensive income of ¥40.0B exceeded net income of ¥24.4B, primarily due to a ¥16.4B increase in valuation differences on securities. It should be noted that this represents capital strengthening dependent on market conditions rather than core earnings. The difference between ordinary income and net income is consistent with the tax burden, and there is no major distortion in the quality of earnings itself. However, the decline in ordinary income despite top-line expansion can be interpreted as reflecting the structural factor of the interest-margin environment.

Earnings Forecast and Guidance

Q1 progress against the full-year plan was approximately 15.8% for ordinary income, at ¥33.8B / planned ¥214.0B, and approximately 16.3% for net income, at ¥24.4B / planned ¥150.0B. Both were below the simple quarterly even-progress benchmark of 25%, suggesting progress based on a plan weighted toward the second half of the fiscal year. The full-year plan calls for ordinary income to increase by +28.6% YoY, requiring a reversal from the declining trend seen in Q1. Neither the earnings forecast nor the dividend forecast had been revised as of the current quarter.

Shareholder Returns

The Company’s forecast annual dividend is ¥44 per share, implying a payout ratio of approximately 30.5% against forecast EPS of ¥144.14. Based on forecast net income of ¥150.0B, total annual dividends are estimated at approximately ¥45.7B, a level sufficiently covered within forecast net income. A 4-for-1 stock split of common shares was implemented effective April 1, 2026; therefore, the previous-year dividend of ¥64 per share is a pre-split figure and should be interpreted accordingly. Treasury stock increased from ¥4.6B at the end of the previous fiscal year to ¥9.1B, indicating progress in share repurchases. Because the total return ratio combining dividends and share repurchases cannot be calculated from the disclosed information, the Company is evaluated based solely on the payout ratio.

Risk Factors

1. Interest-Margin Compression Risk: The Bank segment’s profit margin was 17.6%, down from the previous year. If the increase in funding costs for deposits and other sources exceeds improvement in asset yields, margins may come under further pressure.

2. Capital Buffer Risk: The equity ratio was 5.0%, remaining at a low level and flat from the previous year. If market volatility, including changes in valuation differences on securities, or higher-than-expected credit costs occurs, the decline in capital headroom may become a concern.

3. Segment Concentration Risk: Bank accounts for 78.6% of revenue, and profit is also strongly linked to the performance of Bank. Changes in the interest-rate environment and regulatory trends surrounding the banking business are structurally capable of directly affecting consolidated performance.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

Because comparative data is limited, it is difficult to make a clear assessment of the Company’s relative position within the industry.

Growth and Capital Efficiency

The revenue growth rate of +31.2% appears high on an absolute basis, but because median data has not been established, no determination can be made regarding the Company’s relative standing within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. While the top line expanded significantly, with ordinary revenue increasing +31.2%, both ordinary income and net income declined. The lack of a corresponding increase in profit despite revenue growth is the defining feature of the current quarter.

2. Progress against the full-year plan was 15.8% for ordinary income and 16.3% for net income, both below the quarterly even-progress benchmark of 25%. Improvement in the interest-margin environment during the second half is therefore a prerequisite for achieving the full-year plan.

3. While the equity ratio remained low at 5.0%, share repurchases progressed from ¥4.6B in the previous year to ¥9.1B. Balancing the two requirements of improving capital efficiency and securing regulatory capital headroom will be a key monitoring point going forward.

