SBI Holdings Inc

TSE:8473

Earnings Call Analysis

SBI Reports Steady Growth and Strategic Ventures

SBI Group highlighted its asset management growth with a year-on-year increase in gross revenue and profit, driven by SBI Okasan Asset Management's contributions. With SBI Global Asset Management Group near JPY 5 trillion in assets, the total Asset Under Management (AUM) reached approximately JPY 8.4 trillion. A venture with Man Group aims to raise AUM to JPY 20 trillion by 2027. The crypto-asset business returned to profit, despite a prior JPY 9.7 billion loss, recording a JPY 500 million profit. SBI's shareholder stake in Shinsei Bank increased to 53.74%, leading to a planned delisting. A joint branch operation reached JPY 100 billion in AUM within a year, while a positive court ruling on XRP boosted SBI's crypto-asset business, and a semiconductor venture with PSMC advances.

A Robust Start to the Fiscal Year

SBI Group's first quarter revealed a strong financial performance, achieving record-high revenue of JPY 302 billion and pretax income of JPY 43 billion. Earnings such as profit attributable to owners of the company have seen a significant year-on-year increase to JPY 24 billion.

Competitive Positioning in the Securities Sector

In the securities industry, SBI Group holds its ground as a formidable competitor, ranking second in pretax income and profit attributable to owners of the company next to Nomura and Mizuho, respectively. Despite a challenging market in the previous year, the group delivered steady growth and held a strong position amid its peers.

Diverse Business Verticals Drive Growth

The company's Financial Services and Asset Management segments both reported revenue and profit growth, while improved market conditions and focused risk management brought the Crypto-asset business back to profitability.

Financial Services: A Tale of Expansion and Diversification

SBI Securities, a core part of SBI Group's Financial Services, reported marked increments in revenue and profit, and continues to innovate with initiatives like Neo-securities and zero commissions. The company emphasizes diversification in its revenue streams, which is evident from growth in domestic stock brokerage and collaboration with regional financial institutions.

Rising Trading Income and FX Business Success

Trading income and FX-related revenue are trending at exceptional levels. The FX business in particular has flourished significantly, aided by a weaker yen, marking record-high operating revenue for SBI Liquidity Market and positioning the company at the top in terms of OTC FX revenues.

Investment Trust and Accumulation Showing Promising Uptrend

Investment trust balances have touched new quarterly highs, contributing to increased investment trust fees, while the accumulation business, facilitated through alliances, continues to demonstrate robust growth in both the number of accounts and assets under management.

Notable Performance in Wholesale and Banking Business

SBI's substantial involvement in IPOs and a consistent underwriting share signal strength in its wholesale business. In the banking sector, Shinsei Bank Group showcased exceptional growth with increased revenue and profit attributable to the uptick in interest margins and dividend income.

Effective Risk Management Stabilizes Subsidiary Banks

SBI Sumishin Net Bank's ordinary profit experienced a significant year-on-year increase. SBI SAVINGS BANK in South Korea, despite challenges such as increased reserves due to rising interest rates, is showing signs of stabilization and cautious optimism for improved outcomes in the latter half of the year.

Insurance and Asset Management: Steady Progression

The SBI Insurance Group is exhibiting a solid increase in revenue, profit, and number of contracts, while the Asset Management business unit has grown its assets under management to approximately JPY 8.4 trillion with plans to exceed JPY 20 trillion by FY 2027 through strategic partnerships such as the joint venture with Man Group.

Private Equity, Leasing, and Cryptocurrency Ventures Rebound

SBI Group's Private Equity and SBI Leasing segments registered increased revenue and profits. Despite market downturns in the past, the Crypto-asset business implemented improved risk management and returned to profitability. The group now holds a 20% equity stake in the equity method company TPBank, which will shield it from future share price volatility. The company also saw a 5x growth in the customer base for its Crypto-asset business.

