Hirogin Holdings,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥110.42B
• Net Income: ¥20.37B
• EPS: ¥67.77

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Solid topline and earnings growth in FY2026 Q2, but profitability remains constrained by a very low NIM and high leverage intrinsic to banking, with data gaps limiting cash flow and margin quality assessment. Revenue rose 15.2% YoY to 1,104.23, while ordinary income increased 10.2% YoY to 292.92 and net income grew 10.7% YoY to 203.78. The effective tax rate printed at 29.9%, consistent with a normalized rate range for Japanese banks. Net profit margin stands at 18.4% (203.78/1,104.23), reflecting strong cost discipline given a very low interest spread environment. ROE is calculated at 3.7%, driven by a combination of very low asset turnover (0.009x) and high financial leverage (22.85x). Total assets are 12,503.9 (in 100 million yen), with equity at 547.3, for a D/E ratio of 21.85x, which is structurally high for banks but still merits leverage monitoring. On banking metrics, NIM is 0.61%, well below healthy benchmarks (>2%), highlighting yield pressure; however, the cost-to-income ratio is an excellent 30.6%, indicating strong operating efficiency. The loan-to-deposit ratio of 89.9% sits within the optimal range (70–90%), suggesting balanced liquidity deployment without undue reliance on wholesale funding. Total comprehensive income of 512.56 materially exceeds net income, implying sizable unrealized valuation gains in OCI (likely from securities), which could reverse with rate moves; this is an earnings quality watchpoint. Margin expansion/compression in basis points versus last year cannot be determined due to a lack of disclosed prior-period margin data, but current margins appear supported by low CIR. Operating cash flow is unreported, preventing OCF versus net income cross-checks and cash conversion analysis. Dividend payout ratio is 71.9%, above the 60% benchmark, suggesting limited internal capital build if earnings soften. ROIC is 3.8% (<5% warning threshold), underlining subdued capital efficiency in the current rate environment. Forward-looking, earnings trajectory will hinge on NIM stabilization or improvement, credit cost containment, and the durability of securities-related OCI. With notable data gaps (SG&A, OCF, credit costs, capital ratios), monitoring disclosures on capital adequacy (e.g., CET1), securities duration, and credit provisioning will be crucial. Overall, the quarter is directionally positive on growth and efficiency, but sustainability depends on interest rate dynamics, risk cost trends, and avoiding OCI reversals.

Profitability Analysis

DuPont decomposition (using provided metrics): ROE (3.7%) = Net Profit Margin (18.4%) × Asset Turnover (0.009x) × Financial Leverage (22.85x). The profile indicates profitability is primarily constrained by low asset turnover (typical for banks) and supported by high leverage and decent margin control at the P&L level. Change driver assessment: Prior-period component splits are not disclosed; however, given revenue +15.2% YoY and net income +10.7% YoY, net profit margin likely held roughly stable to modestly lower, while leverage appears structurally stable at 22.85x. Business rationale: The very low NIM (0.61%) is the single largest headwind to margin conversion, while the excellent CIR (30.6%) offsets part of the spread pressure through cost discipline and efficiency. Sustainability: Cost efficiency appears sustainable near-term, but margin recovery is contingent on asset repricing and liability cost control; NIM improvement would likely require either higher asset yields (rate hikes/loan mix shift) or reduced funding costs—both uncertain in the current environment. Warning flags: ROIC at 3.8% (<5%) and ROE at 3.7% remain subdued; without higher NIM or fee income growth, capital efficiency may stagnate. Additional concern: lack of disclosed SG&A and credit cost details prevents verification that operating leverage (revenue growth > expense growth) is the true driver of earnings growth.

Growth Assessment

Revenue growth of 15.2% YoY to 1,104.23 suggests healthy momentum, potentially from higher interest income (reported interest income 743.00) and stable loan growth (loans 83,526.40) against a larger deposit base (deposits 92,926.77). Ordinary income increased 10.2% YoY and net income grew 10.7% YoY to 203.78, indicating decent operating leverage under tight spreads. The strong CIR at 30.6% supports sustainability from the cost side, though NIM at 0.61% caps upside. Loan-to-deposit ratio at 89.9% implies room to deploy deposits further, but pricing discipline is key in a low-yield environment. Total comprehensive income of 512.56 signals large OCI gains (likely from securities), which are non-cash and can reverse with rate volatility—this inflates overall comprehensive growth but not core earnings quality. Given the low NIM, future growth depends on fee/commission expansion, targeted loan mix shifts to higher-yield segments, and credit cost normalization (not disclosed this quarter). Outlook: Modest earnings growth is plausible if volume growth persists and costs remain tight; upside requires either spread improvement or resilient fee income. Key uncertainties include interest rate path, competition for deposits, and potential credit cost normalization.

