SBI Holdings Inc

TSE:8473

Earnings Call Transcript 2023-Q1

[Yoshitaka Kitao, executive]

Let me present the results of the first quarter. Please allow me to take off my mask. Thank you very much for joining us today despite your tight schedule and despite the open holiday season.

My name is Kashi in charge of finance and accounting at SBI Holdings.

From this quarter, I will present mainly financial results for the first quarter and the third quarter. And as to interim results and full year results presentation, Mr. Kitao, will explain about them, including strategic aspect. I'm going to use the first 30 minutes or so to present the results, followed by Q&A. This is my first time to present our results. So please be bear with me.

Let's start with the first quarter consolidated results. The revenue, plus 68.9% or the JPY 232,150 million. For the pretax profit, down 28.8%, JPY 23,522 million. And the profit for the period, down 49.7%, and JPY 16,669 million. Profit attributable to owners of the company, minus JPY 2,360 million.

So revenue-wise, it increased significantly. And this is because of Shinsei Bank becoming a subsidiary, and we hit record high. As to profit, it decreased. And there are 2 reasons which are marked in the red. One of them is TP Bank. We have about 20% stake in TP Bank. And because of their stock decline, we booked fair value losses of about JPY 24 billion. Another reason is that the crypto asset business, we suspended the mining business in Russia and the crypto asset prices went down significantly.

And also B2C2 other companies' business partners went under. And because of that, B2C2 incurred losses, and the impact was about minus JPY 9.7 billion. And as to profit attributable to owners of the company was minus JPY 2.4 billion. The entities in which we have a big stake incurred losses, and that is the main reason behind this negative number. So TP Bank incurred losses. We invested directly and also the crypto asset business subsidiary, we have a large stake. So there be impact on the parent company's results.

And now the comparison with the major securities companies in times of pretax profit, I think that we are doing rather well, better than other companies in the current market conditions. And from the first quarter of FY 2022, we changed business segments as we announced when we reported the last year's results. And we used to have 3 segments, and now we have 2 major areas, financial and nonfinancial. And the financial area has 4 different business segments. The main purpose is to improve the transparency.

And as a result, we are looking at the segment-wise results. The Financial Services business revenue increased due to the Shinsei Bank becoming our subsidiary. And as to investment business compared to last year, both revenue and profit increased. The TP Bank's JPY 24 billion losses are included here, as to crypto asset business, as you can see, in a big red numbers.

Next, business overview of core businesses. Financial Services business and the securities business, major content companies, SBI SECURITIES, SBI Liquidity Market and others. SBI SECURITIES, the core entity, the consolidated results on a J-GAAP basis, as you can see, those are the results. The market -- equity market was unstable. So the revenue impact about down 5% and the profit a little bit more than 10% negative impact.

Now let me compare with the other major securities companies for operating income, including those companies which are not listed here, all of them struggled in the first quarter. Still SBI SECURITIES did relatively well. And this the JPY 12,161 million of SBI SECURITIES was the best number among those securities firms. And as to SBI SECURITIES, the comparison year-on-year comparison, so revenue decreased, but we could diversify the sources of the revenue that we have been working on. Rather than being too dependent on the brokerage commissions, we diversified the sources of the revenue, which has been achieved.

And as to the number of accounts, during the 3 months, there was a big increase to 8,829,000 accounts. And this is the retail market share was for the other spot and the margin trading, year-on-year basis, we could increase our shares.

On the other hand, although the trading value increased, we worked on decreasing commissions for the Enel Securities initiative, the commissions slightly decreased. Toward the end of the other documents you will see the online commissions was reduced to 12.6%. Online commission dependency decreased to 12.6%.

And this is open interest credit and the financial revenue. Financial revenue decreased slightly, still at the very high level. And this is one of the examples of the diversified revenue sources, and this is the balance of the investment trust. The equity market was softened. But as to the investment trust balance at the end of the quarter, increased slightly, achieved a record high on a quarterly balance. And the investment trust fees year-on-year increased by 15.8%, becoming a very stable source of revenue.