Future Outlook and Strategic Developments

SBI Group's non-financial business, such as bio-related and healthcare operations, is moving towards profitability. Strategic initiatives include expanding the product line for the launch of New NISA in collaboration with global asset managers, establishing a venture fund with the National Technology Group of Saudi Arabia, and progress in the semiconductor industry with a partnership with PSMC to establish JSMC in Japan.

Delisting and Further Integration of SBI Shinsei Bank

Following the increase in shareholding after the second tender offer, SBI Group is moving towards the delisting of SBI Shinsei Bank to enhance synergies and promote regional revitalization. The purchase of fractional shares will be at JPY 2,800 per share, and it is expected to entail the repayment of public funds approximately JPY 330 billion.

Earnings Call Transcript 2024-Q1

[Hideyuki Katsuchi, executive]

First of all, thank you very much for joining us despite your tight schedule and very hot weather. Thank you very much for joining us for the online -- this is Katsuchi, the company's CFO. I would like to take about 30 minutes to talk about numbers and recent topics followed by Q&A. Let me begin.

First, consolidated results. As you can see here, I would like to read the rounded numbers. Revenue, JPY 302 billion, and the pretax income JPY 43 billion. Profit for the period, JPY 32 billion, and profit attributable to owners of the company, JPY 24 billion. The revenue and pretax profit was record high as first quarter. And on a year-on-year basis, it was a significant increase.

As to the revenue, we could -- a little bit short of JPY 1 trillion in sales last year. But for 1 quarter, we exceeded JPY 300 billion. So it was a very good start. And as to profit attributable to owners of the company last year, TPBank, the valuation losses and the other crypto asset business incurred losses. But in this first quarter, it was a big positive profit. ROE, 9.08%. This is annualized. And that's a little bit short of 10%, but we are very close to our target.

Now the comparison with major securities groups. The pretax income, SBI is #2, following the Nomura. And for the profit attributable to owners of the company, we are #2 following Mizuho. The market was good. So every securities group did a good quarter. And the other -- you might be thinking that the SBI's recovery was not so sufficient, but the same period last year, the market was so hard and we did very well still last year. And this year, the market is good, and so we could grow our results very steadily.

As to the quarterly net income, after the tax, the Mizuho's number is greater than the pretax. So this is not exactly apple-to-apple comparison. So Nomura and Daiwa are the ones that we can compare more apple-to-apple way. So the FY'21, '22 and the first quarter FY'23. As you can see, the 3 companies at appropriate level in terms of profit level, those 3 companies are competing with each other.

Now this is the performance by segment. The Financial Services business -- this is mainly securities business, both revenue and profit increased, also the asset-related business and the equity method company, TPBank business contributed to the earnings.

Asset Management business and investment business. As to these 2 businesses, both revenue and profit increased. Crypto-asset business. Last year, the market aggravated and the -- some -- the business partners went under, so JPY 9.7 billion in negative. But for this year, the market is better, and more focus on risk management produced about JPY 500 million positive profit. As a result, new segment started. Since then, the record highs were achieved in many items. Now business overview of each business segment.

Financial Services business and the core there is SBI Securities -- I mean, the securities business. And here, we have JPY 51 billion of the operating revenue, JPY 18.3 billion OP profit in SBI securities with the Neo-securities initiative, a very steady progress to the start in the first half of FY 2023. And this is the SBI Securities. I do not read those numbers. But everything revenue and the other four are the income revenue numbers, we recorded new highs.

And here, we have major brokerage companies apple-to-apple comparison. As mentioned earlier, Nomura, SBI and Daiwa. And then a bit with distance, there are other securities firms, but the top 3 remain the same. The most important KPI, customer basis, and this is the graph. The number of accounts continues to grow, reaching 10 million. And with Neo-securities initiative, the number of accounts is expected to grow further.

