Japan Securities Finance Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥50.88B
• Operating Income: ¥6.89B
• Net Income: ¥5.14B
• EPS: ¥62.63

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 top-line and ordinary profit momentum, but headline net income dropped sharply due to a higher tax burden and weaker below-the-line tailwinds, leaving ROE subdued. Revenue printed 508.82, with operating income at 68.94 (+9.8% YoY) and ordinary income at 73.17 (+7.1% YoY), indicating core earnings resilience. Net income fell to 51.44 (-17.3% YoY), pulling the net margin to 10.1% and dampening capital efficiency (ROE 3.8%). Operating margin this quarter is approximately 13.5% (68.94/508.82) and ordinary margin about 14.4% (73.17/508.82), showing modest non-operating support (non-operating income 4.63, 9.0% of operating income). Dividend income contributed 1.89, cushioning results but not enough to offset the heavier effective tax rate (29.7%). Margin trajectory in basis points YoY cannot be quantified due to absent prior-period revenue disclosure, but the mix suggests net margin compression versus operating profit growth. The divergence between operating/ordinary growth and net profit decline signals pressure below operating line—primarily taxes and potentially lower special gains. Cash flow disclosure is absent, preventing an OCF versus net income cross-check, which is a key limitation for assessing earnings quality. Balance sheet shows very high leverage (D/E 113.28x) and a sub-1.0 current ratio (98.4%), typical for a financial institution but still a liquidity watchpoint. Total assets are 155,004.88, equity is 1,356.38, implying structurally low ROE without stronger margins or higher asset turnover. ROE at 3.8% (DuPont: 10.1% net margin × 0.003 asset turnover × 114.28x leverage) underscores reliance on leverage to generate return, with thin underlying operating efficiency. Working capital is negative (-2,399.70), consistent with the business model but heightens sensitivity to funding conditions. With payout ratio at a calculated 143.7%, dividends appear stretched if this earnings level persists and absent strong OCF, implying potential need for normalization. Forward-looking, earnings leverage to equity market activity and rate/spread conditions remains the key driver; sustaining mid-teens operating margins while stabilizing the tax and non-operating line would be necessary to re-expand net margin and ROE. Near-term focus should be on funding cost trends, lending and securities finance volumes, and visibility on cash flow to validate dividend capacity.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.8% = Net Profit Margin (10.1%) × Asset Turnover (0.003) × Financial Leverage (114.28x). The capital structure lever (114.28x) is the dominant driver of ROE given ultra-low asset turnover, a structural feature of balance-sheet-heavy financials like securities finance. The component most at odds with YoY earnings is the net profit margin, which fell due to a higher effective tax impact (29.7%) and weaker net income relative to operating/ordinary profit growth. Business reason: while core operations expanded (operating +9.8%), below-the-line items (tax and/or reduced non-recurring gains) dragged net results. Sustainability: operating and ordinary profit growth appear more recurring, supported by spread/lending and fee-driven activity; the net margin pressure looks partly one-time (tax rate) but could persist if funding costs rise or non-operating support fades. Operating leverage appears positive (ordinary income +7.1% despite unknown revenue trend), but we cannot confirm SG&A discipline due to disclosure gaps; we note no red flag on expense growth exceeding revenue based on available items. Margin quality: operating margin about 13.5%, ordinary margin about 14.4%; net margin at 10.1% indicates about 430 bps of slippage from ordinary to net mainly via taxes. Without prior-year revenue, we cannot compute basis-point expansion/compression YoY, but directionally net margin compressed while operating profitability improved.

Growth Assessment

Revenue visibility is limited (no YoY provided), but operating income growth of +9.8% and ordinary income growth of +7.1% indicate healthy core momentum. Non-operating income (4.63) supported ordinary profit, with dividend income (1.89) a modest contributor. Net income decline (-17.3% YoY) breaks through to EPS (62.63 JPY), reflecting tax burden (effective tax rate 29.7%) and less supportive below-the-line items. Profit quality leans core-driven at the operating level; however, sustainability hinges on market volumes (margin lending balances, stock lending demand) and funding spreads. Outlook: if market activity and spreads hold, operating income trajectory looks stable; normalized tax/non-operating effects would help rebuild net margin. Key swing factors include short-term interest rate path, collateral demand from institutions, and equity market turnover.

