Aichi Financial Group,Inc. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending March 2027, the Company achieved substantial increases in revenue and profit, driven by growth in core business earnings against a backdrop of rising interest rates, together with the recognition of extraordinary income. Revenue (ordinary revenues) was ¥399.1B (¥267.3B in the same period last year, +49.3%), Operating Income was ¥144.4B (¥52.9B in the same period last year, +173.1%), Ordinary Income was also ¥144.4B (also +173.1%), and Net Income was ¥144.8B (¥38.0B in the same period last year, +281.1%). The Operating Income margin expanded substantially to 36.2% (19.8% in the same period last year). In addition to increases in lending and securities interest income and growth in net fee income, the recognition of ¥65.6B in extraordinary income contributed to pushing Profit Before Tax up to ¥209.6B.

Factors Driving Performance Changes

【Revenue】Revenue (ordinary revenues) was ¥399.1B, up +49.3% year on year. Banking accounted for ¥348.2B (+46.8%), representing 87.2% of the total, driven by increases in lending interest income (+¥39.1B) and interest and dividend income from securities (+¥20.8B), as well as growth in net fee income. The Leasing Business recorded ¥22.8B (+39.4%), while Other Businesses outside the reportable segments posted ¥28.5B (+107.3%), both showing strong growth.

【Profit and Loss】Operating Income was ¥144.4B (+173.1%), with Banking serving as the largest profit-contributing division at ¥124.5B (+135.9%, profit margin of 35.8%). Other Businesses were highly profitable, generating ¥15.2B (profit margin of 53.5%) and contributing to the improvement in the Company-wide profit margin. The increase in selling, general and administrative expenses (G&A) was below the increase in revenue, resulting in positive operating leverage. In addition, the recognition of ¥65.6B in extraordinary income increased Profit Before Tax to ¥209.6B, leading to Net Income of ¥144.8B (+281.1%). Revenue and profit both increased.

Segment Analysis

Banking was the core business and the largest profit-contributing division, with revenue of ¥348.2B (+46.8%) and Operating Income of ¥124.5B (+135.9%, profit margin of 35.8%). The Leasing Business posted revenue of ¥22.8B (+39.4%) and Operating Income of ¥4.3B (+3000.0%), substantially increasing profit and expanding its surplus. Other Businesses outside the reportable segments (including credit cards, collection agency services, and software development) recorded revenue of ¥28.5B (+107.3%) and Operating Income of ¥15.2B (profit margin of 53.5%), demonstrating the highest profitability and contributing to the improvement in the Company-wide profit margin. Banking accounted for 87.2% of revenue, indicating a high degree of business concentration.

Key Financial Indicators

【Profitability】The Operating Income margin improved substantially to 36.2% (19.8% in the same period last year), while the Net Income margin rose to 36.3% (14.2% in the same period last year). Under the DuPont decomposition, ROE of 3.1% consists of a Net Income margin of 36.3% × total asset turnover of 0.006 × financial leverage of approximately 15.19 times, with the improvement in the profit margin serving as the primary driver.【Cash Flow Quality】Of Profit Before Tax of ¥209.6B, ¥65.6B was attributable to extraordinary income, and the difference from Ordinary Income of ¥144.4B includes temporary factors.【Investment Efficiency】ROE was 3.1% (on a quarterly basis), while total asset turnover was low at 0.006, reflecting the asset scale structure of the Banking Business.【Financial Soundness】The Equity Ratio was 6.6% (6.0% in the same period last year). Although it improved from the previous year, it remains below the generally accepted regulatory level of 8%. Total assets were ¥7,032.9B (▲1.9% year on year), while net assets were ¥463.1B (+7.4% year on year), confirming the accumulation of capital.

Cash Flow Analysis

As the cash flow statement is not separately disclosed in this financial report, funding trends are analyzed based on changes in the balance sheet. Cash and deposits declined substantially from the previous year to ¥571.2B, while securities increased to ¥1,355.8B (+6.8% year on year), suggesting that funds were reallocated toward marketable assets. On the liabilities side, liabilities related to securities lending and borrowing transactions were substantially reduced, and borrowings also declined, indicating a trend toward lower dependence on market funding. Deposits remained stable at ¥5,974.9B, essentially unchanged, while loans and bills discounted were also flat at ¥4,942.2B, with no significant change in the credit stance. Retained earnings accumulated to ¥2,610.2B, indicating progress in strengthening equity through retained earnings.