In June last year, we allied with SMCC. And more specifically, it is alliance with Sumitomo Mitsui Card. And 1 year has passed since the launch of this service, and the total amount of accumulated funds through the service reached JPY 11.1 billion, and the number of accounts exceeded 300,000 accounts. So it is growing very steadily. And the point usage level is high, showing that this service is really well accepted by the customers.

So I talked about domestic stock earlier. But for foreign stock, we continue to see brisk growth. This is part of our diversification of earnings. And also for Q1, trading value as well as revenue both increased, and we were able to record highs.

Next is the Real Estate Finance business, which is continuing to grow. So whether it be the organization fund formation, Shinsei Ginko is now part of the group. Therefore, revenue -- we believe we have been able to capture more growth opportunities. And regarding the IPO market, it has been soft, but SBI SECURITIES, the involvement rate continues to be at high levels. For the first quarter, we were at 100%, meaning that SBI SECURITIES was involved in all of the deals available.

Compared to the #2 company here, there is a great difference in our involvement rate. And we have also been doing corporate bond underwriting businesses in order to diversify our revenue base. So this has been contributing.

So for the stock market and the crypto asset market, because the market deteriorated, we were negatively hit by those trends. However, in the first quarter, we also saw a rapid progression of the depreciation of the yen. For SBI's FX business, this was a tailwind, in fact. So for liquidity market and its operating revenue, at the end of the quarter compared to the previous year, it went up by 1.5x, reaching JPY 6,858 million.

And then when you look at the next page, regarding the number of accounts as well as the ranking of deposits in the industry, we have continued to maintain the top position. So we have been able to capture opportunities that are available out there within -- without missing them.

Now looking outside of Japan. For Thailand as well as in Cambodia, we have security subsidiaries. For Thailand, last year, for '21 March, it already turned positive for the full year, but we continue to maintain being profitable. As for Cambodia, it is Japanese-affiliated, but it is positioned as a leading firm in the industry and is regarded highly. And we have been profitable in this business as well. So it's not only in Japan, but also overseas where we are trying to diversify our revenue base.

So for PTS, we have been focusing on this area as well, Japannext Securities. It is the second largest trade execution market in Japan. And on October 5 last year, we were able to reach a record high in trading value of JPY 434.8 billion. So we have been able to well establish ourselves. And in April 2021, with Sumitomo Mitsui Financial Group, Osaka Digital Exchange was established jointly. And from June, it has started to handle and carry listed stocks and started operations as a PTS. So trading value exceeded JPY 40 billion. Although the size is small, we have been seeing good growth come through.

So that was basically about one of our core businesses of the Financial Services business, which was the securities business. The second pillar is the banking business, as you can see here. So the major constituent companies were the Shinsei Bank Group, SBI Sumishin Net Bank, as well as overseas banks, including SBI Savings Bank.

So first, regarding Shinsei Bank, which is here, on July 29, J-GAAP results were announced by Shinsei GAAP, which is summarized on this slide. So Latitude Group, they have a stake in this entity and the stock prices as of end of June plunged. Therefore, on a J-GAAP basis, JPY 16.5 billion worth of impairment losses were recorded and profits were loss-making, return to the red. And however, if the impairments were not to happen, whether it be business profit or profit, the progress that has been made on the performance has been quite steady. And Latitude, which was the reason for the losses and its stock prices.

Now ever since July, it has been exceeding and remained above the impairment line. So it doesn't mean that the JPY 16.5 billion in impairment losses is locked in. And regarding the retail account deposits in Shinsei Bank and its trends, up until now, the number of retail accounts were on a declining trend. However, for this, we believe that the decline has come to a halt. And on the other hand, for deposits, various types of promotions and campaigns have been conducted, and it has continued to increase. on a steady basis.

For SBI SECURITIES and Shinsei Bank, between the 2 entities for the customer base as well as deposit increases, we are working on various types of tie-ups through financial instruments, intermediaries and banking industry businesses. So the examples of services provided is here, simultaneous account opening and suite account linkages and so forth. Basically, convenient services will be provided to the customer so as to expand the customer base. These are initiatives that are underway.

