Daiwa Securities Group (8601) FY2026 Q3 Earnings Report

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Executive Summary

The nine-month period of the current fiscal year was characterized by both an increase in operating income, driven by improved operating leverage, and a decline in ordinary income due to the reversal of the previous year’s equity-method investment gain. Operating income was ¥147.78B (+29.8% YoY), ordinary income was ¥167.47B (△3.6%), and consolidated net income was ¥137.26B (+3.9%). The primary drivers of revenue growth were the expansion of Wealth Management (net operating revenue +13.8%) and Asset Management (+15.0%). Top-line growth exceeding the increase in expenses lifted the operating margin, while the absence of the equity-method investment gain recorded in the previous year—including the amount equivalent to negative goodwill associated with the acquisition of shares in Aozora Bank—pressured ordinary income.

Factors Affecting Earnings

【Revenue】Net operating revenue from external customers by segment was ¥495.62B, up +10.6% YoY. Wealth Management increased to ¥202.28B (+13.8%), Asset Management to ¥102.24B (+15.0%), and GMIB to ¥180.66B (+5.7%), with all segments posting revenue growth. Wealth Management was led primarily by growth in commissions received, while in GMIB, growth in fee income offset a slight decline in trading revenue.

【Profit and Loss】Selling, general and administrative expenses were ¥374.74B, up only +4.7% YoY and below revenue growth (+10.6%), resulting in a +29.8% increase in operating income. Wealth Management’s profit increased +37.2%, and GMIB’s profit grew +31.2%, while Asset Management’s profit declined △24.7% despite higher revenue. The primary reason was the reversal of the equity-method investment gain recorded in the same period of the previous year, including the amount equivalent to negative goodwill related to Aozora Bank. Group-wide equity-method investment gains and losses declined by ¥36.35B, from ¥52.43B in the previous year to ¥16.08B, reducing ordinary income. Extraordinary income of ¥25.51B, including a gain on the sale of fixed assets of ¥22.79B, lifted profit before tax. Profit before tax increased +10.6% to ¥190.19B; however, after accounting for income taxes of ¥52.92B and profit attributable to non-controlling interests of ¥11.84B, net income growth narrowed to +3.9%. Overall, the Company achieved higher revenue and operating income, while the reversal of temporary factors restrained growth in ordinary income and net income, resulting in higher revenue and profit with earnings quality requiring further review.

Segment Analysis

Wealth Management generated net operating revenue of ¥202.28B (+13.8%) and segment profit of ¥78.87B (+37.2%), representing a profit margin of 39.0% and the largest contributor to total segment profit. Asset Management grew net operating revenue to ¥102.24B (+15.0%), but segment profit declined to ¥49.08B (△24.7%), with the profit margin contracting to 48.0%. The primary reason was the reversal of the previous year’s equity-method investment gain, including the amount equivalent to negative goodwill. GMIB generated net operating revenue of ¥180.66B (+5.7%) and segment profit of ¥38.59B (+31.2%), improving its profit margin to 21.4%. Other segments recorded revenue of ¥10.44B (△1.4%) and a loss of ¥0.47B, deteriorating from profit of ¥1.29B in the previous year.

Key Financial Indicators

【Profitability】The operating margin relative to net operating revenue was 29.8%, improving by approximately 441bp from 25.4% in the same period of the previous year, supported by expense discipline exceeding revenue growth. Meanwhile, the ordinary income margin declined to 33.8% from 38.8% in the previous year, as the reversal of the equity-method investment gain reduced overall profitability.【Cash Flow Quality】Profit before tax of ¥190.19B included extraordinary income of ¥25.51B, primarily the ¥22.79B gain on the sale of fixed assets, requiring confirmation of recurring earnings power excluding temporary factors.【Investment Efficiency】ROE was 6.9%; on an annualized basis using quarterly results as a reference, it would be approximately 9-10%. Basic EPS increased steadily to ¥90.05 (¥88.37 in the previous year, +1.9%), while BPS was ¥1,235.69 (¥1,158.82 in the previous year).【Financial Soundness】The equity ratio was 5.2%, relatively low due to the business model of the securities industry. However, cash and deposits of ¥475.84B amounted to 2.4 times short-term borrowings of ¥197.34B, indicating short-term funding capacity.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, balance sheet trends suggest an expansion in liquidity. Cash and deposits increased +26.7% to ¥475.84B from ¥375.67B in the same period of the previous year, and the cash buffer expanded by an amount exceeding the increase in short-term borrowings (¥197.34B, +39.4%). Meanwhile, long-term borrowings declined to ¥182.65B from ¥203.66B in the previous year, indicating a shift in the funding structure toward shorter maturities. In the securities industry, changes in customer assets and trading assets and liabilities can significantly affect the cash position. Accordingly, the increase in cash balances should not simply be interpreted as an expansion of recurring cash-generation capacity.