---

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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2027 Q1 was a mixed start: top-line banking revenue expanded strongly, but ordinary profit and net income declined as funding and other ordinary expenses rose faster than income. Consolidated ordinary revenue increased 31.2% year on year to JPY28.49bn. Ordinary income fell 10.2% to JPY3.38bn, while profit attributable to owners fell 12.4% to JPY2.44bn. The ordinary-income margin compressed to 11.9% from 17.3% a year earlier, a 547bp decline. Net margin similarly contracted to 8.6% from 12.8%, down 428bp. Interest income grew 32.2% to JPY16.72bn, supported by loan interest income rising 23.9% to JPY12.06bn and securities interest and dividend income rising 69.8% to JPY4.11bn. However, interest expense increased 78.5% to JPY3.64bn, including a 64.9% increase in deposit interest expense to JPY2.93bn. Net interest income still rose 23.3% to JPY13.08bn, but this lagged the pace of gross revenue growth. Net fee and commission income increased 8.7% to JPY2.37bn, providing a modest diversification benefit. General and administrative expenses increased only 4.2% to JPY10.29bn, indicating that the principal earnings pressure was not a broad-based operating-cost surge. Other ordinary expenses increased to JPY2.48bn from JPY1.30bn, contributing to the decline in ordinary income. The banking segment remained the core business, generating JPY3.95bn of segment profit, although this was down 10.4% year on year. The leasing segment improved, with segment profit rising to JPY0.72bn from JPY0.27bn, but its earnings contribution remained small relative to banking. Other businesses, including credit-card and credit-guarantee activities, increased segment profit to JPY3.71bn from JPY1.78bn, although larger consolidation and purchase-accounting adjustments reduced the translation of segment earnings into consolidated ordinary income. Comprehensive income fell 56.4% to JPY4.00bn, reflecting a substantially smaller contribution from valuation-related comprehensive-income movements than in the prior year. The annualized ROE was 4.2%, below the 8% general benchmark and indicative of modest earnings generation relative to the group’s equity base. Full-year ordinary-income guidance of JPY21.40bn implies Q1 progress of 15.8%, and net-income guidance of JPY15.00bn implies 16.3% progress; both are below the standard 25% first-quarter run rate but not more than 10 percentage points below it. The FY2027 dividend forecast is JPY44 per share, implying a forecast dividend payout ratio of approximately 30.5% against forecast EPS of JPY144.14. The forward earnings outcome will depend primarily on whether asset-yield improvement and volume growth can continue to exceed the rising cost of deposits and other funding.

Profitability Analysis

The reported annualized DuPont ROE of 4.2% is composed of an 8.6% net profit margin, 0.025x asset turnover and 19.94x financial leverage. For a deposit-funded bank, high balance-sheet leverage is structurally characteristic, so the more decision-useful drivers of shareholder return are margin resilience, credit costs, capital adequacy and the productivity of earning assets. The main negative movement was profitability rather than asset utilization: ordinary-income margin fell 547bp year on year and net margin fell 428bp. Revenue growth of 31.2% was more than offset by the 78.5% increase in interest expense and the 90.6% rise in other ordinary expenses. Interest income growth remained robust at 32.2%, but the rise in funding costs reduced the conversion of revenue into earnings. The supplied NIM of 0.41% is materially below the 1.5% warning threshold, identifying narrow intermediation spreads as a central profitability constraint. Net interest income grew 23.3%, demonstrating that the group has retained positive earnings sensitivity to asset repricing and balance growth, but the spread pressure suggests that the benefit is not yet sufficient to protect margins. General and administrative expenses rose 4.2%, well below revenue growth, demonstrating favorable operating leverage in the controllable cost base. A simple G&A-to-ordinary-revenue measure was approximately 36.1%, although this is not equivalent to a standardized banking cost-to-income ratio. The five-factor DuPont tax burden was 0.727, consistent with the 27.3% effective tax rate and not an unusual tax drag. The interest burden was 0.994, indicating that the difference between profit before tax and the operating-profit proxy was limited. Extraordinary items were immaterial, with JPY0.02bn of gain and JPY0.21bn of loss, so the earnings decline was principally within recurring ordinary operations. The current profitability profile is sustainable only if loan and securities yields continue to reprice more rapidly than deposit costs and if higher other ordinary expenses do not persist.

Growth Assessment

Revenue growth was broad-based within banking income. Loan interest increased by JPY2.33bn year on year, securities interest and dividends increased by JPY1.69bn, and fees and commissions increased by JPY0.33bn. Deposits grew 1.0% year on year to JPY3,836.83bn and loans and bills discounted rose 1.6% to JPY3,176.08bn, supporting continued balance-sheet expansion. The loan-to-deposit ratio was approximately 82.8%, within the 70-90% reference range, indicating that loan growth remains principally funded by the deposit franchise. The banking segment’s external ordinary revenue grew 25.1% to JPY22.52bn, but segment profit declined 10.4% to JPY3.95bn, confirming that margin and expense pressure is concentrated in the core business. Leasing external revenue grew 56.1% to JPY5.73bn and segment profit rose 166.7% to JPY0.72bn, albeit from a low prior base. Other businesses generated JPY3.98bn of external revenue and JPY3.71bn of segment profit, compared with JPY3.68bn and JPY1.78bn respectively in the prior year. Consolidation adjustments to segment profit widened to negative JPY4.35bn from negative JPY2.46bn, materially limiting consolidated earnings conversion. Management’s full-year forecast requires an acceleration from the Q1 run rate, with ordinary income and net income progress at 15.8% and 16.3%, respectively. The forecast therefore embeds an expectation that earnings conditions improve after Q1, potentially through seasonal factors, further yield repricing or normalization in expenses. Forecast ordinary income is expected to increase 28.6% year on year, making funding-cost containment and core-bank margin stabilization the key requirements for delivery.