About NISA, so the regime is going to be improved. And with that tailwind, we are already increasing this business, and it is very likely that we will increase it and grow it further. The other -- it is a very effective tool to acquire new customers, and we will remain focused.

The same for iDeCo, the number of enrollees is increasing and the balance of investment trust is also increasing. The number of enrollees as of the end of April, exceeding 1 million. The individual type defined contribution and we achieved or exceeded 800,000 as of the end of April. So here, we are growing as well.

Now SBI Securities, the structure of revenue. So the 0 commissions, we are going to start it during the first half of this year. And at the same time, we have to diversify our earnings in the first quarter. SBI Securities increased both revenue and profit. Business expanded with diversification. That is our understanding.

Last year, the same period, the market was not so bad -- was not so good, rather. So it was a tough condition, but we struck a good balance. And now the diversification has further improved. So in terms of diversification, we are becoming more steady. And online, the equity -- the trading commissions, about JPY 6.4 billion or 12.5%. So the numbers are low.

So from this slide and on the sales structure and the breakdown. The first, in the domestic stock brokerage trading under value increased with the good market and the commissions along with that increased. So this is MONEYPLAZA, SBI Shinsei and Regional financial institutions and the trend in how we have been doing in terms of co-managed stores. You can see we have seen significant growth, both in asset under management and number of accounts, there are four co-operated stores with SBI, but you can see that we have exceeded more than JPY 100 billion in balance. So we are diversifying our revenue sources here.

And this is not just shares, we're looking at also individual stock options offerings, which started from September. These are alternative investment method. This will also contribute to diversified revenue.

This is open interest credit balance and financial revenue. The market was good, which resulted in a high level of open interest credit balance and financial revenue also remains at a high level, in line with the credit balance. Again, this contributes to diversification of revenue.

This is trading income. We have FX revenue and we have others. For example, revenue through foreign currency bonds, these are the 2 main pillars. You can see how it has trended over the 5 years. And again, this has been trending at a very high level.

With regards to FX-related business, in Q1 this year, we have seen a significant progression in weaker yen more than JPY 10 in just 1 quarter as a tailwind. With regards to FX-related business, we has done quite as well. SBI liquidity market for 1 quarter, it has recorded a record-high operating revenue of JPY 8.747 billion.

And this slide compares with FX specialized companies, you can see how it has trended in terms of OTC FX revenues. Each company is growing but the SBI Liquidity Market is at the top. In terms of accounts, and this is the customer margin deposits. Again, you can see that we are at the top level in both of these index -- indicators, excuse me.

And this is the balance of investment trust. Market was good. Thanks to that, we have seen a significant increase in balance again, record high quarterly balance. With regards to investment trust fees, in line with the balance of the investment trust, we have seen an increase of plus 15.1% year-on-year to JPY 2.271 billion.

And this is accumulation of investment trust again. This is SMFG. These are our alliance partners. And through the partnership, we are promoting accumulation through credit cards, and this has been growing steadily. This is JPY 89.1 billion on a monthly basis, you can see that this is how it has been trending. So again, it's increasing. And -- this is on the right-hand side, you can see a number of accounts and AUM received for SBI Wrap. We have been capturing the needs of the customer as well, which has allowed us to grow. This is wholesale.

SBI Securities has always had a very high percentage of PO underwriting share. Again, the underwriting share continues to remain high. IPO, there were 27 in Q1. So SBI has been involved in 26 of them. In terms of who are the players. You can see the top 5 SBI, Matsui, Monex, Rakuten, SMBC Nikko. These are the online players. If you compare this with the data from just a few years back, and we have the similar slide, but you can see it has changed quite significantly.

This is the banking business with the second of the financial service business. We have 3 entities, but we want to start with Shinsei Bank Group. And today, Shinsei Bank has announced their J-GAAP result, and this is a summary of what they will be announcing today. As you can see, increase in revenue and profit by a significant margin. And the reason behind that is that -- and you can see that from the bank's financial results as well, but they have been able to increase their interest margin and also they have been able to increase their dividend income. Their retail business have improved. Those are the reasons why they have been able to increase their operating revenue.

