Seven Bank Ltd
TSE:8410
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
243.6
342
|
| Price Target |
|
We'll email you a reminder when the closing price reaches JPY.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen. I am Takeuchi from Seven Bank. Thank you for your attendance today.
Let me take you through the first quarter results of Seven Bank, along with the presentation material.
Please turn to Page 3. First, is the consolidated income statement. What you see on the left top are the year-on-year changes. Specifically, ordinary income was JPY 35.8 billion, up by JPY 4.9 billion. Ordinary profit was JPY 10 billion, up by JPY 0.1 billion and net income was JPY 6.5 billion, down by JPY 0.2 billion. I will explain the details by company.
Page 4 shows the income statement of Seven Bank, the parent company. As you see, Seven Bank achieved both top line and bottom line growth. Ordinary income was JPY 29.7 billion, up by JPY 0.8 billion year-on-year. Of which, ATM-related fee income was JPY 27 billion, up by JPY 0.6 billion.
Ordinary expense was JPY 18.3 billion, up by JPY 0.1 billion. Due to our continued cost control and efficiency improvement efforts, expense increase was maintained at relatively low level.
Ordinary profit was JPY 11.3 billion, up by JPY 0.7 billion and net income was JPY 7.8 billion, up by JPY 0.5 billion.
Year-on-year changes are as you see on this page. And in terms of comparison with full year plan, ordinary income was slightly short of plan, but profitability was ahead of plan. I would like to talk more on the other key KPIs on the following page.
Page 5 shows the key KPIs of ATM platform business. First, the number of ATM usage was 208 million transactions in the first quarter. And breakdown is as you see on this graph. Growth of nonbank, et cetera, was bigger than before, reflecting the growth of what we call new category, including line and others. Fee-related income per transaction was JPY 133.2 in the first quarter, which was higher than the first half plan of JPY 132.
I mentioned earlier that ordinary income was slightly short of plan. We have set the first half fee per transaction target by incorporating the expected number of transactions from new category as well as newly started cash receipts service. But as of the end of the first quarter, the progress of both services was slightly behind the plan, which has given an impact on the fee per transaction result.
Number of ATMs was more or less in line with the plan. The growth of non-7&i Group ATMs may look slower. This is because we are in the process of replacing old ATMs with new ones, giving more focus on efficiency.
Overall number of ATMs, including 7&i Group, is in line with the plan. In terms of daily average transactions per ATM, unfortunately, we are not yet able to reverse the declining trend. As countermeasures, we continue to make effort to increase the number of conventional bank transactions through advertisement and promotion. Initially, we intended to achieve additional transaction growth through new services, including charge transactions and cash receipt service. But as I mentioned before, these new services were slightly behind plan and improvement is yet to come.
Page 6 shows settlement and account business. As you see on the left, the number of accounts and balance of deposits continue to grow steadily. On the other hand, we saw mixed results in each service. Especially, personal loan service was behind plan as seen in the other banks, reflecting the increased headwind or market change of the bank's credit card loan business since last year.
Now overall bank loan market is trending flattish or even in slight decline. Seven Bank is in the similar trend and the growth rate slowed down somewhat. However, bonus season has passed and stronger loan demand is expected. So we would like to make sure to review our measures and achieve growth.
On the next page. I will talk about FCTI. FCTI is our U.S. subsidiary and year-on-year changes are as you see on the top.
Ordinary income grew by more than 200% year-on-year. During the first quarter, January-March period, ATM replacement at SEI was not yet finished. It was actually finished at the beginning of March. So during this quarter, there was upfront cost of ATM installation and also ATM operation was not yet stable. Although ordinary income grew by $38 million year-on-year, cost has also increased. So ordinary profit was down by $4.7 million year-on-year to negative $8.2 million, and net income was also down to negative $8.2 million.
The number of ATMs installed was more or less in line with the plan. And total number of transactions was ahead of plan, although only by slightly.
By using Page 8 line graph, which shows the number of transactions at 7-Eleven stores, I would like to talk about the future outlook.
As you see on this graph, between January to March, the average transactions per ATM was about 43. As we have been explaining, ATM installation was not yet fully finished during this period, and our customer communication to promote ATM usage was not sufficient. However, after April, after the first quarter, the average transaction started to go up steadily and especially in May and June, the number was higher than 55. One of the reasons was the completion of ATM installation to all the stores as installation at 7-Eleven stores started a while ago, back in August last year, awareness was naturally increased.
