AIZAWA SECURITIES GROUP CO.,LTD. FY2026 FY Earnings Report

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Executive Summary

Although the core securities business recovered in the current fiscal year, the expansion of losses in the investment and asset management businesses and the reliance on extraordinary gains indicate that attention should be paid to earnings quality. Operating revenue increased modestly to ¥209.73B (+1.9% YoY), but operating income declined sharply to ¥0.26B (-98.6% YoY), while ordinary income remained at ¥6.66B (-74.1% YoY). Net income was ¥26.2B (-78.7% YoY; net income attributable to owners of the parent was ¥27.52B, -13.2% YoY), with the divergence between the two attributable to the treatment of profit or loss attributable to non-controlling interests. The primary reason for the decline in operating income was that SG&A expenses increased 9.0%, outpacing revenue growth; the decline in operating income was offset by a ¥38.65B gain on the sale of investment securities.

Factors Affecting Performance

【Revenue】Consolidated operating revenue increased modestly to ¥209.73B, up +1.9% YoY. While the core securities business, which accounted for 95.1% of the total, recovered to ¥201.27B (+12.6%), revenue from the asset management business fell to ¥1.94B (-54.1%) and revenue from the investment business declined sharply to ¥8.32B (-65.4%), with the contraction of non-core businesses restraining overall growth.

【Profit and Loss】Operating income declined sharply to ¥0.26B (¥18.86B in the previous year, -98.6%). Although the securities business improved to operating income of ¥10.54B (+313.3% YoY), the asset management business (-¥3.64B) and investment business (-¥7.22B) posted combined losses of ¥10.86B, almost offsetting the consolidated result. SG&A expenses of ¥198.79B increased 9.0% YoY, outpacing revenue growth and leading to deterioration in operating leverage. Ordinary income remained at ¥6.66B (-74.1%), but a temporary gain on the sale of investment securities of ¥38.65B lifted profit before tax to ¥41.56B, enabling net income attributable to owners of the parent of ¥27.52B (-13.2%) to avoid a decline as steep as that at the ordinary income level. In conclusion, the company recorded revenue growth but earnings decline.

Segment Analysis

The securities business improved significantly, with revenue of ¥201.27B (+12.6%) and operating income of ¥10.54B (+313.3% YoY; margin of 5.2%), becoming the primary contributor to consolidated earnings. In contrast, the asset management business recorded revenue of ¥1.94B (-54.1%) and an operating loss of ¥3.64B (margin of -187.6%), while the investment business recorded revenue of ¥8.32B (-65.4%) and an operating loss of ¥7.22B (margin of -86.8%). Both businesses experienced widening losses due to shrinking earnings bases and fixed-cost burdens. The three segments reported a combined operating loss of ¥0.32B, and consolidated operating income, after adding adjustments of ¥0.58B, remained at only ¥0.26B. The earnings structure’s dependence on the securities business is pronounced, making the recovery of profitability in non-core businesses a key focus going forward.

Key Financial Metrics

【Profitability】The operating margin declined sharply to 0.1% (9.2% in the previous year), while the ordinary income margin also contracted to 3.2% (12.5% in the previous year). Although the net income margin was relatively high at 13.1%, this was supported by gains on the sale of investment securities and does not reflect the profitability of the core business. 【Cash Flow Quality】Operating cash flow (OCF) was ¥45.03B, or 1.64 times net income attributable to owners of the parent of ¥27.52B, indicating sound cash backing for earnings; however, it included an increase in deposits received of ¥70.37B and therefore was subject to temporary fluctuations. 【Investment Efficiency】ROE was 5.2%, EPS was ¥88.44 (-11.7% YoY), and BPS was ¥1,523.27 (+6.2% YoY). 【Financial Soundness】The equity ratio was 40.6% (40.7% in the previous year), remaining almost unchanged. Although financial leverage was maintained at a reasonable level, the current fiscal year’s EBITDA was small relative to interest-bearing debt, requiring monitoring from the perspective of debt repayment capacity.