Earnings Quality

Temporary factors comprised a meaningful portion of current-period profit, making it important to distinguish them from recurring earnings power. Of extraordinary income of ¥25.51B, gains on the sale of fixed assets accounted for ¥22.79B, equivalent to approximately 12% of profit before tax of ¥190.19B. In addition, equity-method investment gains of ¥16.08B included in non-operating income of ¥27.09B declined by ¥36.35B from ¥52.43B in the previous year. The reversal of the amount equivalent to negative goodwill associated with the acquisition of Aozora Bank shares in the previous year was the primary factor pressuring ordinary income. On an operating income basis, SG&A expense growth was contained at +4.7% against revenue growth of 10.6%, confirming a substantive improvement in profitability accompanied by expense discipline. On an ordinary income and net income basis, however, non-recurring investment-related gains and losses had a significant impact, resulting in differing assessments of earnings quality at the operating and ordinary income stages. Comprehensive income was ¥199.22B (+31.8%), with other comprehensive income—including valuation difference on securities of ¥25.94B and foreign currency translation adjustments of ¥29.98B—creating a divergence from net income.

Shareholder Returns

The Company’s basic policy is to pay dividends twice a year, in the interim and at fiscal year-end, with a target payout ratio of 50% or more for each half-year period, reflecting consolidated results. The minimum full-year dividend per share from the fiscal year ending March 2025 through the fiscal year ending March 2027 has been set at ¥44; however, the fiscal year-end dividend is determined separately based on consolidated results and is therefore not a confirmed amount at this time. The Q2 dividend was ¥29 per share, an increase from ¥28 in the same period of the previous year. Based on the Q2 dividend of ¥29, the payout ratio was 36.3% relative to consolidated net income. Treasury shares amounted to ¥153.21B, up +35.4% from ¥113.14B in the same period of the previous year. However, because the purpose and scale of the acquisitions cannot be individually identified, the Total Return Ratio, including dividends, has not been calculated.

Risk Factors

1. Market Environment Dependence Risk: Financial product revenue, including GMIB trading revenue, was ¥64.98B, slightly below ¥66.58B in the previous year. Volatility in the equity, bond, and foreign exchange markets, as well as lower trading volumes, could simultaneously pressure fee income in Wealth Management and revenue in GMIB.

2. Reversal Risk of Equity-Method Investment Gains: Equity-method investment gains were ¥16.08B, a decline of ¥36.35B YoY. Non-recurring factors such as the amount equivalent to negative goodwill associated with the acquisition of Aozora Bank shares recorded in the previous year caused significant fluctuations in ordinary income. Performance and valuation changes at investees may continue to affect ordinary income.

3. Funding Structure Risk: Short-term borrowings increased +39.4% YoY to ¥197.34B, while long-term borrowings declined to ¥182.65B, indicating an ongoing shortening of funding maturities. Although cash and deposits are maintained at 2.4 times short-term borrowings, the Company has a high degree of dependence on market-based funding, and refinancing conditions during periods of market stress require monitoring.

Industry Benchmark (Reference; Based on Our Analysis)

No industry benchmark data available
Source: Based on our analysis

Key Takeaways from the Financial Results

1. The operating margin relative to net operating revenue was 29.8%, improving by approximately 441bp from the previous year. Expense discipline, with SG&A increasing +4.7%, exceeded revenue growth (+10.6%). Growth in Wealth Management and GMIB profits were the core drivers.

2. Ordinary income declined △3.6% despite higher operating income, primarily due to the reversal of the equity-method investment gain recorded in the previous year, including the amount equivalent to negative goodwill. In addition, the temporary gain on the sale of fixed assets of ¥22.79B lifted profit before tax. The financial results therefore indicate a divergence between improvement at the operating stage and growth at the ordinary income and net income stages.

3. Asset Management’s revenue increased (+15.0%), but profit declined △24.7%. The extent of substantive earnings recovery excluding equity-method investment gains will be a key focus going forward.

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results summary data. It does not recommend investment in any specific security. Industry benchmark data is reference information compiled by our company based on publicly available financial results data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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