Also, we revisited the transaction flow and made changes on balance inquiries and the surcharge is free for smoother transactions. This also helped improve the number of transactions. Even though it is hard to foresee the sustainability of the current growth, our focus for July is also to be over 55. Awareness has improved gradually upon completing the installation last year, and that seems to contribute to the increase in transaction as well. As reflected in the quarterly results, on the other hand, we need to continue to focus on improving the expense side.
On the same Slide #8, there is a remark saying currently reviewing operations, including adjustments to ATM cash supply costs. In addition, we also review any other types of costs. Even though the impact was minimal in the first quarter, in the second quarter, we obviously see increase in cost due to interest rate hike.
As we make progress in specific actions, such as compression of cash, we begin to see gradual improvement in some areas in comparison to our plan. Our full year plan assumes that cost improvement will start in the second half of the year. Therefore, if we only take a look at the first quarter, it looks as if we are largely behind. However, we believe gradual improvement to continue as various local initiatives are underway.
Please see Page 9. I would like to talk about some other consolidated subsidiaries.
Let me introduce an activity conducted by BBF, Bank Business Factory. This company was established to provide administrative outsourcing services. Starting from this year, BBF launched in earnest support for money-laundering countermeasures at financial institutions. As explained in the slide, in collaboration with SCSK Corporation, BBF offers administrative support to counter fraudulent accounts. As Seven Bank had experienced a number of fraudulent use of ATMs, we have been working together with the police force and also promoting our own countermeasures.
In discussion with financial institutions, it became clear that we can capitalize on our know-how and collaborate with them. So we started to market this service strongly. Of course, each bank has taken its own action. As FATF, fourth round of mutual evaluations are scheduled next year, FSA puts strong focus on money laundering, issuing guidelines in the beginning of this year. As a result, Seven Bank receives a growing number of inquiries on this matter. Unfortunately, simply providing our outsourcing services will not generate strong revenues. As in the slide, I'd like to touch on the current effort.
Getting an administrative and a planning division involved, we are going to strengthen a wide spectrum of relationships. Other than what is mentioned here, there's no specific case study I can present today. But as an ATM operator, we are able to capture actual needs and reinforce relationships in broad areas.
BBF has so far received orders from 4 banks for this service, which does not seem significant in number. However, after it announced the contract signed with Fidia Holding in May, about 30 to 40 banks, mainly regional banks, gave inquiries and today, sales activities are underway. Hopefully, this will further enhance its relationship with many financial institutions. That was an introduction of one of various activities that this company conducts.
On Page 10, I would like to discuss some other subsidiaries. As I also mentioned before, in the ATM operational slide, Seven Payment Service, the main company for cash receipt service, started offering services on May 7. It had signed contracts with 52 companies and makes progress in reaching the target of contracting 100 companies by end of this fiscal year. When it comes to the number of transaction per day, however, it is not significant as of now. This business is expected to make contribution from the second half of this year by focusing on concluding contracts and increasing the number of transactions.
Secondly, Seven Pay Co., Ltd. was founded on June 14. This is an equity-method associate with Seven Bank's stake being 30%. This is a part of the group financial strategy as previously announced, and we have been preparing to launch a new settlement service using smartphones as a tool. Seven Pay is going to be the lead company to start this service. The service is scheduled to start in spring 2019. As a main body to provide guarantee, Seven Pay was established in advance to work on various procedures with the authorities in the subsequent specific tasks. Various developments had already been underway in alliance with our group, and the first step was taken by establishing this company to launch service in spring next year.
Finally, ATMi in Indonesia. 114 ATMs have been installed. Unfortunately, we cannot expect further increase at this point of time. So the focus has been to enhance efficiency of each ATM. We intend to work on this business, including potential expansion, in the future.
This concludes my presentation. Thank you very much for your kind attention.
Thank you very much, Mr. Takeuchi. Now we would like to start Q&A session.
My first question is on Page 8, about FCTI average transactions per ATM. In May and June, it seems as if numbers grew steadily. Is it okay to understand that ordinary income is also improving as planned as indicated in the number of average transactions? We now only have January-March results and April-June results are yet to be seen. But my question is that whether ordinary income is improving in a similar manner with average transactions?
Your question is whether growth of FCTI average transaction is in parallel with growth of ordinary income. Looking at the trend after April, we believe that the improvements of both numbers are happening in parallel. For FCTI, the majority of transactions are generated at SEI where ATMs are installed. So growth of transactions is directly linked with growth of ordinary income. The current trend is ahead of plan, although only by slightly. And to your questions, answer is yes. Average transactions and ordinary income are improving in parallel.