Apart from that, for example, for SBI Investment, which is one of our core subsidiaries. For those companies that it invests into, Shinsei Bank can extend debt financing or venture debt. And the first deal was concluded the other day. Also, there are some tie-ups happening with Money Plaza during this month. The first branch is scheduled to be established within the Shinsei [indiscernible] branch. And also, structured finance and project finance where Shinsei Bank has strength, collaborations are underway.

Also, for APLUS and SBI AutoSupport, there's partnerships happening here. And also between SBI Remit, which is a company that's engaged in international money transfer, it only is able to do up to JPY 1 million. And for those customers who want to remit more than JPY 1 million, we'll be able to refer them to Shinsei Bank going forward. So these initiatives are underway too. For leasing, in the same way, partnerships are underway. So in various ways with Shinsei Bank and SBI, a variety of cooperation is underway.

So on the next page, here's the second bank, which is SBI Sumishin Net Bank and its financial results. On an IFRS basis, due to higher rates -- due to the bonds held, the valuations went down. Therefore, this is an accounting factor, but profits went down year-over-year substantially. So the income for this quarter was JPY 440 million. However, on a J-GAAP basis, the impact is not present here. So on a J-GAAP basis, which is already disclosed, lending went up steadily. And as a business, it is doing well on performance.

So whether it be ordinary revenue or ordinary profit on a J-GAAP basis, we have been seeing higher levels year-over-year. And here is the number of accounts and balance of deposits or the customer base. And for Q1, we continue to see good growth for both items. And here's the third bank, which is SBI Savings Bank. It doesn't carry any bonds. But due to the deterioration of the stock market, there was a decrease in price of securities held. So on IFRS as well as a KGAAP basis, their performance went down year-over-year, and profit decreased. However, for credit provisioning, proactive credit provision was done. Therefore, interest income has increased steadily.

So this is a chart that we always share with you. We have continued to see more of performing loans and performing assets, and delinquency rates continue to be low. So we hope to maintain the current level going forward as well.

For other financial institutions than Korea, Russia and Cambodia, we have subsidiaries operating and banking business in Russia. And given the environment of the market and local conditions, we have continued to focus on prudent management of the business. For Cambodian Bank, in the last fiscal year, it's turned into the black ink. And in this fiscal year, it is accumulating the assets. Now we have seen a profitable business in the first half. For the full year, we expect that to continue to be in the black ink.

Next, insurance business. The major companies are Insurance Group and underweight several subsidiaries. And this is already publicly announced based upon the J-GAAP, and ordinary revenue and profit, which are both increasing steadily and the performance has quite strong. And in terms of the number of in-force contracts, which has continued to grow steadily. The expected full year of the CAGR is 13.9%.

And next, business segment. Asset Management business is here. And Morningstar in Japan under with SBI Asset Management and Rhoes Capital Works, these 3 are the major constituent companies in the asset management business. And given the stock and bond markets deterioration, there have been slight decline in profit in this business segment. But when it comes to the profitability of revenue, we believe that performance has been quite stable.

As you are aware, SBI Asset Management Group, well, there used to be 3 companies, SBI Asset Management, SBI Bond Investment Management, SBI Regional Revitalization Asset Management, these 3 companies are merged together, integrated together, in order to establish the new SBI Asset Management. This took place on the 1st of August. Given this back-office management resources will be integrated in order to increase the efficiency of operations and profitability strengthening.

And inclusive of these companies and businesses, SBI Asset Management Group has steadily increased its AUM and JPY 3.8 trillion was achieved as of the end of June. And Rheos Capital and the private equity and investment trust altogether, AUM exceeds JPY 6.0 trillion. We wanted to increase further. And going forward, Ogosan Asset Management, once procedures for making it a subsidiary, and then JPY 1.3 trillion will be added and the managing of the Shinsei Bank on accounts are all going. And then JPY 10 trillion as AUM as the long-term management target is within our forecast.

And the third business Investment Business, include Private Equity Business and SBI Leasing Service. These are the 2 major constituent companies. Because of the change in the fair value and also the sales of investment securities, there were profit and loss changes. And compared to the last year, JPY 3.6 billion was recorded last year, but this year JPY 9.4 billion has been recorded.

