Daishi Hokuetsu Financial Group (7327) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, the Company posted higher revenue and earnings, primarily due to an expansion in interest income, with improved profitability. Ordinary revenue was ¥260.25B (+33.7% YoY), ordinary income was ¥61.11B (+48.6% YoY), and net income attributable to owners of the parent was ¥42.11B (+43.4% YoY; +62.3% based on XBRL net income). The earnings growth rate exceeded the revenue growth rate, and the ordinary income margin improved from the prior year. While expansion in loans and growth in net interest income in the Banking Business drove results, the sharp increase in deposit interest expense warrants close monitoring as a factor affecting future net interest margin trends.

Factors Affecting Performance

【Revenue】Ordinary revenue increased 33.7% YoY to ¥260.25B. By segment, the Banking Business accounted for the majority at ¥224.42B (86.2% of the total, +40.2% YoY), followed by the Securities Business at ¥5.86B (+14.0% YoY) and the Leasing Business at ¥22.35B (+5.0% YoY). Growth in the Banking Business was supported by a 5.2% increase in the loan balance from the end of the prior year and a 19.5% increase in interest income on funds invested.

【Earnings】Ordinary income increased 48.6% YoY to ¥61.11B, while net income increased 43.4% YoY to ¥42.11B on an attributable-to-owners-of-the-parent basis. Net interest income (interest income on funds invested less interest expenses on funds raised) increased 22.4% YoY to ¥9.008B, while general and administrative expenses were contained to a 3.1% increase. Revenue growth exceeding the increase in expenses contributed to margin improvement. Banking Business segment profit increased 61.4% YoY to ¥56.71B and was the primary driver of consolidated earnings growth, whereas Leasing Business segment profit deteriorated significantly to ¥0.05B (-95.7% YoY). Although the Company recorded extraordinary losses of ¥1.66B, including impairment losses of ¥1.40B, their impact was limited at 2.7% of ordinary income. Higher revenue and earnings.

Segment Analysis

The Banking Business led consolidated performance, with ordinary revenue of ¥224.42B (86.2% of the total, +40.2% YoY) and segment profit of ¥56.71B (+61.4% YoY; 25.3% margin). The Securities Business maintained higher revenue and earnings, with ordinary revenue of ¥5.86B (+14.0% YoY) and segment profit of ¥2.41B (+23.7% YoY; 41.1% margin). Although the Leasing Business recorded higher revenue of ¥22.35B (+5.0% YoY), segment profit plunged to ¥0.05B (-95.7% YoY), representing a significant deterioration in profitability. The concentration of revenue and profit in the Banking Business increased further from the prior fiscal year, while the diversification effect provided by the non-banking segments declined during the current period.

Key Financial Indicators

【Profitability】The ordinary income margin was 23.5%, improving by approximately 2.4pt from 21.1% in the prior year, while the net profit margin also increased by approximately 1.1pt YoY to 16.2%. ROE was 7.4%. Under DuPont analysis, this comprised a 16.2% net profit margin, total asset turnover of 0.024x, and financial leverage of 19.04x, indicating a structure in which high leverage is supporting profitability.【Cash Flow Quality】Operating Cash Flow (OCF) was negative ¥49.668B and diverged substantially from net income. However, because changes in deposits, loans, and securities balances in the Banking Business are directly reflected in OCF, it is not appropriate to assess this metric on the same basis as for general operating companies.【Investment Efficiency】Capital expenditures of ¥3.69B were only 0.64x depreciation and amortization expenses of ¥5.72B, indicating that investment for replacement continues to remain below depreciation.【Financial Soundness】The Equity Ratio was 5.3%. The loan-to-deposit ratio was 69.0%, calculated as loans of ¥587.21B divided by deposits of ¥8.51334T, representing a conservative level from a liquidity perspective. The securities balance was ¥2.51320T, down 13.5% from the prior year, indicating continued portfolio contraction.