In last of Q1 FY 2022, this profit before taxes and profit attributable to the owners of the company was negative because there was an impairment loss was recorded on Latitude Group which is Trans-European company.

But those were sort of the Q1 extraordinary items. But if you look at the percentages of 1Q FY 2022. So these are the numbers if we were to exclude those impairment losses. But even then, even compared to that without those special items, you can see that they have outperformed the previous year.

Now what about the IFRS numbers at the bottom, you can see that pretax. This is approximately JPY 5.7 billion. This is about JPY 9 billion difference between the J-GAAP. And there are multiple reasons behind that. So for example, this includes -- one of them would be, for example, fair value of marketable securities. Again, this has an impact.

So J-GAAP, OCI, this is not a loss but in IFRS because it was reflected on P&L, it will be booked as losses. Now in the J-GAAP this is profit. But in IFRS, this OCI, it's considered as a loss. So this will be 1 item. And in terms of the upfront fee for the loans, mentioned earlier that the corporate loans are growing. So when there's loan and you receive upfront fees, that's a custom in J-GAAP, this will be booked as a revenue on a one-off basis. But you have to do a pro rata on IFRS basis.

So this is the gap. And those are some of the reasons why there's a gap. Those are the two representative factors, but of course, there are many other factors that affect this difference. But it just happened in the Q1, there were multiple reasons for this gap between J-GAAP and IFRS. So each year, you will see -- it doesn't mean that there will be less profit on IFRS compared to J-GAAP. It could be, as in the past, I see the other way around where there were greater profit in IFRS than J-GAAP. So it depends.

So if you look at on a full year basis, we do not believe that there will be too much difference between IFRS and J-GAAP. For example, if you look at the financial results on the previous year, there wasn't that much of a difference.

Now this is number of accounts and deposits such as a SBI Shinsei Bank. So it underpins the aggressive operating assets. And -- so again, in terms of number of accounts and number of deposits, you can see that it has been growing since they have become SBI. And that's for the total amount of deposits since they have become part of SBI, they have been growing. But for the number of accounts, they had slightly a decrease before they became part of the group, but now they're growing once again.

As for collaboration with SBI Securities, this is what we have done. I will not read each of every one of them, but in terms of retail business, the second from the top, for accounts opened at SBI Shinsei Bank at the same time is opening one at SBI Securities, approximately 3,000 applications within 1 month since start of service has been realized. So you can see credit synergies already being realized here.

In terms of corporate business. So if you look at the second bullet point front below, so regional bank participating in loan deals arranged by SBI Shinsei Bank. So we have already worked with 3 banks, an amount of JPY 104.5 billion in distribution track record. So you can see that we have been able to build a track record here. In the bottom, we have debt finance and capital loans to SBI Investment investees. So again, we are beginning to see substantial results here. So we're now beginning to generate a lot of synergies here. So we have been able to realize a win-win relationship.

The second SBI Sumishin Net Bank. On the left-hand side, the J-GAAP basis. The mortgage business continues to grow. So year-on-year, plus 10.2%, about JPY 8 billion of ordinary profit. And on the IFRS basis, on the right-hand side, last year, interest rate went up. And because of that, there was the variation on the other losses. So the last year was abnormal. When compared to the previous year, the increase here is more than 300%.

This bank IPO'd at the end of March and equity ratio changed -- it was 50-50 between the Sumishin and SBI. But now it is 34.19%. Still, it is making close to JPY 2 billion profit contribution. And this is the bank's balance of deposit and number of accounts since inception. So it continues to grow and the 6.35 million and about JPY 8 trillion of deposits.

