Daiwa Securities Group Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Operating Income: ¥86.02B
• Net Income: ¥82.49B
• EPS: ¥56.44

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Daiwa Securities Group Inc. (8601) reported solid profitability for FY2026 Q2 (cumulative) under JGAAP on a consolidated basis, with operating income of ¥86.0bn (+12.0% YoY) and net income of ¥79.0bn (+1.5% YoY). Ordinary income reached ¥97.9bn, exceeding operating income by roughly ¥11.9bn, suggesting a positive contribution from non-operating items (e.g., investment-related gains), while interest expense remained modest at ¥1.23bn. Using period-end equity as a proxy, half-year ROE is approximately 4.1% (¥78.96bn / ¥1.94tn), implying an annualized run-rate near the high single digits if performance is sustained. The balance sheet shows total assets of ¥36.9tn and total equity of ¥1.94tn, translating to financial leverage of about 19x, which is typical for a major broker-dealer. The reported equity ratio field is 0.0%, but based on disclosed assets and equity, a simple equity-to-asset ratio is roughly 5.3% (not directly comparable to regulatory capital ratios that are more relevant for securities firms). Liquidity appears sound with a current ratio of 111.7% and positive working capital of ¥3.58tn, reflecting the large size of liquid financial assets and liabilities inherent to the business model. Interest coverage is strong at 69.8x (operating income/interest expense), indicating low financing cost pressure on earnings. The effective tax burden, inferred from income taxes of ¥24.6bn versus net income of ¥79.0bn, implies a pre-tax profit in the ~¥103–104bn range and an estimated tax rate near 24%; the pre-tax line itself is not explicitly disclosed. Revenue, gross profit, and cash flow statement items are not reported in this dataset (zeros signal non-disclosure rather than actual zeros), limiting margin and cash conversion analysis. EPS for the period is ¥56.44; shares outstanding were not disclosed in this dataset, constraining per-share equity and payout analytics. The YoY gap between operating income growth (+12%) and net income growth (+1.5%) hints at higher taxes, differences below the operating line, or one-offs dampening bottom-line growth. With ordinary income outpacing operating income and interest expense low, market-driven and investment components supported results. Capital structure remains highly leveraged in accounting terms (liabilities/equity ~17.5x), but this is characteristic of securities businesses managing large trading and financing books; regulatory capital adequacy (not disclosed here) would be the preferred solvency gauge. Dividend data are not disclosed for the period (DPS and payout shown as 0.00), so we cannot assess policy execution this quarter; coverage analysis must rely on earnings capacity rather than cash flow evidence. Overall, the quarter indicates resilient core profitability, improved operating performance, and comfortable liquidity, albeit with limited transparency on revenue composition and cash flows in this dataset.

Profitability Analysis

ROE decomposition is constrained by the lack of reported revenue and average balance data. Using disclosed figures: half-year ROE ≈ 4.1% (Net income ¥78.96bn / equity ¥1.944tn); annualized this implies ~8.1% if sustained, but this is a simplification. Financial leverage is high at 19x (assets/equity), typical for a securities firm, and a primary driver of ROE. Net margin cannot be computed because revenue is unreported; however, the spread between ordinary and operating income (¥11.9bn) indicates meaningful non-operating gains. Interest burden is light (¥1.23bn), yielding a robust interest coverage of 69.8x, which supports earnings stability. Effective tax rate, estimated at ~24%, appears within a normal range and partly explains the slower net income growth versus operating income growth. Margin quality: the reliance on non-operating income this quarter is a positive contribution but can be more volatile than operating sources; sustainability depends on market conditions. Operating leverage appears favorable, with operating income up 12% YoY despite unknown revenue growth, implying either improved mix or expense discipline. Overall profitability is solid, but transparency on income mix (commissions, trading, net interest, investment trust fees) is insufficient in this dataset.

Growth Assessment

With revenue not disclosed, top-line sustainability cannot be quantified; however, operating income growth of +12% YoY demonstrates improved core earnings power. Net income grew a modest +1.5% YoY, suggesting offsets below the operating line (higher taxes, lower extraordinary gains, or other items). Ordinary income exceeding operating income points to supportive market-related or investment income in H1, which may not be linear in H2. The EPS of ¥56.44 for H1 indicates steady per-share performance, although share count data are not available to gauge dilution or buybacks. Given the business model, growth is sensitive to market turnover, underwriting pipelines (ECM/DCM), asset management flows, and interest rate levels affecting net interest income on the balance sheet. Near-term outlook hinges on the sustainability of trading and investment gains and fee income resilience; expense control appears to be contributing positively. Without segment or fee breakdowns, we cannot isolate drivers (brokerage commissions vs. investment trust fees vs. investment banking). The modest delta between operating and net profit growth tempers the growth narrative and underscores the role of items below operating income. Overall, the quarter signals constructive momentum but with typical cyclical dependencies.

