Hideki Matsui TV Ad Campaign and 200,000-View IR Videos Broaden Business Opportunities; Company Holds Firm on Active-Investor Focus Amid Reported Japan Post Bank Tie-Up Talks

Summary

1H FY3/27 delivered higher revenue and profit. Operating revenue rose to JPY 34.0B (+43% YoY) and recurring profit to JPY 16.5B (+63% YoY), driven by a doubling of trading value and a larger margin trading balance. 2Q standalone revenue and profit declined QoQ, but management said performance stayed at the same strong level as 1Q. Net financial income and FX offset a lower commission rate, reflecting progress in revenue diversification. Management declined to comment on press reports of a tie-up with Japan Post Bank. It stated, however, that it will keep targeting active investors regardless of any partner, and that it has no need for outside capital.

Key Points

• Management Strategy and Market View
  • Focusing on active investors differentiates the company from the other four major online brokers. Management will keep this positioning even if it enters a partnership.
  • With three consecutive years of revenue and profit growth, management sees no need to bring in outside capital and plans no change to its dividend policy.
  • Management favors quality over quantity in media. It views YouTube-driven customer engagement as a way to strengthen the brand and customer base, and as a foundation for new businesses.
  • Affiliate media are struggling as AI search spreads, but management says account acquisition and AUM accumulation continue.
• Current Business Progress and Drivers
  • Two factors drove the lower commission rate. The share of day-trade margin trading, which is generally commission-free, rose, and large-lot trades subject to the daily commission cap increased.
  • AI and semiconductor stocks weakened from July, reducing trading by customers with longer holding periods. The top five stocks still account for close to 60% of trading value.
  • The valuation P/L ratio on margin long positions has deteriorated by about 10pt since end-September, and trading has softened. Even so, customers realized JPY 126.0B in gains in 1H, which management sees as leaving room to trade.
  • Jul–Sep was a difficult FX market for the company's cover model. Still, about 5,000 new accounts per month and swap income underpinned earnings.
• Key Strategic Initiatives and Changes
  • The Hideki Matsui TV ad campaign launched on October 19. Four days later, he was named new manager of the Yomiuri Giants. The company said it approached him in June and did not anticipate the appointment.
  • The company released Premium IR videos for two listed companies under its IR support service. Each reached 200,000 views, an order of magnitude above typical IR videos (10,000–20,000 views).
  • A fund manager from capital and business alliance partner Five Star Asset Management (20.95% voting stake acquired) appeared in a video. The aim is to raise awareness of its distinctive funds and grow fund balances.
  • The company combines daily margin balance data with proprietary TSE trading breakdown data, letting customers see the trading breakdown on the same day. Management stressed that no other broker offers this service.

Outlook

• Disclosure materials contain no full-year guidance figures. Trading has softened since October as margin valuation losses worsened, putting the focus on 2H trading activity.
• The 70%+ payout ratio is a full-year target. The 69% at the interim stage will be adjusted over the full year.
• Advertising spend is mainly affiliate-based and tracks account openings. The company may increase TV advertising in 2H to capitalize on the buzz around Matsui's managerial appointment.
• Capex this fiscal year is in the JPY 5B range, with cyber-related spending only a fraction of that. Security costs are not expected to rise sharply.
• The company will support 23-hour US stock trading from December 6 and add iDeCo products from December 1. It has also opened pre-registration for Children's NISA, launching January 2027, to broaden its customer base.
• The IR support pipeline is building. However, each project requires heavy customization, making mass production difficult.

Positive Factors

• The company estimates each 25bp policy rate hike adds JPY 750M in annual revenue. In 2Q, income from investing customer deposits was JPY 2.40B, exceeding interest expense of JPY 1.34B.
• Equity trading value share reached 8.8%, the highest in the last five quarters. Management sees no visible impact so far from competitors' zero-commission moves.
• The YouTube channel leads the industry with 1.07M subscribers and 200M total views. Total views demonstrate the gap in channel strength versus peers.
• Leveraged accounts (margin, futures & options, FX) remain a high share of new accounts, showing efficient acquisition of the target customer segment.
• The capital adequacy ratio is 304%, above the five-online-broker average of 251%. The company considers this a safe level even as margin balances grow.

Concerns

• The share of day-trade margin trading keeps rising, and the commission rate fell to 2.1bp in 2Q. Commission income structurally lags trading value growth.
• As of October 22, the valuation P/L ratio on margin long positions stood at -13.3%, and -18.5% for the Growth Market. Trading by customers concentrated in AI and semiconductor stocks has slowed.
• Borrowings rose to JPY 445.8B as margin lending expanded. 1H financial expenses rose +110% YoY, and higher funding costs are weighing on earnings.
• A string of data breaches has hit the industry, and some brokers have suspended account openings. This could affect industry-wide account openings via affiliate channels; Oct–Nov trends warrant monitoring.
• The Japan Post Bank tie-up remains under consideration, with nothing decided. Specific arrangements, such as a sweep function, are undetermined.
• Regulators do not permit the company to offer US-listed leveraged Japan equity ETFs, removing one potential catalyst for 23-hour trading.

Performance Highlights

1H operating revenue was JPY 34,048M (+43% YoY), recurring profit JPY 16,528M (+63% YoY), and net income JPY 10,435M (+60% YoY). SG&A rose only to JPY 14,374M (+19% YoY), lifting the recurring profit margin on operating revenue from 43% a year earlier to 49%. On a 2Q standalone basis, operating revenue was JPY 16,750M (-3% QoQ) and recurring profit JPY 7,672M (-13% QoQ).