Financial Health

Liquidity: current ratio 98.4% and quick ratio 98.4% (warning threshold <1.0). For a financial institution, negative working capital (-2,399.70) and liability-driven funding are typical, yet they increase sensitivity to market liquidity and refinancing conditions. Solvency: reported D/E 113.28x is extremely high versus industrial benchmarks but in line with a securities finance balance sheet; equity of 1,356.38 against total assets of 155,004.88 implies thin capital buffers. Maturity mismatch risk: current liabilities (150,455.94) slightly exceed current assets (148,056.24), indicating reliance on continuous market funding; cash and deposits (13,497.83) provide a cushion, but visibility into the composition of short-term obligations is limited. Interest-bearing debt detail shows short-term loans 920.00 and long-term loans 3,156.00, but most liabilities are other funding lines typical for the business; no off-balance sheet obligations are disclosed in the provided data. Explicit warnings: Current Ratio < 1.0 and D/E > 2.0.

Cash Flow Quality

Operating cash flow was not disclosed, preventing an assessment of OCF/Net Income and free cash flow coverage. As such, we cannot compute OCF/Net Income versus the 0.8 threshold for quality. Given the business model, cash flow can be volatile with changes in margin loan balances and securities financing repos; absent OCF, we cannot validate earnings conversion. Working capital: the negative position is structural for financials and not indicative of manipulation in isolation, but it heightens the need for granular cash flow and funding disclosure. Dividend and capex coverage cannot be evaluated without OCF and capex data; therefore, FCF sustainability remains undetermined.

Dividend Sustainability

The calculated payout ratio is 143.7%, which appears stretched relative to the <60% benchmark and would be unsustainable if repeated, particularly alongside declining net income. However, DPS and total dividends paid are unreported, and OCF is missing, leaving coverage uncertain. Without FCF data, we cannot confirm whether dividends were funded from operating cash inflows or balance sheet. Policy outlook: if management targets stable or progressive dividends, maintaining current levels may require a recovery in net income or utilization of retained earnings; otherwise, a normalization toward earnings power is plausible. Key watchpoints: confirmed DPS guidance, OCF trajectory, and any stated capital allocation framework.

Risk Assessment

Business Risks:

• Equity market activity risk: lower trading volumes and margin lending demand would pressure revenue and operating income.
• Spread/interest rate risk: rising funding costs or narrowing spreads could compress operating margins.
• Counterparty and collateral risk within securities finance transactions, especially in stressed markets.
• Regulatory and capital adequacy changes affecting leverage and permissible activities.

Financial Risks:

• High leverage (D/E 113.28x) and sub-1.0 current ratio indicate sensitivity to funding market conditions.
• Maturity mismatch: current liabilities exceed current assets, necessitating continuous rollover of funding.
• Earnings reliance on non-operating items (dividend income 1.89 and other) that may be volatile.
• Tax rate volatility impacting net margin (effective tax rate 29.7% this period).

Key Concerns:

• Net income decline (-17.3% YoY) despite operating growth, pointing to pressure below the operating line.
• Payout ratio at 143.7% appears above sustainable levels absent strong OCF.
• Low ROE (3.8%) given the scale of leverage suggests modest underlying profitability.
• Data gaps (no OCF, no SG&A, no interest expense detail) limit assessment of earnings quality and risk capacity.

Investment Implications

Key Takeaways:

• Core earnings resilient: operating income +9.8% YoY and ordinary income +7.1% YoY.
• Net income fell 17.3% YoY; net margin at 10.1% pressured by a 29.7% effective tax rate and less supportive non-operating items.
• ROE at 3.8% remains subdued despite very high leverage, highlighting thin asset productivity.
• Liquidity indicators (current ratio 98.4%) and funding structure warrant close monitoring in a rising-rate or volatile market backdrop.
• Dividend sustainability is uncertain with a calculated payout of 143.7% and absent cash flow data.

Metrics to Watch:

• Operating margin and ordinary income margin trends versus funding cost movements.
• OCF and FCF once disclosed, to validate earnings quality and dividend coverage.
• Effective tax rate normalization and composition of non-operating income.
• Funding mix and short-term liability rollover conditions; cash and deposits buffer.
• Market activity indicators: margin loan balances, stock lending volumes and spreads.

Relative Positioning: As a securities finance player, performance is more tied to market activity and funding spreads than traditional banks. The company shows decent operating momentum but weaker net outcomes and low ROE relative to balance sheet size, placing it in a cautious middle ground versus peers with stronger cash flow visibility or higher structural ROEs.

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