Financial Health

Liquidity: current assets ¥34.28tn vs. current liabilities ¥30.70tn yield a current ratio of 1.12x and working capital of ¥3.58tn, adequate for a broker-dealer with large matched books. Quick ratio equals current ratio given no inventory, supporting strong liquid coverage. Solvency: liabilities/equity is ~17.5x and assets/equity ~19.0x, reflecting a leveraged balance sheet consistent with the industry. A simple equity-to-asset ratio is ~5.3% (computed from disclosed balances), while the dataset’s equity ratio field is unreported; note that regulatory capital ratios (not provided) are the primary solvency benchmarks for securities firms. Interest coverage is robust at 69.8x, indicating low sensitivity of earnings to funding costs. Absolute equity of ¥1.94tn provides a sizable capital base, though market risk, counterparty risk, and mark-to-market impacts can drive volatility in reported equity. Overall financial health appears sound within the context of a securities balance sheet, albeit with limited insight into regulatory capital and liquidity buffers.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed in this dataset (zeros indicate non-reporting). Consequently, OCF-to-net income, free cash flow, and working capital cash conversion cannot be assessed. The reported OCF/Net Income ratio of 0.00 and FCF of 0 reflect data unavailability rather than cash weakness. Earnings quality must therefore be inferred from the income statement: strong interest coverage and positive operating income growth suggest underlying resilience, but the contribution of non-operating income introduces potential volatility. Without cash flow data, we cannot opine on timing effects (e.g., collateral, reverse repos, settlement balances) that often dominate broker-dealer cash flows. Conclusion: earnings quality appears reasonable from accrual metrics, but cash flow validation is not possible here.

Dividend Sustainability

Dividend per share (DPS) and payout ratio are not disclosed for the period (both shown as 0.00 due to non-reporting). With net income of ¥78.96bn for H1 and no reported operating cash flow, we cannot compute cash coverage of dividends. Balance sheet capacity appears ample given equity of ¥1.94tn, but payout decisions for securities firms also consider market cyclicality, regulatory capital requirements, and earnings volatility. In the absence of DPS guidance, our assessment focuses on capacity: earnings generation supports room for distributions if maintained, yet the lack of cash flow disclosure and the role of non-operating income counsel prudence. Policy outlook cannot be inferred from this dataset; monitor management guidance and announced dividend forecasts.

Risk Assessment

Business Risks:

• Market volatility impacting trading income, client volumes, and asset valuations
• Cyclical underwriting activity (ECM/DCM) affecting fee income
• Asset management and investment trust flow sensitivity to performance and risk appetite
• Competitive pricing pressure in brokerage and investment banking
• Regulatory and compliance changes affecting product scope and costs
• Operational and systems risks in high-volume trading and settlement environments
• Geopolitical and macroeconomic shocks influencing markets and funding conditions

Financial Risks:

• High balance sheet leverage inherent to securities businesses
• Market risk and VaR spikes leading to earnings and capital volatility
• Counterparty credit risk across trading, derivatives, and financing
• Liquidity and funding risk during stress (rollover of short-term liabilities)
• Interest rate risk affecting net interest income and valuation of financial instruments
• Basis and spread risks in repo and securities financing activities

Key Concerns:

• Limited disclosure of revenue and cash flows in this dataset constrains assessment of margins and cash conversion
• Net income growth (+1.5% YoY) lagging operating income growth (+12% YoY), indicating pressure below the operating line
• Dependence on non-operating income to lift ordinary income above operating income, which can be less predictable

Investment Implications

Key Takeaways:

• Core profitability improved, with operating income up 12% YoY and strong interest coverage (69.8x)
• Bottom-line growth was modest (+1.5% YoY), likely reflecting taxes or items below operating income
• Balance sheet leverage is high (A/E ~19x; L/E ~17.5x) but typical for the sector; liquidity coverage is adequate (current ratio 1.12x)
• Ordinary income exceeded operating income by ~¥11.9bn, indicating a meaningful non-operating contribution
• Cash flow analysis is not possible due to non-disclosure; monitor future filings for OCF/FCF
• Dividend policy execution not visible this quarter; capacity depends on sustained earnings and regulatory capital

Metrics to Watch:

• Breakdown of net operating revenue (brokerage commissions, trading gains/losses, net interest, investment trust/asset management fees)
• Cost-to-income ratio and operating expense trajectory
• Regulatory capital adequacy ratios and risk-weighted assets (not disclosed here)
• Client assets under custody and investment trust sales flows
• Underwriting pipeline and league table activity (ECM/DCM) as leading indicators
• VaR and trading risk metrics; sensitivity to rate moves and credit spreads
• OCF, working capital movements (collateral, repos), and FCF once disclosed
• Tax rate normalization and items below operating line impacting net income

Relative Positioning: Within Japan’s securities sector, the company exhibits typical high leverage with solid interest coverage and positive operating momentum; however, visibility on revenue mix, cash flows, and regulatory capital is limited in this dataset, making comparative margin and capital assessments incomplete.

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