Segment Performance

*YoY figures (to one decimal place) are estimates by this report

• Equity Trading Value (1H): JPY 63.3T (+100% YoY)
• Average Margin Trading Balance (1H): JPY 514.5B (+54% YoY)
• Net Operating Revenue (1H): JPY 30,858M (+38% YoY)
• Customer Assets (End-September): JPY 6.2T (+26.5% YoY, estimated by this report)
• Investment Trust Balance (End-September): JPY 756.3B (+65.5% YoY, estimated by this report)
• Total Accounts (End-September): 1,837,434 accounts (YoY: ―)
• FX Open Interest (End-September): JPY 371.5B (YoY: ―)
• ROE (1H): 24.8% (YoY: ―)

Q&A List

• Q

  Cybercrime, including recent data leaks, seems to be affecting identity verification. Has it hit the top line, such as customer activity or account openings?

  A

  Partly because we have not yet had such an incident ourselves, the impact is limited. More customers are closing accounts out of concern, but almost all of them already had no balance. In terms of revenue-generating customers, we see virtually no impact. One point, however: some companies have suspended account openings. That also halts their advertising, which affects affiliate media and, in turn, may be weighing somewhat on account openings across the securities industry. We will watch account openings in October and November.

• Q

  On the other hand, are there any cost measures you need to take?

  A

  Last year, separate from the current AI-related issues, we faced unauthorized access problems and strengthened multi-factor authentication, among other measures. As a result, last year and this year we have incurred new costs of JPY several hundred million annually that did not exist before. Cyberattacks have become very active, and we will of course need to keep doing more. But the fundamentals are an extension of what we have already been doing, so we will probably not need to spend significantly more on security. Security is not something you simply buy; the basis is running day-to-day operations properly. We do not envision cyber costs taking a very large and ever-growing share of SG&A. We plan capex in the JPY 5B range this fiscal year, of which cyber-related spending is only a fraction, so it will not be a huge investment. If money could solve the problem, it would actually be easy. What matters more than monetary cost is addressing it through non-financial means, namely management awareness and how operations are built.

• Q

  On the Japan Post Bank tie-up under consideration, what kind of customer base do you intend to expand? Active customers, or casual asset-building investors?

  A

  We will refrain from commenting specifically on the recent Nikkei article and cannot say anything beyond our press release. Speaking generally about capital alliances, however, unlike the other four companies we have positioned ourselves to target customers who invest actively, and we believe this has worked very well. Therefore, whichever partner we end up working with, we do not intend to significantly change that target.

• Q

  On capital relationships, what outside capital ratio would be desirable for long-term business growth: 20%, 50%, or 100%? Will your capital policy change?

  A

  As for how much capital to bring in, we have grown revenue and profit for three consecutive years, and again in this first half. We are not so cornered that we cannot survive without partnering with someone. One magazine oddly suggested we are "past our prime," but that is not the case at all. Accordingly, we do not think in terms of how much outside capital we must bring in. From a capital policy standpoint, we have no plans to materially change our dividend policy or other policies.

• Q

  As a follow-up, a bank partner would have large deposits. Would a sweep function with such bank accounts be essential as a funding inflow channel for you?

  A

  The partner has not been finalized, so we cannot answer hypothetical questions. However, if we enter a capital and business alliance, expanding the customer base would be one of the key points, and we would pursue measures that lead to that.

• Q

  On the earnings impact of rising rates, the QoQ increase in interest expense appears larger than the increase in income from investing customer deposits, and larger than the change from 4Q last year to 1Q. Please explain the drivers in detail.

  A

  The increases in interest expense and deposit investment income reflect both balance growth and higher interest rates themselves. The chart shows actual revenue and expense combining both effects. Customer deposits have not grown much, but borrowings have increased in line with growth in margin lending. In addition, from 1Q to 2Q the average rates on both the investment side and the borrowing side rose by about 20%. These two factors change the gap in actual amounts.

• Q

  On advertising expenses, you previously said you would increase them depending on conditions. Will the roughly JPY 1B level seen in 1Q and 2Q be the floor going forward? What is the direction for 2H?

  A

  Most of our advertising spend is affiliate, i.e., performance-based advertising, so you can think of it as basically tracking account openings. However, with the Hideki Matsui campaign plus the buzz from his managerial appointment, we see this as an opportunity and intend to increase spending, for example by changing plans to run more TV ads. Advertising expenses in that area could therefore rise relatively in 3Q and 4Q.

• Q

  As an aside, you said the timing of Hideki Matsui's managerial appointment was a coincidence. Did you have any sense he might be appointed?

  A

  We had no such expectation at all. We approached him in June, simply thinking it would be interesting to feature Hideki Matsui, who shares the Matsui surname, to raise awareness of the Matsui name in MATSUI SECURITIES CO., LTD. There was no ulterior motive whatsoever.

• Q

  On your YouTube strategy, it is impressive that the IR support videos for two companies reached 200,000 views. Is the pipeline building? Also, please share, to the extent possible, the reactions of the two companies.

  A

  MEEQ is very pleased. The other company, Trade Works, reportedly appeared in IR videos for all the online brokers, and we hear our video's views were more than an order of magnitude higher than the others. In that sense, we believe we delivered results. The pipeline is also building considerably. However, each project involves extensive customization, so we think mass production would be difficult.