As you can see in 2 listed shares, there were -- in unlisted companies, there were quite great contribution in terms of profit. But when it comes to the listed shares, last year, JPY 7.4 billion negative number was recorded. And this during this quarter, JPY 15.1 billion negative number was recorded. So this has given the negative impact on the overall business. As I said, TP Bank in Vietnam, because of the decline of the share price of this TP Bank, and therefore, write-down of about JPY 24 billion had to be recorded in Vietnam market since the beginning of the year, over 20% decline was recorded in the stock market.

And TP Bank, as you can see in this diagram, the loan balance or profit before income tax expense, as you see in these trends, there are no particular concerns regarding the performance. However, given the overall decline in the stock market, this has a dropped down, the performance of this bank. As you can see on the right-hand side, the market cap of TP Bank has significantly dropped during the first quarter. On the other hand, since the beginning of July, the market bottomed up -- bottomed out. That's what we have observed in the month of July onwards.

Investment business, IPOs or the number of exits. Last fiscal year, there were 22 exits. For this fiscal year, as the full year forecast, we are expecting to see 40 exits. By the end of July, already 8 companies have achieved IPO or M&A, all of which were actually IPO. Therefore, we believe that we have kept a good pace given the poor market conditions. But I think that the performance in -- or trend in the exits has been quite well.

And this is what we have already shown, although from a different perspective. Private Equity and Investment Trust and the balance which have been observed from a different perspective. We do not have a year-on-year comparison, but FinTech service and blockchain and digital assets, and these are the areas we are continuing to focus in order to increase the balance.

This is the fourth business segment. This is the crypto-asset business. Main constituent companies include VC Trade, B2C2 Bitpoint Japan after July 1, and crypto asset mining businesses are included. Regarding the number, about JPY 9.6 billion negative number was recorded in the profit before income tax expense. And during the first quarter, crypto assets variation was significantly declined. Therefore, there was a significant loss of variation. And given the sharp fall in the value of the markets and the crypto asset hedge funds went bankrupt, I believe that everyone is aware of this news, given these market conditions.

And there were some subsidiaries with the exposure to such risk. Therefore, there was a negative impact of that. And there were such extraordinary temporary factors of JPY 7.2 billion, therefore, accounting for the majority of the JPY 9.7 billion negative number.

In Russia, there is a business conducting the mining business in Russia. And during the first quarter, we already stopped this mining business. We are selling the equipment as well as we are moving -- taking measures to withdraw from this business in Russia.

B2C2, although it carried loss. However, based on the daily trading volume and the number of customers, we believe that the performance of this company has been quite steady, moving steadily. And the next one is SBI VC Trade, the services need to be expanded further. But in terms of the number of customers, which we have seen, the increase, and the number of currencies we have been dealing with, although we have limited only the major currencies to be dealt with. But in addition to that, currently, the crypto asset -- number of crypto assets handled is now 12. And through campaigns, we are trying to increase the number of customers.

For Bitpoint Japan, which is a quite unique company as well, we decided to acquire the majority stake in this company from July 1. So therefore, we believe that this company starts to contribute to the entire company's the business performance from the second quarter onwards. And with the unique business and it has quite onward looking -- future looking or [indiscernible]. And through B2C2, liquidity can be provided, and then we are able to provide favorable conditions by Bitpoint to customers. So this is what we would like to continue to be proactive in promoting.

The last one, Nonfinancial Business. Major constituent businesses include the former biotechnology company and the other businesses that are at the stage of the investment for the future. So the other businesses are combined in this segment. For both revenue and profit, we have been able to grow slightly over the previous year.

And there are some topics to be provided. First, SBI Biotech. Now this company continued to make profit with a milestone revenue. And this -- during this quarter, 5-ALA related business could be profitable as well although it was negative in the last fiscal year. Lastly, SBI Africa, which operates the used car export, which was established a little over a year ago. And a young management team is running this business. Although the size of this business is small, but the profitability is growing. And the profit before the income tax expense which is growing. So we believe that this interesting business will start to contribute to the profitability as well in the future.

And other pieces are the reference materials. So therefore, this concludes my presentation. Regarding the presentation and the materials. If you have any questions, we would like to receive some now.