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Earnings Call Overview

Release Date

October 29, 2024
This document recaps the key highlights from the recent earnings call, reflecting on the company’s financial performance and strategic insights discussed during the presentation.

Summary of Earnings Call Insights

For an in-depth review, please consult the complete earnings call transcript available for your reference.

Key Financial Highlights

1. Revenue Growth

   • Net operating revenues experienced a robust 8% increase, reaching JPY 161 billion. This figure signifies the company’s strong and stable financial performance amidst varying market conditions.

2. Surge in Ordinary Income

   • A remarkable 93.1% increase in ordinary income brought the total to JPY 72.8 billion. This noteworthy growth is attributed to various factors, including enhanced asset-based revenues in the wealth management sector and robust performance in global markets.

3. Wealth Management Progress

   • The wealth management segment reported steady growth, highlighted by an increase in asset-based revenues. This reflects a successful strategy pivot toward a more comprehensive wealth management business model.

4. Record Asset Management Income

   • The asset management division achieved a record high in ordinary income, primarily driven by the growth of active funds and increased assets under management (AUM) in real estate.

5. Profit Attribution to Parent Owners

   • Profits attributable to owners of the parent jumped by an impressive 124.2%, underscoring the effectiveness of the company’s operational strategies and resulting in an annualized Return on Equity (ROE) of 13.9%.

Areas of Concern

1. Brokerage Commission Decline

   • Brokerage commissions fell by 8.5%, a result of reduced stock trading volumes across the board. This decline signals potential market hesitancy among investors.

2. Wealth Management Flow Revenues

   • Flow revenues in the wealth management division faced a decline due to ongoing market uncertainties, indicating a need for strategic reassessment.

3. FICC Revenue Challenges

   • Fixed Income, Currencies, and Commodities (FICC) revenues decreased sharply, especially in the domestic market influenced by a notable fall in interest rates, suggesting a turbulent financial environment.

4. Increased Trading Expenses

   • Trading-related expenses have risen, which has had a consequential impact on overall Selling, General and Administrative (SG&A) costs.

5. Decrease in Wealth Management Division Income

   • The ordinary income from the wealth management division lowered by 22.1%, highlighting the need for continued focus and adjustments in strategy to navigate ongoing market challenges.

Management Q&A Highlights

Q: Could you elaborate on the significant increase in ordinary income for the second quarter?
A: Kotaro Yoshida, Managing Executive Officer & CFO, noted that the ordinary income surged to JPY 72.8 billion, marking a 93.1% increase from the previous quarter. The surge is attributed to higher asset-based revenues in the wealth management sector, record growth in asset management, and revenues from global markets and investment banking. Additionally, gains from the acquisition of Aozora Bank shares positively impacted non-operating income.

Q: What factors contributed to the record high interim dividend?
A: Yoshida highlighted that the interim dividend reached a record high of JPY 28, with a payout ratio of 50.6%, backed by a substantial profit increase attributable to owners of the parent, amounting to JPY 53.7 billion, up 124.2%. The strong financial performance across segments such as wealth management and asset management supported this increase.

Q: How did international operations perform in the second quarter?
A: Yoshida reported that ordinary income for overseas operations totalled JPY 4.6 billion, which represented a remarkable 103.6% increase quarter-on-quarter. Europe displayed improved revenues and earnings, driven by a recovery in equity primary and M&A activities. Profits from Asia and Oceania remained solid, and increased customer order flows in FICC boosted profits in the Americas region.

Q: Can you provide more details on the performance of the wealth management division?
A: The wealth management division recorded net operating revenues of JPY 60.6 billion, down 3.1%, with ordinary income at JPY 15.9 billion, reflecting a 22.1% decline. Despite the decrease in flow revenues due to market uncertainties, the transition towards a wealth management business model showed steady progress, with notable increases in wrap-related revenues and agency fees.

Growth in Alternative Asset Management

Q: What were the key drivers behind the growth in alternative asset management?
A: Yoshida emphasized that net operating revenues in alternative asset management reached JPY 5.7 billion, up 85.8%, while ordinary income skyrocketed to JPY 8.4 billion, a staggering increase of 972.5%. This growth stemmed from capital gains realized through exits in private equity investments and enhanced income generated from equity affiliates and dividends in infrastructure investments.

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For further exploration of this earnings call’s detailed insights, refer to the complete earnings call transcript. This article first appeared on GuruFocus.

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