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

Financial Highlights

• Operating Income: ¥6.89B
• Net Income: ¥6.22B
• 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

Japan Securities Finance Co., Ltd. (Consolidated, JGAAP) reported FY2026 Q2 results with operating income of ¥6.894bn (+9.8% YoY), ordinary income of ¥7.317bn, and net income of ¥5.144bn (-17.3% YoY). The decline at the bottom line despite higher operating income suggests headwinds below the operating line or a higher effective tax burden, even though ordinary income exceeded operating income by ¥0.423bn. Using the disclosed tax charge of ¥2.442bn, implied pre-tax profit is about ¥7.586bn, indicating an effective tax rate near 32.2%, which would have weighed on net income. Balance sheet leverage is structurally high as expected for a securities finance institution: total assets are ¥15.5tn versus total equity of ¥135.6bn, implying assets/equity of roughly 114x and an equity-to-asset ratio of about 0.88%. Current assets of ¥13.179tn and current liabilities of ¥13.316tn yield a current ratio of 0.99x and modest negative working capital of about ¥137bn; this is typical for a short-term funding model but underscores reliance on wholesale and secured funding. Ordinary income running above operating income indicates positive non-operating contributions (likely net interest and securities-related gains), though these were not sufficient to prevent YoY net profit contraction. EPS stands at ¥62.63 for the period, consistent with the reported net income; however, shares outstanding were not disclosed, limiting per-share cross-checks. Cash flow statements and several line items were not reported in XBRL (shown as zeros), constraining cash conversion and FCF analysis. Dividend data were not disclosed; thus payout and coverage cannot be assessed this quarter. Given the sector context, key drivers remain margin loan balances, stock lending volumes, collateral spreads, and funding costs, all of which are sensitive to market activity and rate environments. The capital structure’s high leverage is intrinsic to the business model, but the thin equity cushion heightens sensitivity to credit, market, and liquidity shocks. Overall, operational momentum improved (higher operating income), but translation to net income weakened due to taxes and/or items below ordinary income compared to the prior year. We acknowledge material data limitations (revenue, cash flows, DPS, and several ratios unreported) and interpret results primarily through the income statement and balance sheet figures provided.

Profitability Analysis

ROE_decomposition: Formal DuPont using sales is not meaningful because revenue is unreported. Using balance sheet and earnings proxies: assets/equity ≈ 114.3x (¥15.500tn / ¥135.638bn). Period ROE proxy (unannualized) ≈ 3.8% (¥5.144bn / ¥135.638bn). If this is a first-half cumulative figure and annualized simply, ROE could be ~7.6%, but timing is uncertain. Net profit margin and asset turnover in the provided DuPont are shown as 0%/0x due to revenue non-disclosure and should be disregarded. margin_quality: Operating income increased 9.8% YoY to ¥6.894bn, indicating improved core profitability. Ordinary income exceeded operating income by ¥0.423bn, suggesting positive non-operating contributions (e.g., net interest or securities-related items). Net income of ¥5.144bn implies an effective tax rate ~32.2% (¥2.442bn / ~¥7.586bn pre-tax), which compressed bottom-line growth. operating_leverage: Operating income growth (+9.8% YoY) versus net income decline (-17.3% YoY) indicates negative operating leverage to the bottom line this period, driven by tax and below-the-line effects. Without revenue and cost detail, elasticity to volumes/ spreads cannot be precisely gauged; however, the improvement at operating income suggests underlying activity (loan/lending balances, spreads) held up or improved.

Growth Assessment

revenue_sustainability: Top-line metrics are undisclosed; for this business, activities tied to margin loans, stock lending, and collateralized financing drive operating income. The +9.8% YoY operating income indicates stable-to-improving activity and spread environment through Q2. profit_quality: Ordinary income outpaced operating income (+¥0.423bn), indicating supportive non-operating items. However, the net decline suggests either tougher comps (e.g., prior-year special gains) or higher effective taxes. With limited disclosure of credit costs and valuation gains/losses, the durability of the improvement is uncertain. outlook: Assuming market activity remains resilient and funding costs do not tighten materially, operating income could remain solid. Key sensitivities include domestic equity turnover (driving margin-related demand), short-selling and securities lending volumes, and short-term rate dynamics that affect funding spreads.