I have an additional question. The first quarter loss was about $8 million, which was almost the same level with the first half guidance. So that means that you assumed the second quarter will be close to breakeven? Is it okay to understand that the first half guidance of $8 million loss is achievable? Or is it difficult as one may think?
Well, we are already in August. So that means that we have a pretty good idea about what second quarter results may look like. We are seeing significant improvement compared with the loss of $8 million. But the first half target is now looking a bit difficult.
My second question is on Page 5, about the quarterly trend of fee-related income per transaction, which you started disclosing from this time. The first quarter number was JPY 133.2, which seems a lot higher than the full year target of JPY 132.1. Could you give us more color on why that is the case since the average fee is higher than the plan here? So even if the number of transactions at deposit-taking financial institutions may go below plan because of higher average fee income, overall ATM fee income will be in line with the plan.
Your question is about ATM average fee. First of all, as I mentioned earlier, we anticipated stronger growth of transaction volume for relatively lower fee services, such as new category and cash receipt service. But that growth did not actually happen as expected in the first quarter. Also, the result, even for financial institution, was not necessarily in line with our expectation. Those were the factors which pushed up the average fee. And I mentioned earlier that many banks are struggling with loan business. On the other hand, as for loans handled by nonbanks, including consumer finance company, overall loan balance grew for the first time after a long period of time according to our last year's report. We believe that, that trend is giving a positive impact on our ATM usage. Our share in terms of ATM usage was not up, not by a lot, but by several percentage points. So that was another factor which gave impact on the average fee.
Since the average fee was higher than plan even if the total number of transactions at financial institution may fall short of plan, ATM fee income will be in line with plan. Is that the image you have? Could you give us a comment within the scope that you can share with us?
It depends on how much short the transaction volume will be versus plan. So it's hard to say one way or the other at this time, but we will have more new measures implemented in the second half. So we hope to achieve close to full year target number by combining all those various factors. Thank you very much.
First of all, the year-on-year growth of the total number of transaction for deposit-taking financial institution is running at certainly lower rate than conventional 3% target. Are there any drastic measures to be taken to address this?
Regarding running slightly lower than planned the 3% target, the main reasons are that transactions at financial institutions have not met expectations and that there's delay in implementing new initiatives. As for financial institutions, we, once again, have been putting focus on advertisements, including TV commercials, since last year. Simply airing TV commercials will not encourage usage. So in some areas, it is linked with in-store campaigns at 7-Eleven stores to promote usage. Regarding the new transactions, charge-based transactions, such as done by LINE, charging at our ATM is beneficial not only for us, but also for the partners. Seven Bank could do some charge campaign. And as our traffic-driven campaigns can be done rather easily by both parties, LINE has done something similar in the past. So we want to do such activities again. There are some partners with whom nothing particular has been done, so we would like to start working with them. Another new service is cash receipt service. As we discussed in the past, there are many inquiries, but the number has not yet met our expectations. We anticipate that actual transaction could be started, including some major partners in the second half of this year. Together with the start of such transaction, it is necessary for the partners to make announcements. There's direct benefit for them as well, such as administrative efficiency. So we would like to work together to enhance awareness. With a record high number of inbound tourists coming to Japan, the usage of overseas cars is on the increase. So we'd also like to revisit that opportunity to grow the number of transactions.
My second question is about the introduction of new type of ATMs. Roughly, how soon will the replacement be taking place?
We have been working on developing the new type of ATMs as have been explained. We have not made a concrete plan for replacement schedule at this moment. However, as the Olympic Games are scheduled in Tokyo in 2020, hopefully, by that time, our ATMs in the metropolitan Tokyo area will be replaced to the new ones so that the usage can be promoted for both Japanese and non-Japanese users. No further plan is decided as of now, so we will make an announcement when that is ready.
This concludes the Q&A session. Mr. Takeuchi, please make closing remarks.
I appreciate your participation despite the busy schedule today. As represented, on a stand-alone basis, Seven Bank may seem to be slightly behind for the new services and new category. But overall, its results are solid. As for FCTI, we have visibility for increase in the number of transactions, so the focus will remain on the cost reduction. We'll continue to make endeavors to achieve our target, both in domestic and overseas operations. Thank you very much for your attendance.