And the third one is SBI SAVINGS BANK in South Korea. On the IFRS basis, year-on-year basis, the significant decrease year-on-year. The reason is as follows, the spread decreased and also the reserve increased. Last year, interest rate went up significantly in Korea, the funding cost became a big burden. And so the delinquency that happened, so the reserve had to be increased. But more recently, macro data and the real estate, the price and the decrease that is now modest, and also by vintage, the loan performance, the comparison shows that the current performance is not so bad. So we are seeing some sign of improvement.

And currently, the spread -- the compression is now getting the smaller. Maybe it is hitting the bottom. So from second half of the year, we can expect the improvement of the results as to the rating are very stable. That's the outlook.

And the changes in indicators since becoming a subsidiary and as to the loan operation is conducted very carefully. So from September, the full 3 consecutive quarters, total asset continues to decrease. As to delinquency, it is up now 4.1%. And now there is a limit on the sale of the delinquency of the loans. So we cannot decrease such the loans as we want. We are not optimistic nor the pessimistic because we are seeing some good results. We would like to continue to watch carefully. Loan operation should be carefully operated.

And this is the SBI Insurance Group, and these are preliminary numbers. On August 9, there will be final numbers. And here, ordinary revenue, ordinary profit, profit attributable to owners of the company, they are all increasing in a very steady manner. The number of contracts. As you can see every time we make a presentation, it is growing very steadily. It is growing.

Asset management of the business, the results. November last year, SBI Okasan Asset Management contributed, and year-on-year, gross revenue and the profit increased. SBI Global Asset Management Group is increasing the AUM very steadily, close to JPY 5 trillion. It continues to grow.

Including that, SBI Group's AUM, as of the end of June, about JPY 8.4 trillion. The breakdown is as follows about JPY 5 trillion for the SBI Global Asset Management and SBI Okasan this capital in private equities together, about JPY 8.4 trillion. We have agreed with Man Group, the best in U.K. to form a joint venture to manage alternative investments. So going forward, we would like to provide new opportunities of investment and easily.

And that's -- with that intent, we started that is discussion. And agreement with Man included, we are going to increase the current JPY 8.4 trillion of assets to JPY 20 trillion over 5 years. We'd like to exceed JPY 20 trillion level in FY 2027. So that is the current plan, including the various lines of products and now investment of the business.

The Private Equity and SBI Leasing, both revenue and profit increased year-on-year. And this is the profit from the change in fair value and on sales of investment business. At the same time of last year, there were some private numbers. Private names were good, but more than JPY 50 billion, the losses were incurred. As you can see in the text, the TPBank listed in Vietnam, about JPY 24 billion of fair value losses incurred. And because with that, though we incurred the negative number.

But from February this year, the 20% equity stake was obtained. And so now they are equity method of the company. So in the future, we will not be impacted by the change in the share prices of the entity. And both the listed and unlisted, the names are expected were the contributing to the increased revenue and profit and business IPO and M&As.

In total and for the full year basis, it is 38. So we are making good progress. And this is asset under management, about JPY 730 billion of asset. Crypto-asset business. Last year at the same time of the year, we have seen deterioration of the market, and we have seen bankruptcy of some of our business partners and we had minus JPY 9.7 billion in losses. Based on that, we have been very thorough on our risk management, and we have been very controlled our risk because we have also seen recovery in the market, and we have been able to record a profit of JPY 500 million, which is not a large number, but we have turned around.

So as you can see in the red ink, if you look at the positive net income for the most recent results, only BITPoint Japan was the only major capital asset exchanges in Japan, that was positive in net income at that time, but we have now been positive again as well.

Now this is the customer base for Crypto-asset business. If we look at 2 years ago compared to that, we have grown by 5x. And we invest in VC Trade and BITPoint in Japan. We have the licenses through 2 entities like this. So if you add them together, we are #5 in the industry. And VC Trade and BITPoint is diversifying its services and crypto assets handled. You can see it's -- the lineup is becoming full with more assets being handled.

