Higher interest rates are a tailwind for segregated customer cash management; management estimates annual revenue upside of +JPY 650M per +25bp

Summary

At the earnings briefing, management highlighted higher revenue and profit on a 9M basis, and emphasized that rising rates are expanding income from managing segregated customer cash, lifting net financial income. While margin loan rates will be held steady for the time being given the competitive landscape, the company framed a dynamic in which incremental revenue from segregated cash more than offsets higher funding costs. In addition, the presentation underscored balancing growth investment with capital discipline, including exploration beyond the core securities business starting with an equity stake in Agent IGH, ongoing security enhancements including Passkey implementation, and tighter ROI management for advertising spend.

Key Takeaways (Earnings Highlights And Growth Actions)

• Management Strategy And Market View
  • Sees rising equity prices and higher trading value in an inflationary environment as supportive of higher brokerage commissions
  • Clear stance that rising interest rates are positive for earnings due to higher income from segregated customer cash management
  • While it is not easy to raise margin loan rates in a competitive market, segregated cash income is positioned as an earnings offset
  • Views the impact from competitors’ zero-commission offerings as limited; prioritizes continued strong trading activity
  • Intends to preserve agility as an independent player, while improving corporate value to expand future strategic options
• Recent Operating Trends And Key Drivers
  • Explained that Operating Income, Recurring Profit, and Net Income increased YoY on a 9M basis
  • Over 9M, average margin loan balance declined YoY, but net financial income increased due to higher interest rates—indicating a structural shift
  • In 3Q alone, both trading value and average margin loan balance increased QoQ, with equities, margin trading, and FX all delivering revenue growth
  • Noted an upside factor in 3Q Recurring Profit from investment partnership fund gains (net non-operating income) of approximately JPY 500M
• Key Strategic Initiatives And Notable Changes
  • Clarified a policy to control advertising spend while monitoring account acquisition profitability; in 3Q, advertising expenses increased due to higher affiliate marketing and a refreshed TV commercial
  • Continues to reinforce FX as a pillar of revenue diversification, with growth described as ongoing
  • Positions the capital and business alliance with Agent IGH as a step toward reactivating dormant accounts and diversifying revenue sources beyond securities
  • Continues brand building through stronger investment information media and content, committing to improved awareness
  • Ongoing security enhancement including Passkey implementation (targeting March)

Outlook And Strategy

• While detailed commentary on full-year guidance was limited, the company characterizes the earnings environment as solid, assuming trading momentum remains strong (January also tracking well)
• Emphasizes that policy rate hikes are positive for segregated customer cash income and that the net profit uplift—more than offsetting higher interest expense—should continue
• Margin loan rates will be monitored against peers, but management indicates raising rates is a low priority at present
• Explained that the capital adequacy ratio has declined versus the past and is now in the 300% range (as of end-Dec 2025: 362%)
• Dividend policy is based on payout ratio of 60%+ and DOE of 8%+; year-end dividend to be announced in late February, with overall judgment incorporating increased investment
• Expects growth investment to increase, not limited to M&A, including software investment and fund investments
• Plans to explore non-securities opportunities not limited to insurance agencies, including adjacent areas around traditional financial services

Positive Factors

• Structural uplift to net financial income as higher rates expand income from segregated customer cash management
• Presented an estimate of annual revenue upside of +JPY 650M per +25bp policy rate increase, implying a supportive rate backdrop
• In 3Q alone, equities, margin trading, and FX all posted revenue growth simultaneously, advancing revenue diversification
• FX continues to acquire new accounts, with growth in active accounts contributing to scale expansion
• Investment trusts: beyond AUM growth, differentiation is progressing via strong-selling products with a higher mix of active funds; increased transfers in also contributed
• Advertising spend is managed based on account acquisition profitability, reflecting growth investment with clear ROI focus
• Maintains fast and flexible decision-making as an independent firm as a source of competitive advantage
  .

Key Concerns / Risks

• 3Q Recurring Profit includes a one-off factor of investment partnership fund gains (approx. JPY 500M), raising the issue of earnings normalization
• In margin trading, rising funding costs make it difficult to raise lending rates; depending on competition, there is risk of margin compression
• With the capital adequacy ratio continuing to trend down, balancing growth investment and capital discipline becomes increasingly important
• Risk of renewed increase in unauthorized access/fraudulent trading, with potential incremental mitigation costs and impact on customer behavior
• If advertising and promotion expense continues to rise, margins could be impacted depending on the monetization pace of acquired accounts
• Investment risk associated with expanding into non-securities areas (equity stakes, M&A, fund investments), including valuation volatility, liquidity, and longer payback periods
• Market reversal risk (equity trading value, FX volatility) that could drive volatility in brokerage commissions and trading P&L

Financial Highlights

On a 9M basis, brokerage commissions increased on higher trading value, and higher interest rates boosted income from segregated customer cash management, lifting net financial income and driving higher revenue and profit. In 3Q alone, revenues from equities, margin trading, and FX also expanded, with the Operating Revenue-to-Recurring Profit margin rising to 50%.

• Company Equity Trading Value: 51.1兆円 (+26% YoY)
• Company Average Margin Loan Balance: JPY 347.3B (-5% YoY)
• Operating Revenue-to-Recurring Profit Margin: 45% (Change YoY —)
• Total Accounts: 1,731,809 accounts (as of end-Dec 2025, YoY —)
• Investment Trust AUM: JPY 536.6B (as of end-Dec 2025, YoY —)
• FX Trading Value (3Q): 141.0兆円 (YoY —)
• FX Open Interest Balance: JPY 240.8B (as of end-Dec 2025, YoY —)
• Capital Adequacy Ratio: 362% (as of end-Dec 2025, YoY —)