Targets FX business revenue of JPY 10B within five years; accelerating active investor-focused strategy through CFD market entry and dividend payout ratio increase to 70%

Summary

ENVALITH had the opportunity to attend the company's earnings briefing held on April 28 at 1:30 PM. For FY3/26 full year, operating revenue came in at JPY 52.7B (+34% YoY) and recurring profit at JPY 23.8B (+56% YoY), both at record-high levels. At the briefing, management explicitly laid out a target to double FX business revenue to JPY 10B within five years, and outlined initiatives to develop revenue streams beyond securities trading, including a paid IR video production service for corporate clients and an FP (financial planning) consultation business through a partnership with Agent IGH. The dividend payout ratio will be raised to 70%+ from FY3/27, with an annual dividend of JPY 50 per share (+JPY 10 increase). Meanwhile, the decline in the capital adequacy ratio (307%) and capital constraints arising from the rapid expansion of margin trading balances were raised in Q&A as factors that could affect future dividend capacity.

Key Points (Earnings Highlights and Growth Initiatives)

• Business Strategy and Market Assessment
  • Market share held steady at 9% with no impact even after SBI and Rakuten introduced zero commissions; management views the impact of Mitsubishi UFJ eSmart's zero-commission move as similarly limited
  • Emphasized the effectiveness of its positioning as an independent firm specializing in active investors, in contrast to the four major online brokers that operate as mass-retail models under conglomerate umbrellas
• Current Business Progress and Drivers
  • 4Q equity trading value of JPY 22.7T hit an all-time high; margin outstanding surged following news of the House of Representatives dissolution in January, with end-of-period long margin balance reaching JPY 420.8B
  • FX trading P&L of JPY 5.8B exceeded the initial plan of JPY 5.0B, with its share of net operating revenue rising from 8% to 12%
  • Custody deposit investment income expanded to JPY 1.71B in 4Q standalone on the back of the policy rate hike to 0.75%; the full benefit of time deposit rollovers is expected to flow through from next fiscal year
  • Management noted that April's daily average trading value is tracking at a record pace, potentially exceeding March's monthly total
• Strategic Initiatives and Inflection Points
  • First-ever disclosure of a target to grow FX business revenue to JPY 10B within five years, with management confident this is achievable through organic growth
  • Launched a paid IR video production service, with ambitions to expand into B2B offerings
  • Initiated FP consultation services through a partnership with Agent IGH, aiming to reactivate dormant accounts and expand into the insurance agency space
  • Plans to roll out CFD services and extend US equity trading to 23 hours/day starting FY3/27

Outlook and Strategy

• In line with standard practice for securities firms, full-year guidance is not disclosed; however, April trading value is tracking at record highs, indicating a favorable near-term operating environment
• Dividend payout ratio raised to 70%+ from FY3/27; DOE-based criteria abolished in favor of a simplified payout ratio framework
• Interest rate sensitivity: each +25bp in the policy rate adds approximately JPY 650M in annual revenue; further rate hikes represent a tailwind
• FX business revenue target of JPY 10B (five-year horizon), with customer acquisition driven by YouTube as the primary channel
• Expanding service lineup through CFD market entry and 23-hour US equity trading
• Continuing to explore new business opportunities including strategic alliances and minority investments, though no specific plans have been finalized

Positive Factors

• 4Q equity trading value of JPY 22.7T, 9% market share, with strong momentum continuing into April
• FX contribution rising to 12% demonstrates advancing revenue diversification; FX business revenue of JPY 5.8B came in +16% vs. plan
• Custody deposit investment income reached JPY 1.71B in 4Q standalone; the full impact of the 0.75% policy rate will materialize next fiscal year
• Among new account openings, 43% included FX accounts and 25% included margin accounts, indicating efficient acquisition of high-engagement customers
• YouTube subscribers at 806K (cumulative 180M views), No.1 among financial institutions; brand awareness at 61.6%, ranking 3rd in the industry
• Investment trust AUM of JPY 562.6B (+67% vs. JPY 337.5B in the prior year), with growth in both systematic investment plans and actively managed funds

Concerns and Risks

• Capital adequacy ratio declined to 307%
• Short margin balance market share fell to 2% in 4Q; intensifying competition from Rakuten's entry into shareholder benefit cross-trading
• Advertising expenses of JPY 3.8B (+41% YoY) reflect ongoing upfront investment; while SG&A growth of 19% trails revenue growth, the absolute amount continues to trend higher
• Financial expenses surged to JPY 1.23B in 4Q standalone (+49% QoQ); rising rates cut both ways, also impacting funding costs
• Passkey authentication registration rate at just 10%; improving adoption of anti-unauthorized-access measures remains a challenge

Performance Highlights

FY3/26 full-year results showed operating revenue of JPY 52,660M (+34% YoY), recurring profit of JPY 23,813M (+56% YoY), and net income of JPY 15,480M (+47% YoY), delivering strong top- and bottom-line growth across all items. The recurring profit margin on operating revenue improved from 39% to 45%, and annualized ROE based on 4Q reached 22.1%.

• Equity Trading Value: JPY 73.7T (+35% YoY)
• Average Margin Trading Balance: JPY 366.9B (+1% YoY)
• Margin Trading Balance (End of Period): JPY 456.2B (+25% vs. Prior Year-End)
• Total Accounts: 1,773,175 (as of March 2026)
• AUC (Assets Under Custody): JPY 5.4T (+29% vs. JPY 4.2T at Prior Year-End)
• Investment Trust AUM: JPY 562.6B (+67% vs. JPY 337.5B at Prior Year-End)
• FX Trading Value (4Q): JPY 158.0T
• FX Accounts: 261,165
• Recurring Profit Margin on Operating Revenue: 45% (Prior Year: 39%)
• ROE (4Q Annualized): 22.1%
• Capital Adequacy Ratio: 307% (Prior Year-End: 382%)
• Annual Dividend: JPY 50 (Payout Ratio: 83%)