Cash Flow Analysis

OCF was negative ¥49.668B, investing cash flow was an inflow of ¥38.945B, and financing cash flow was negative ¥1.353B, resulting in presented free cash flow of negative ¥10.723B. In the Banking Business, changes in deposits, loans, and securities balances are significantly reflected in OCF. Accordingly, this figure reflects changes in the composition of funding and investment and is difficult to interpret as a cash-conversion measure of earnings in the same manner as for general operating companies. The inflow from investing cash flow appears to have been primarily attributable to the decrease in the securities balance (-13.5% YoY), partially offsetting the outflow from OCF. Capital expenditures were ¥3.69B, while depreciation and amortization expenses were ¥5.72B, with investment remaining within the level of depreciation. Cash and cash equivalents at the end of the period were ¥2.2429T, a decrease of ¥120.75B for the year.

Quality of Earnings

Recurring earnings capacity was supported by growth in net interest income (¥9.008B, +22.4% YoY) and an increase in fee income (¥4.039B, +11.9% YoY), indicating that most of the earnings growth arose from recurring operations. Meanwhile, the Company recorded extraordinary income of ¥0.29B and extraordinary losses of ¥1.66B, including impairment losses of ¥1.40B. This represented a temporary factor that reduced pretax income by ¥1.37B, although the impact was small relative to ordinary income. Comprehensive income was ¥103.85B, exceeding net income by ¥61.75B. Factors contributing to the increase included valuation differences on securities of ¥31.91B, deferred hedge gains or losses of ¥19.41B, and adjustments for retirement benefits of ¥10.42B. This divergence was largely attributable to valuation-related factors arising from changes in market conditions. When assessing the quality of net income for the period, it is necessary to note that the factors driving changes in comprehensive income may contract if market conditions reverse.

Earnings Forecast and Guidance

The full-year forecast calls for ordinary income of ¥73.60B (+20.4% YoY) and net income attributable to owners of the parent of ¥50.00B. Current-period ordinary income of ¥61.11B represents 83.0% of the full-year forecast, while net income of ¥42.11B represents 84.2% of the forecast. Compared with the current-period earnings growth rate of 48.6%, the 20.4% growth rate assumed in the full-year plan is modest, suggesting that the plan incorporates a slowdown in net interest income growth as well as increases in expenses and credit costs.

Shareholder Returns

The Payout Ratio was 40.0% (total dividends of ¥16.86B ÷ net income attributable to owners of the parent of ¥42.11B). Total dividends include payments under trust-type stock compensation plans and other schemes and should be distinguished from cash dividend payments of ¥13.92B. Share repurchases were minimal at ¥0.004B, and the Total Return Ratio also remained approximately in line with the Payout Ratio at 40.0%. The forecast annual dividend is ¥76; however, it should be noted that dividends during the period cannot be simply aggregated due to stock splits in October 2024 and October 2025. Because presented free cash flow was negative, the source of funds for dividends during the current period depended primarily on retained earnings and the capital base.

Risk Factors

1. Revenue concentration in the Banking Business: The Banking Business accounts for 86.2% of ordinary revenue, creating a structure in which fluctuations in interest income, credit costs, and gains or losses on securities directly affect consolidated performance.

2. Risk of rising deposit costs: Deposit interest expense increased sharply to ¥1.549B, more than tripling YoY. The sustainability of net interest income will depend on whether increases in lending and securities investment yields can continue to exceed increases in funding costs.

3. Market sensitivity of securities and comprehensive income: The securities balance accounts for 23.2% of total assets, and other comprehensive income of ¥61.75B made a significant contribution to the increase in net assets. However, this entails the risk that valuation gains or losses may contract if interest rates or market conditions reverse.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (bank)

Profitability and Return

The net profit margin exceeds the industry median but remains below the upper range of 35.4%.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median and represents a high level of growth within the industry.

Source: Company analysis

Key Takeaways from the Financial Results

1. Ordinary income increased significantly by 48.6% YoY to ¥61.11B, and the ordinary income margin improved from the prior year. Growth in Banking Business segment profit (+61.4%) drove consolidated performance, while the sharp increase in deposit interest expense represents a structural factor to monitor in assessing future net interest margin trends.

2. Leasing Business segment profit decreased 95.7% YoY, reducing the earnings diversification effect provided by the non-banking businesses during the current period. The rising dependence on the Banking Business is a structural point of focus when considering future earnings volatility.

3. The 20.4% ordinary income growth rate assumed in the full-year forecast is substantially below the current-period growth rate of 48.6%. This suggests a potentially conservative plan that incorporates a slowdown in net interest income growth and increases in expenses and credit costs.

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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. 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 as necessary.