Financial Health

liquidity: Current assets ¥13.179tn vs current liabilities ¥13.316tn imply a current ratio of ~0.99x and working capital of approximately -¥137bn. For a securities finance company, near-parity current ratios reflect matched books and collateralized funding. Nonetheless, any market stress elevates rollover and collateral liquidity risks. solvency: Total equity ¥135.6bn against total assets ¥15.5tn yields an equity ratio near 0.88%. Liabilities/equity ≈ 100.5x (matches the provided debt-to-equity 100.53x). This thin capital buffer is structurally consistent with the model but increases sensitivity to valuation and credit shocks. capital_structure: Funding is predominantly short-term liabilities (current liabilities ¥13.316tn are 97.7% of total liabilities), consistent with securities financing. Equity is a small component of total capitalization, so maintaining stable collateral values and access to secured funding is essential.

Cash Flow Quality

earnings_quality: OCF not disclosed; hence cash conversion cannot be assessed. Net income of ¥5.144bn and implied pre-tax profit of ~¥7.586bn (with ~32.2% tax rate) appear internally consistent, but the absence of credit cost and valuation detail constrains quality assessment. FCF_analysis: Investing and financing cash flows are not reported; FCF cannot be computed. For this model, operating cash flows can be volatile due to changes in collateralized balances and are not always indicative of economic earnings. working_capital: Working capital is approximately -¥137bn with a 0.99x current ratio, typical of a matched-book securities finance business. Monitoring collateral haircuts, margin calls, and settlement cycles is more informative than traditional inventory/receivables metrics, which are not applicable here.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are not disclosed. With EPS at ¥62.63 for the period, potential payout capacity exists, but without DPS or cash flow disclosure we cannot quantify payout ratios. FCF_coverage: Not assessable due to lack of OCF/FCF data. Historically, dividends in this sector are often funded from recurring earnings rather than FCF per se, given the balance sheet-intensive model. policy_outlook: Assuming stable profitability and capital requirements, dividend capacity would track earnings. However, the very low equity ratio implies prudence; capital retention needs could constrain payouts if market risk or credit costs rise.

Risk Assessment

Business Risks:

• Market activity risk impacting margin loan and securities lending volumes
• Spread risk from changes in short-term interest rates and funding costs
• Collateral valuation risk during equity market volatility
• Regulatory and capital requirement changes affecting leverage and business scope
• Operational and settlement risks inherent in securities finance

Financial Risks:

• High leverage: assets/equity ≈ 114x and liabilities/equity ≈ 100.5x
• Liquidity rollover risk given predominance of short-term liabilities (current liabilities ¥13.316tn)
• Tax rate sensitivity (implied ~32.2%) affecting net profitability
• Potential credit losses on financing exposures to brokers/investors
• Interest rate and basis risks impacting net financing margin

Key Concerns:

• Net income down 17.3% YoY despite stronger operating income, pointing to below-the-line pressures
• Very thin equity buffer (~0.88% of assets) heightens sensitivity to shocks
• Limited disclosure this quarter (cash flows, revenue detail, DPS) reduces visibility on sustainability and cash coverage

Investment Implications

Key Takeaways:

• Operating income grew 9.8% YoY to ¥6.894bn, showing improved core performance
• Net income fell 17.3% YoY to ¥5.144bn, likely due to higher taxes and/or absence of prior-year special gains
• Ordinary income exceeded operating income by ¥0.423bn, indicating positive non-operating contributions
• Effective tax rate is estimated at ~32.2% (¥2.442bn / ~¥7.586bn pre-tax)
• Balance sheet leverage remains structurally high: assets/equity ≈ 114x; equity ratio ~0.88%
• Current ratio ~0.99x with working capital around -¥137bn reflects matched-book funding dynamics
• Data gaps (cash flows, DPS, revenue detail) limit assessment of cash conversion and payout capacity

Metrics to Watch:

• Margin loan and securities lending balances/volumes
• Net financing spreads and short-term funding costs
• Credit costs and collateral quality indicators
• Ordinary income to operating income gap (non-operating contribution)
• Effective tax rate trajectory
• Equity ratio and any capital policy updates
• Liquidity coverage and funding tenor mix

Relative Positioning: Within Japan’s securities finance and broker-related financing universe, the company exhibits typical high leverage and matched-book liquidity characteristics; near-term performance hinges on market activity and funding spreads, with capital thinness necessitating disciplined risk management.

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