This is the staking service of the 2 that are offering. We're putting a lot of emphasis here. Again, balance is now also growing very significantly.

So this is the last segment, the non-financial business. So this is bio, Web3 -- excuse me. In Q1, this was minus JPY 445 million. So this is bio-related and healthcare performance.

If you look at 5-ALA-related business, Q1 was JPY 266 million, but this quarter is JPY 788 million. So again, we have been able to increase our profit quite significantly. SBA ALApromo, this is actually negative, but it seems SBI pharmaceuticals, but we have some upfront investment for IPA-related expenses.

And SBI Biotech, they are aiming to be listed in 2024 and 2025, respectively. So this was the situation of each of the segments. And the slides following that is starting from April 1 to today, these are sort of the key topic summary of each of the businesses during that period. So number one, this is the second tender offer for SBI Shinsei Bank.

At the end of June, TOB itself has been completed, and the shareholding has increased from 50.04% to 53.74% at that time. And we will now enter into the process for them to be delisted.

This is the timeline until the squeeze out completion. So SBI Shinsei Bank extraordinary shareholders' meeting will be held on September 1, 2023. And this shareholders' meeting will vote on this result. And we have SBI DIC and RCC. We have already agreed beforehand that we will approve this result. So we believe that this will progress without any issue. So after the extraordinary shareholders meeting on the September 28, they will be delisted. And then as for the purchase of the fractional shares, it will be done at the same price. This will be JPY 2,800 per share.

And when we do a share -- excuse me, squeeze-out, DIC has a little less than 7 million shares. We will purchase their shares, and that will be JPY 9.3 billion approximately, but this will be treated as a repayment of public funds. So they have about JPY 350 billion in public funds remaining, but we will be paying back some of the public funds, and that would be about JPY 330 billion. And so this -- we will be able to enhance the synergies between Shinsei Bank and SBI, and we will also be able to promote regional revitalization more aggressively. So we will be able to repay the public funds at the appropriate timing, and I hope that we will be able to present the discussion with the related parties at appropriate time.

Now this is SBI MONEYPLAZA and Shinsei Bank's joint branch operation. They had just began and opened the fourth joint branch operation in Yokohama. And just within 1 year of the start, they have already achieved JPY 100 billion in AUM. So it's very steady. Now this is basically expanding the product line in anticipation for the launch of New NISA, we have BlackRock, Vanguard and Invesco. We are tying up with these global asset managers so that we can contribute from savings to investment.

And this is a different lineup. So you can see that each of these group companies are offering different types of products, and it's being adopted as part of NISA. And just by combining this, it will become diversified and low-cost portfolio. So again, this will be, I think, very sought after by the retail investors with great needs for that.

This is a new initiative. This is a joint establishment of venture fund with National Technology Group of Saudi Arabia. We're looking at jointly establishing a venture fund. We have entered into an MoU on July 18. Now this is on the court case, Ripple case. We have been waiting for 2.5 years for the result, the ruling to come out. But on July 28, we have finally seen the ruling by the U.S. District Court -- excuse me, July 13. And the greatest point was whether XRP is security or not. And the court ruled that XRP sold to retail investors is not a security. Therefore, this will be very beneficial for the Crypto-asset business and we have seen XRP prices and trading volume increased significantly. And as you can see, Coinbase, Kraken, Bitstamp, they had been pending on the trading of XRP, but they quickly relisted XRP after the ruling. This also helped with the prices. And as for the corporate value of the unlisted Ripple Labs, this is actually basically good news. So this will be a positive and you can expect to increase substantially.

This is the last slide. So this is a semiconductor project, and a joint business with PSMC, the Taiwanese foundry and establishing JSMC in Japan. So we are looking at 25 candidate sites. And by August, we will start local inspections of these candidate sites. We have already started discussions with local municipalities and related parties. So this is yet -- to be realized very soon.

So that is all from this. I think I have spoken about 30 minutes, I would like to take questions from this point on.