Cash Flow Analysis

Operating cash flow was ¥45.03B (+178.2% YoY), representing a significant improvement from the previous year’s negative ¥57.59B. The ¥70.37B increase in deposits received contributed to this improvement, and attention is required because it includes a temporary factor reflecting fluctuations in customer funds and settlement funds in the securities business. Investing cash flow was an inflow of ¥34.70B, mainly because proceeds from the sale of investment securities of ¥52.33B exceeded purchases of ¥32.32B. Capital expenditures were limited to ¥2.0B, below depreciation and amortization of ¥4.0B, reflecting an asset-light business model while indicating restrained investment levels. Financing cash flow was an inflow of ¥11.6B, and free cash flow (OCF + investing cash flow) reached ¥79.73B. However, this figure includes cash conversion through the sale of securities, and ¥43.05B—OCF less capital expenditures—should also be considered when assessing recurring cash-generation capacity. This amount exceeded cash dividends paid during the current fiscal year of ¥30.59B, indicating that the current year’s dividend was covered in cash terms.

Earnings Quality

Attention should be paid to the high degree of reliance of net income for the current fiscal year on extraordinary gains. Of profit before tax of ¥41.56B, the ¥38.65B gain on the sale of investment securities accounted for the majority, creating a significant divergence from operating income of ¥0.26B. Non-operating income of ¥9.0B consisted primarily of dividend income of ¥4.9B and provided a certain degree of support as recurring income. Meanwhile, OCF was 1.64 times net income, and the accrual ratio was in negative territory, indicating no excessive reliance on accrual-based earnings and relatively sound cash backing. However, because OCF includes deposits received, a fluctuation factor specific to the securities industry, recurring cash-generation capacity should be assessed with an appropriate discount. Comprehensive income was ¥57.6B, exceeding net income of ¥26.2B, primarily due to a ¥32.1B increase in valuation difference on other securities.

Shareholder Returns

The annual dividend totaled ¥117, consisting of an interim dividend of ¥48 and a year-end dividend of ¥69 (an increase from ¥48 in the previous year), comprising an ordinary dividend of ¥47 and a special dividend of ¥70. The payout ratio was 132.3% based on the disclosed figure, equivalent to 168.0% when calculated based on net income, with both exceeding the level of current-year earnings. Because current-year net income depends on gains from the sale of investment securities, the sustainability of dividends as a source of shareholder returns will depend on trends in ordinary income and distributable amounts. Meanwhile, ¥43.05B—OCF less capital expenditures—exceeded cash dividends paid during the current fiscal year of ¥30.59B, indicating that near-term cash payment capacity has been maintained. A policy of a special dividend of ¥70 per year has also been indicated for the fiscal years ending March 2027 and March 2028; however, the ordinary dividend has not been determined and may fluctuate depending on the operating environment and regulations governing distributable amounts.

Risk Factors

1. Business concentration risk: The securities business accounts for 95.1% of revenue and is the core source of operating income. Fluctuations in share prices, trading value, and customer asset balances directly affect consolidated performance.

2. Expansion of losses in non-core businesses: The investment business, with an operating loss of ¥7.22B, and the asset management business, with an operating loss of ¥3.64B, recorded combined losses of ¥10.86B, almost offsetting the improvement in earnings from the securities business. The recovery of profitability in both businesses will determine the level of consolidated operating income.

3. Earnings quality and financial leverage: Net income is highly dependent on the ¥38.65B gain on the sale of investment securities, while the operating margin remains at 0.1%. Interest coverage relative to EBIT is low, and normalization of operating revenue is essential for improving financial metrics.

Industry Benchmark (For Reference; Compiled by the Company)

Both the operating margin and net income margin were substantially below the industry median, indicating that profitability was relatively low within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The securities business is recovering through revenue and earnings growth, but consolidated operating income remains nearly at zero due to expanding losses in the investment and asset management businesses, which is a key feature of the earnings structure.

2. Net income attributable to owners of the parent of ¥27.52B is heavily dependent on the ¥38.65B gain on the sale of investment securities, resulting in a significant divergence from ordinary income. The pace of earnings recovery in the core business will be the focus going forward.

3. The annual dividend of ¥117 includes a special dividend of ¥70, creating a structure in which the payout ratio exceeds the earnings level. Cash dividends were below the level of capital expenditures deducted from OCF, ensuring near-term cash payments.

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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. The industry benchmarks are reference information compiled by the Company based on publicly available financial results data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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