Quality of Earnings

Recurring earnings consist primarily of core Banking Business earnings from interest income and net fee income, with Ordinary Income at ¥144.4B. In contrast, ¥65.6B in extraordinary income was recognized, bringing Profit Before Tax to ¥209.6B. This extraordinary income must be distinguished as a temporary factor accounting for approximately 31% of Profit Before Tax. Extraordinary losses were minor at ¥0.4B, and extraordinary gains and losses contributed to a net increase. Comprehensive income was ¥362.2B, substantially exceeding Net Income of ¥144.8B, primarily due to a ¥248.3B increase in valuation difference on securities. This divergence reflects an expansion in unrealized gains based on market valuations and should be considered separately from realized gains and losses.

Earnings Forecast and Guidance

The full-year Company plan remains unchanged at Ordinary Income of ¥280.0B (▲9.4% year on year), Net Income (based on the Company forecast) of ¥230.0B, EPS of ¥94.37, and forecast dividends of ¥30.00. As of Q1, the progress rate was approximately 51.6% for Ordinary Income (144.4/280.0) and approximately 63.0% for Net Income (144.8/230.0), representing substantially ahead-of-schedule progress well above the simple 25% level. The recognition of ¥65.6B in extraordinary income contributed to this excess progress, and, on a normalized basis, confirming the sustainability of core earnings will be the key focus going forward. Neither the earnings forecast nor the dividend forecast had been revised as of the current quarter.

Shareholder Returns

After taking into account the stock split effective April 1, 2026 (five shares for each share), the full-year forecast DPS is ¥30.00 (the prior-year annual dividend before taking the split into account was ¥50). Based on the Company forecast EPS of ¥94.37, the Payout Ratio is approximately 31.8%, remaining at a conservative level. With the Equity Ratio at 6.6% and the capital buffer relatively thin, the policy appears to be to maintain the dividend level while prioritizing retained earnings. There is no disclosure regarding share repurchases, and shareholder returns consist solely of dividends.

Risk Factors

1. Thin capital buffer: The Equity Ratio is 6.6% (6.0% in the same period last year). Although it improved from the previous year, it remains below the generally accepted regulatory level of 8%. While the expansion in valuation difference on securities is supporting equity, there is a risk that the valuation difference may contract and capital levels may fluctuate if interest rates reverse.

2. Temporariness of earnings: Extraordinary income of ¥65.6B accounts for approximately 31% of Profit Before Tax of ¥209.6B and is one factor behind progress exceeding the full-year plan. It is necessary to assess the Company’s underlying strength based on core earnings excluding this temporary factor.

3. Business concentration: Banking accounts for 87.2% of revenue, creating a structure in which performance is susceptible to interest-rate conditions and trends in credit costs. If dependence on fee income and market-related earnings increases, earnings volatility may expand.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (bank)

Profitability and Returns

As industry comparison data is limited, assessment of the Company’s positioning on an absolute basis is reserved.

Growth and Capital Efficiency

For this item as well, median data has not been established, and the figure should be treated only as reference information on a standalone basis.

※Source: Compiled by the Company

Key Points from the Financial Results

1. In Q1, the addition of ¥65.6B in extraordinary income to growing core business earnings resulted in substantially ahead-of-schedule progress against the full-year plan, at approximately 52% for Ordinary Income and approximately 63% for Net Income. Assuming normalization of this excess, confirming the reproducibility of core earnings will be a key focus from the next quarter onward.

2. Although the Equity Ratio improved from the previous year to 6.6%, it remains below the generally accepted regulatory benchmark. The increase in net assets due to the expansion in valuation difference on securities is an important consideration for capital policy.

3. While Banking accounts for 87.2% of revenue, Other Businesses (profit margin of 53.5%) and the Leasing Business (substantial year-on-year profit growth) contributed to raising the Company-wide profit margin, confirming a gap in profitability among the segments.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment 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.

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