Financial Health

Total assets increased JPY53.86bn year on year to JPY4,637.94bn, while total equity increased JPY1.46bn to JPY232.63bn. Deposits increased JPY38.05bn to JPY3,836.83bn, providing the group with a substantial customer-funding base. Loans and bills discounted increased JPY53.16bn to JPY3,176.08bn, exceeding deposit growth and lifting the loan-to-deposit ratio modestly to 82.8% from approximately 82.3%. Cash and due from banks were JPY349.87bn, while securities were JPY994.72bn, giving the group sizeable liquid and marketable asset holdings alongside its loan book. Borrowed money declined JPY10.14bn to JPY272.41bn and negotiable certificates of deposit increased JPY9.00bn to JPY205.86bn. The reported debt-to-equity ratio of 18.94x is above the 2.0x general corporate warning level and must be treated as a material quality alert. Its root cause is the banking model, under which deposits, certificates of deposit and wholesale funding are recognized as liabilities and finance a large earning-asset base. This leverage is typical in banking and is not directly comparable with industrial-company D/E ratios, but it amplifies sensitivity to deposit repricing, wholesale-funding conditions, asset-quality deterioration and securities valuation changes. Liabilities represented 95.0% of total assets, reinforcing the importance of funding stability and regulatory capital rather than conventional corporate current-ratio analysis. The reported capital adequacy ratio was 5.0%, below the 8% Basel III reference minimum and below the 12% strong-capital benchmark. On the supplied figure, capital adequacy is a high-priority risk because it can constrain balance-sheet growth, loss absorption and shareholder distributions. Treasury stock increased in absolute value by JPY0.45bn to negative JPY0.91bn, a 96.8% year-on-year movement, indicating a larger repurchase or treasury-share balance; the amount remains small relative to JPY232.63bn of equity. Accumulated other comprehensive income increased JPY1.56bn to JPY17.87bn, supported by a rise in securities valuation differences, which improved book equity but also leaves capital partly exposed to market-price movements. Intangible assets were only 0.1% of total assets, limiting balance-sheet dependence on intangible-value retention.

Notable B/S Changes

Loans and bills discounted: +JPY53.16bn (+1.6%) to JPY3,176.08bn - continued loan expansion supports interest income but increases credit-risk exposure. Deposits: +JPY38.05bn (+1.0%) to JPY3,836.83bn - core funding base expanded, though growth was lower than the absolute increase in loans. Securities: +JPY9.80bn (+1.0%) to JPY994.72bn - maintains a large liquid investment portfolio but increases market-value and interest-rate sensitivity. Accumulated other comprehensive income: +JPY1.56bn (+9.5%) to JPY17.87bn - improved equity through valuation gains, with potential reversal risk if market conditions change. Treasury stock: -JPY0.45bn (-96.8%) to -JPY0.91bn - larger treasury-share balance, though still immaterial relative to total equity. Intangible assets: +JPY0.47bn (+8.3%) to JPY6.15bn - remains only 0.1% of total assets and does not represent a material impairment concentration.

Cash Flow Quality

Recurring cash-flow conversion cannot be assessed from the reported period data. Earnings quality within the income statement was nevertheless supported by the immaterial scale of extraordinary items: the net extraordinary loss was JPY0.19bn, equivalent to less than 1% of ordinary income. The reduction in ordinary income was therefore not masked by significant non-recurring gains. The principal earnings-quality issue is economic rather than accounting-driven: net interest income rose, but funding costs increased materially faster than interest income. Deposit interest expense rose JPY1.15bn year on year, and total interest expense rose JPY1.60bn. The balance sheet also shows loans increasing more rapidly in absolute yen terms than deposits, which makes continued deposit retention and pricing discipline important. Securities rose JPY9.80bn to JPY994.72bn, and the associated valuation difference increased JPY1.64bn; this creates sensitivity of comprehensive income and equity to interest-rate and market-price moves. No conclusion on free-cash-flow coverage of dividends or capital investment is drawn because banking cash-flow statements are heavily affected by deposit and interbank balance movements and are not presented here.

Dividend Sustainability

The FY2027 forecast dividend is JPY44 per share. Against forecast EPS of JPY144.14, the implied dividend payout ratio is approximately 30.5%, below the 60% sustainability reference level. This forecast payout leaves a meaningful portion of forecast profit available for internal capital generation. Q1 EPS was JPY23.49, representing 16.3% of the full-year EPS forecast, so the dividend outlook depends on the expected earnings acceleration during the remaining quarters. The dividend forecast has not been revised. The stated stock split of four-for-one effective April 1, 2026 means the prior disclosed JPY64 dividend should not be compared directly with the FY2027 JPY44 forecast without adjustment for the split basis. Given the reported 5.0% capital adequacy ratio, capital retention and regulatory-capital developments are more important determinants of distribution capacity than the forecast payout ratio alone. The increase in treasury stock was small relative to equity, but any further repurchases would need to be evaluated using total return ratio rather than dividend payout ratio.

Risk Assessment

Business risks include Interest-rate and deposit-repricing risk: interest expense rose 78.5%, materially faster than interest income growth of 32.2%, and the supplied NIM is only 0.41%., Core-bank earnings risk: banking segment profit declined 10.4% despite 25.1% revenue growth, indicating weaker profit conversion in the principal earnings source., Credit-cycle risk: loans expanded to JPY3,176.08bn, increasing exposure to borrower stress if regional economic conditions weaken., Securities-market risk: securities totaled JPY994.72bn and securities valuation differences increased to JPY14.64bn, exposing comprehensive income and capital to interest-rate and market-price volatility., Regional-bank competition risk: competition for deposits and loans can further narrow asset-liability spreads and raise customer acquisition or retention costs., Earnings-consolidation risk: negative segment-profit adjustments widened to JPY4.35bn from JPY2.46bn, reducing visibility from segment performance to consolidated ordinary income..

Financial risks include High leverage alert: reported D/E of 18.94x reflects deposit-funded banking leverage but heightens sensitivity to funding costs and asset losses., Capital adequacy risk: the reported 5.0% capital adequacy ratio is below the stated 8% minimum reference and could limit growth and capital returns., Funding-mix risk: deposits remain the principal funding source, while certificates of deposit were JPY205.86bn and borrowed money was JPY272.41bn, requiring ongoing wholesale-funding access., Valuation reserve volatility: accumulated other comprehensive income of JPY17.87bn is material relative to equity and can fluctuate with securities prices and interest rates..

Key concerns include High likelihood/high impact: sustained funding-cost inflation could prevent the group from achieving its forecast 28.6% increase in full-year ordinary income., Medium likelihood/high impact: a capital adequacy ratio remaining at the supplied 5.0% level would be a significant regulatory and strategic constraint., Medium likelihood/medium impact: Q1 ordinary-income progress of 15.8% and net-income progress of 16.3% require a meaningful second-half improvement to meet full-year guidance., Medium likelihood/medium impact: annualized ROE and reported ROIC of 4.2% remain below the 5% and 8% reference levels, indicating limited capital efficiency..

Investment Implications

Key takeaways include Strong revenue and net interest income growth demonstrate positive asset-yield and volume momentum., Margin compression is the central issue: ordinary-income margin fell 547bp and net margin fell 428bp year on year., The banking segment is the core business and its profit decline outweighs the improved leasing contribution., The 82.8% loan-to-deposit ratio indicates balanced loan funding through deposits, but the low 0.41% NIM shows that funding economics remain challenging., The forecast dividend payout ratio of about 30.5% is moderate, while capital adequacy remains the more important constraint on shareholder distributions..

Metrics to watch include Net interest margin and the relative repricing of loan yields versus deposit rates, Quarterly interest expense, particularly deposit interest expense, Banking-segment profit margin and consolidated adjustment amounts, Capital adequacy ratio relative to the 8% minimum and 12% strong-capital references, Loan growth, deposit growth and loan-to-deposit ratio, Securities valuation differences and accumulated other comprehensive income, Progress toward full-year ordinary-income guidance of JPY21.40bn and net-income guidance of JPY15.00bn.

Regarding relative positioning, The group combines a stable deposit-funded regional-bank balance sheet and improving non-interest revenue with weaker-than-desired spread profitability. Its 0.41% supplied NIM, 4.2% annualized ROE and reported 5.0% capital adequacy ratio place earnings efficiency and capital strength at the center of relative assessment versus better-capitalized regional-bank peers.