Financial Health

Leverage is high with D/E at 21.85x (expected for banks but above generic corporate thresholds); explicit caution warranted. Liquidity profile via LDR at 89.9% is within the optimal 70–90% range, suggesting balanced use of deposits without overextension; this mitigates near-term funding risk. Current and quick ratios are not meaningful for banks and are unreported; no direct short-term maturity analysis is possible from provided data. Asset base totals 125,039.43, equity is 5,472.78, implying financial leverage of 22.85x; monitoring regulatory capital (CET1) is necessary but undisclosed. No off-balance sheet obligations are provided; contingent liabilities (e.g., guarantees, derivatives) are not disclosed—data limitation noted. Maturity mismatch risk cannot be quantified due to absent breakdowns of short-term funding and liquid assets; however, the low NIM suggests liability costs must be contained to avoid spread compression. Interest rate risk in the securities book is inferred from the large gap between comprehensive income and net income; valuation is sensitive to rate moves. Overall solvency appears stable given positive earnings and efficiency, but capital adequacy cannot be confirmed.

Cash Flow Quality

Operating cash flow is unreported; therefore, OCF/Net Income and cash conversion cannot be assessed. This prevents evaluation of accruals intensity and working capital impacts, which are critical for earnings quality assessment. Free cash flow and capex are unreported, limiting analysis of internal funding capacity for dividends and strategic investments. The large positive total comprehensive income relative to net income indicates significant unrealized gains (OCI), which are non-cash and potentially reversible; reliance on such gains would weaken cash flow quality if they dominate period performance. No evidence of working capital manipulation can be inferred given the absence of detailed balance sheet movements and, for banks, the different nature of working capital. With NIM at 0.61% and CIR at 30.6%, core cash generation depends on maintaining spread and fee income; any uptick in funding costs could quickly pressure cash earnings.

Dividend Sustainability

The calculated payout ratio is 71.9%, above the <60% benchmark for comfort, indicating tighter headroom for capital accumulation through retained earnings. Free cash flow coverage is not calculable due to unreported OCF and capex; therefore, we cannot confirm cash backing for dividends. Given ROE at 3.7% and ROIC at 3.8%, capital efficiency is modest; a high payout could constrain organic capital build if earnings weaken or if credit costs rise. Regulatory capital metrics (e.g., CET1, leverage ratio) are not disclosed; sustainability should be assessed against these ratios and stress scenarios. In the current low-NIM environment, sustaining a >70% payout increases sensitivity to shocks (credit losses, OCI reversals). Absent explicit capital guidance, a stable dividend relies on steady earnings and benign credit conditions; watch for changes in payout policy if spreads compress or risk costs normalize upward.

Risk Assessment

Business Risks:

• Sustained low NIM at 0.61% limits earnings power despite efficiency gains.
• Potential reversal of OCI gains as interest rates rise, given total comprehensive income far exceeds net income.
• Regional economic concentration risk in core markets potentially impacting loan demand and fee income.
• Competition for deposits elevating funding costs, pressuring spreads.
• Fee income dependence (not disclosed) may be insufficient to offset spread compression.

Financial Risks:

• High financial leverage (D/E 21.85x; leverage 22.85x) magnifies shocks to equity.
• Uncertain capital adequacy due to undisclosed CET1 and risk-weighted assets.
• Credit cost normalization risk; lack of disclosure on NPLs and provisions.
• Interest rate and duration risk in the securities portfolio affecting OCI and capital.
• Liquidity risk if LDR rises above 100% amid loan growth or deposit outflows.

Key Concerns:

• Profitability constrained: ROE 3.7% and ROIC 3.8% below target levels.
• Dividend payout ratio at 71.9% may not be conservative for a low-ROE bank.
• Data gaps (OCF, SG&A, credit costs, capital ratios) hinder full risk assessment.
• Margin sensitivity: small increases in deposit costs could materially compress NIM from already low 0.61%.
• Earnings quality: reliance on unrealized valuation gains implied by comprehensive income.

Investment Implications

Key Takeaways:

• Topline and earnings growth are solid (+15.2% revenue, +10.7% net income) with excellent cost efficiency (CIR 30.6%).
• Core profitability remains capped by a very low NIM (0.61%), keeping ROE at 3.7%.
• Large OCI contribution (comprehensive income 512.56 vs NI 203.78) signals rate-sensitive securities gains that may reverse.
• Leverage is structurally high (D/E 21.85x; leverage 22.85x), raising sensitivity to shocks.
• Dividend payout ratio of 71.9% limits retained earnings capacity in a low-ROE context.

Metrics to Watch:

• Net interest margin trajectory (loan yields vs deposit costs).
• Credit costs, NPL ratio, and coverage (currently unreported).
• CET1 ratio and interest rate risk metrics (duration of securities, OCI sensitivity).
• Loan growth vs deposit growth; LDR stability within 70–90%.
• Fee and commission income growth to diversify earnings.
• Cost-to-income ratio sustainability and digital efficiency gains.
• Dividend policy updates and any share repurchases.

Relative Positioning: Within Japanese regional banks, the group demonstrates strong cost efficiency (CIR 30.6% better than peers), but profitability is restrained by an exceptionally low NIM and modest ROE, leaving it reliant on volume growth and securities valuation tailwinds; capital strength cannot be benchmarked due to missing regulatory ratios.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis