Acom Co., Ltd. (8572) Earnings Call Transcript & Summary

[Operator Instructions] Mr. Okamoto, Chief PR and IR Officer, will spend the next 50 or minutes or so, including the time he needs the translation to his -- to translate his part, to give you an overview of the financial results for the year just ended March 2023, with some supplementary information using the presentation material. After that, we would like to start entertaining questions from the participants.

Well, this is Okamoto speaking. Thank you once again very much for your time. Please go to Page 5 for our financial results overview. Firstly, the total receivables on a consolidated basis shown on the right grew 4.9% to JPY 2,354.5 billion, meeting the initial targets in all of the 3 core businesses. 2 factors are behind this growth. Firstly, the initiatives we put in place to effectively capture customers' loan demand helped new customer acquisition and greater usage among existing customers, both in the Loan and Credit Card business, and Guarantee business in Japan. Secondly, the weaker yen against the Thai baht boosted receivables. I'll come back to these domestic initiatives later. Looking at receivables by business, receivables in the Loan and Credit Card business grew 5% to JPY 914.5 billion, while Guarantee receivables increased 3.4% to JPY 1,212.8 billion. Receivables of the Overseas Financial business grew 13.8% to JPY 219.4 billion. Turning to Page 6. Consolidated operating revenue, as shown on the left, grew 4.4%, JPY 273.7 billion, thanks mainly to receivables growth. Looking at operating revenue by business line, operating revenue in the Loan and Credit Card business increased by 2% to JPY 145.1 billion, driven mainly by receivables growth, both in loan and credit card operations. Operating revenue in the Guarantee business benefited from receivables growth and a regular [ fee ] review, and grew 5.4% to JPY 66.2 billion. Thanks to receivables growth and the weaker yen, operating revenue in the Overseas Financial business increased 10.3% to JPY 56.5 billion. With no additional reserve books for loss on interest repayment, operating profits, shown on the right, grew 151% to JPY 87.2 billion. By business line, operating profit in the Loan and Credit Card business increased JPY 49.5 billion to JPY 40.6 billion, while operating profit in the Guarantee business grew 6.9% to JPY 25.6 billion. Operating profit in the international financial business increased 7.3% to JPY 19.6 billion. Profit attributable to the Owners of the Parent on the other hand decreased 1.4% to JPY 54.9 billion due to an increase in deferred income taxes. Please turn to Page 7. Now, I'll touch on dividends. Our basic capital policy is to maintain and improve financial health and offer good shareholder return. In fiscal year ending March 2025, which is the final year of the current mid-term plan, we target equity to asset of around 25%, including guaranteed receivables in the total consolidated asset, a dividend payout ratio of around 35% and return on equity of about 10%, as is shown on the right. Our basic dividend policy is to improve shareholder returns, supported by high profitability and appropriate shareholder's equity. Turning to profitability at the bottom left. Receivables were greater than the initial forecast in all the 3 core businesses, with consolidated operating revenue also exceeding the target. While operating profit was lower than expected, it nonetheless, grew year-on-year, with return on equity of 9.9%. As for shareholder's equity at the bottom center, our equity to asset target of 25%. With these results, we will pay a dividend of JPY 5.00 for the second half, as we announced, which works up to an annual dividend payout ratio of 28.5%. Please turn to Page 8. Now, let's review fiscal year ended March 2023. With the pandemic which started in 2020, subsiding at long last, the economy showed a strong recovery with increasing foreign visitors. The graph on the left shows the evolution of the number of new cases. As many as 230,000 people contracted the virus in August 2022 in a single day, which is a number hard to believe now, with COVIDE009 reclassified as a category 5 infectious disease from category 2 earlier this week. As it subsides, we hope the economy will further improve. With the resumption of economic activities, loan demand also recovered. We have tried to effectively capture customer loan demand and include customer convenience by making some changes to our loan application form, which I will come back to. Thanks to these efforts, the number of new customers shown on the right increased to 309,000 annually, far exceeding the original target of 260,000. The number of new customers popped to 300,000 annually for the first time in 17 years since fiscal year ended in March [ 2006 ]. We'll continue to focus on driving new customer traffic. Please turn to Page 9. Now, I would like to review how we have progressed in the mid-term business plan, which started in the year ended March, 2023. In the mid-term plan, we worked to lay the groundwork for the expansion of business domains for future growth on each business. Please find the 16 key initiatives we focused on in the medium term. Today, I will touch on the ones in red. Please go to Page 10. Firstly, I will walk you through the creation of new businesses and services for future growth. We launched a service enabling Apple Pay and Google Pay in April and May 2022 respectively, enabling user just to hold up a smartphone to use Acom's credit card, without carrying physical cards. Our customers enjoy the great convenience this service brings to shopping. Our payment amount has increased as much as around 20% among customers with smartphone payment setup. We'll promote this function effectively to our customers to further expand the credit card business. Turning to the center of the page, we changed [ the ] application form for first-time applicants in February. Currently, more than 90% of applications are via the internet, mostly via smartphone. We made changes to an application form to lessen the burden and stress they might experience when they fill in the form. This in-turn include the ratio of completed forms by 3.2 percentage points. Turning to the right. GeNiE, our consolidated subsidiary, plans to launch Embedded Finance business. Due to delay in IT system development and other factors, their plan has been pushed back. We now face a critical moment, and the management team will [ welcome ] and the members of GeNiE will work together for the launch of the new business. Please turn to Page 11. Next, I would like to touch on partnerships with nonfinancial companies in the Guarantee business. We started partnership with LINE Credit in March this year. While having access to over 90 million LINE users is LINE Credit's strength, we believe we can help them expand their business with their own strength of credit screening. Although, we don't disclose balance outstanding to each partner or the number of applications we guarantee, we believe receivables are still growing with more than expected guarantee applications. We'll try to look for other potential partners besides LINE Credit. Please go to Page 12. As we already announced, we received a license as money lender from Malaysian Authorities last October. We have set-up an office and moving ahead with IT system development to prepare for the start of operations scheduled for September. Partially because we need to acquire a license for each of the branches in Malaysia, we assume we will mainly drag customer traffic and run the business over the internet. Authorities are currently reviewing our application for the online license needed for these activities. We aim to start business in one more country besides Malaysia during the mid-term business plan. We have continued with our research activities on Asian countries outside Malaysia. Please turn to Page 13. Next, I will touch on building a solid talent base through hiring, skill development and retention and improving employee engagement by sharing a vision throughout an organization. Since business will only succeed when you have people to work with, we are aware it is important to run business with a relationship based on mutual trust between members and company. In a program to share vision throughout an organization shown at the top, an executive serves as a facilitator and discusses our vision together with around 20 employees each time. We hope this will help each and every one of our employees to see our vision as their own and relate it to day-to-day operations with improved engagement through clear standards for daily actions. Turning to the center. We relocated our Head Office here in [ Higashi ], where we are having this -- our presentation. In September last year at the previous location, we occupied 2 floors with 3 separate sections. The physical separation hampered smooth communication. We hope having all the HQ staff on a single floor will naturally encourage communication and innovation. Turning to the salary level at the bottom. While many companies decided to raise pay this April, we went ahead with 3.5% base pay increased in October last year, ahead of other companies. This actually [ aligns to ] a pay increase of about 5.2%, including a regular pay hike in April. We hope merit-based pay will help us hire and retain the best and brightest. These initiatives have helped us maintain high engagement rating. Please go to Page 14. Our HR initiatives have earned us good external ratings. In the area of hiring of new graduates at the top left, we ranked #3 in our industry in a joint survey by My Navi and Nikkei in popularity of companies ranking among new university graduates in 2024. In the area of employee engagement at the bottom left, we ranked #4 in the large company category, and in welfare at the top right, we received the highest rating under a Welfare award certification system, Hataraku Yell, for 2 consecutive years. In health and productivity at the bottom right, we were designated as an excellent health management corporation for 2 consecutive years. Please turn to Page 15. With support of our initiative to further promote sustainability, we created a sustainability promotion team in our corporate planning department in April last year. On the environmental front, we switched to renewables last year for the portion of power we source ourselves. On top of that, we disclosed our carbon footprint in the last 5 years last September. We aim to go net 0 in Scope 1 and 2 emissions by 2030 and we'll continue our effort to reduce emissions. Our sustainability effort was rated A, or most advanced in MUFG ESG rating. Thanks to this rating, we received ESG Management Support Loan from MUFG Bank. As we recognize, the society will call for even greater sustainability and ESG efforts. We will continue to work on further improving our initiatives. Next, please turn to Page 16 for full year guidance for fiscal year ending March 2024. Turning to receivables outstanding on the right, we are targeting 4.1% growth of consolidated receivables to JPY 2,450.3 billion. By business line, assuming loan demand will remain strong until the second quarter driven by pent-up demand and will gradually go back to a pre-pandemic level in the third quarter and beyond. We forecast 4.4% growth to JPY 954.6 billion for the Loan and Credit Card business, 4.6% growth to JPY 1,268.8 billion for the Guarantee business, and with a customer support program during the pandemic lifted, JPY 219.6 billion of flattish growth for the International Financial business in Thailand. Please go to Page 17. Next, turning to operating revenue on the left, we are targeting 3.8% growth with consolidated operating revenue to JPY 284.3 billion, driven mainly by receivables growth. By business segment, we forecast 4.6% growth to JPY 151.8 billion for the Loan and Credit Card business, 5.9% growth to JPY 70.2 billion, thanks to receivables growth and a regular fee review, and 0.6% growth to JPY 56.9 billion for the offshore financial business. As for operating profit shown in the center, with revenue growth, we are targeting 3.6% growth to JPY 90.4 billion and we are targeting 5.4% growth to JPY 57.9 billion profit attributable to shareholder, the parents. As for dividends shown on the right, given that we expect revenue and profit growth and that we are on track to achieve equity to asset of 25% in the final year of the midterm business, we plan to pay JPY 6.00 for each half, or JPY 12.00 annually, which works out to a dividend payout ratio of 32.5%. This will do for results summary. Please go to Page 19 for supplementary financial information. First, I would like to give you an overview of the Loan and Credit Card business. In fiscal year ending March 2023, with digitalization, growing demand for cashless transactions, we have worked to improve customer convenience by launching a service, enabling Apple Pay and Google Pay, and reducing the number of items on the loan application form. Moreover, thanks to various government initiatives, loan demand for leisure, travel and dining out recovered to pre-pandemic level with strong new customer acquisition. As a result, the combined receivables shown on the left grew 5.5% to JPY 914.5 billion with loan receivables of JPY 810.9 billion and credit card receivables of JPY 103.5 billion. Please turn to Page 20. Operating revenue shown on the left increased 2% to JPY 145.1 billion, thanks to receivables growth. While operating profit shown on the right was JPY 40.6 billion as we did not top up the reserve for loss on interest repayment unlike the previous year. Please go to Page 21. With aggressive advertising and promotion in response to recovery of loan demand, the number of new accounts shown on the left grew 32.6% to JPY 309,619. For the fiscal year in progress, we anticipate loan demand partially helped by pent-up demand will remain strong till the second quarter and will gradually go back to the pre-pandemic level in the third quarter and beyond. With this assumption, we forecast 300,000 new accounts. Advertising expenses shown on the right increased 17.2% to JPY 17.7 billion for 2 different reasons. Firstly, the number of new customers we gained by the internet who carry higher acquisition cost per account was greater than we initially projected. Secondly, the proportion of loan applications by the internet was also higher than we initially pursued. Next, please go to Page 24 for the Guarantee business. During the fiscal year under review, we worked on reinforcing cooperation with our partners, extended support to their marketing programs, and run joint advertisements to drive new customer traffic. Leisure, travel, and dining out recovered to a pre-pandemic level with strong new customer acquisition. As a result, Guarantee receivables of Acom and MU Credit Guarantee were JPY 1,044.4 billion and JPY 168.3 billion, respectively, with 3.4% growth of combined receivables to JPY 1,212.8 billion. The next page shows results of non-consolidated accounts of Guarantee business, which you can please review in your spare time. Please turn to Page [ 21 ]. Operating revenue shown on the left was JPY 55.2 billion for Acom and JPY 10.9 billion for MU Credit Guarantee with 5.4% growth of combined revenue of JPY 66.2 billion. Growth of receivables and guarantee fee increases through a regular fee review are behind the revenue growth. Operating profit shown on the right grew 6.9% to JPY 25.6 billion. Next, I would like to touch on the [ Guarantee ] business outside Japan. Please go to Page 23 -- 29. Since our overseas subsidiaries have a December year end, financials as of the end of December 2022 are reflected here. Outstanding receivables of Overseas Financial business in Japanese yen shown on the left grew 13.8% to JPY 219.4 billion. Growth of receivables, coupled with the weaker yen, boosted outstanding receivables by JPY 20.7 billion. EASY BUY's receivables outstanding on the local currency basis shown on the right, grew 2.2% to THB 56.8 billion. Please move on to Page 30. Operating revenue of the international financial business shown on the left grew 10.3% to JPY 56.5 billion, thanks to receivables growth on the weaker yen, while operating revenue of EASY BUY on a local currency basis shown on the right, dropped 0.1% to THB 14.6 billion. We believe the EASY BUY's revenue came down despite 2.2% growth of receivables because the collection fee for those loans which became delinquent on September 17, 2021 and beyond was lowered from THB 100 to borrower to THB 50 in accordance with an official gazette in the Thai Interior Ministry. Please turn to Page 31. Operating profit of the Overseas Financial business grew 7.3% to JPY 19.6 billion. Operating profit of EASY BUY on a local currency basis shown on the right, increased by 0.2% to THB 5.6 billion. Next, please go to Page 32 for requests for interest repayment. The number of requests for interest repayment decreased by 10.2% to 18,400, which is in line with the 10% decline we initially expected. We expect the number of claims to drop around 15% in the final fiscal year in progress. Please go to Page 33. The total drawdown of reserve for loss on interest repayment dropped 3.4% to JPY 28.4 billion, with JPY 6.9 billion in the fourth quarter, which is in line with the initial forecast of a decrease of around 5%. For the fiscal year in progress, we expect the total drawdown to decrease around 10%. The total drawdown of reserve for loss on interest repayment dropped 3.4% to JPY 28.4 billion, with JPY 6.9 billion in the fourth quarter, which is in line with the initial forecast of a decrease of around 5%. Since claims for interest repayment are susceptible to changes in external environment, we will continue to examine the difference between our initial projections for reserve balance and actual balance every quarter to see if we have a reasonable and sufficient level of reserve sitting in the balance sheet. Please move on to Page 34 for provision for bad debts. Consolidated provision for bad debts shown on the left increased 17.7% to JPY 80.5 billion due to an increase in Acom and EASY BUY. Provision for bad debt at EASY BUY shown on the right increased JPY 1.6 billion to JPY 18.3 billion is provision for bad debt on a local currency basis, on the other hand stay sluggish. We believe the depreciation of yen [ and ] the Thai baht is behind the increase. Please move on to Page 35. Provision for bad debt on a non-consolidated basis at Acom increased by JPY 8.8 billion to JPY 56.5 billion. While bad debt expenses increased a JPY 4 billion, a change in allowance for doubtful accounts was an increase of JPY 4 billion, a change in provision for loss on guarantees was an increase of JPY 700 million. Now I'll have to explain what is behind the increase in bad debt expenses and a change in allowance for doubtful accounts. Firstly, in fiscal year before last, with weak loan demand, many borrowers used extra cash on hand to pay down their debt, which resulted in lower than usual bad debt expenses. During the fiscal year under review, on the other hand, with an increase in the proportion of newer borrowers as we gained more new customers than pre-pandemic, bad debt expenses started to gradually increase toward the pre-pandemic level with an year-over-year increase of JPY 4 billion. Secondly, in fiscal year before last, we rolled back pre-pandemic related our provision in the fourth quarter, which reduced the magnitude of change in allowance for doubtful accounts. During the fiscal year under review, on the other hand, with the recovery of new accounts, the proportion of newer customers increased, which resulted in a JPY 4.4 billion increase in allowance for doubtful accounts. This in turn led to JPY 4 billion year-on-year increase in change in allowance for doubtful accounts. Please go to Page 36. Lastly, I would like to touch on financial expenses. Consolidated financial expenses shown on the left came down by 22.3% to JPY 4 billion, thanks to a reduction of financial expenses on the part of Acom. Consolidated financial expenses shown on the left came down by 22.3% to JPY 4 billion, thanks to a reduction of financial expenses on the part of Acom. Non-consolidated financial expenses on Acom shown on the right dropped by 20.7% to JPY 2.5 billion for 2 different reasons. Firstly, given the current capital market environment, we did not issue [ corporate ] bonds and turned to indirect financing and commercial paper instead, which resulted in a drop in bond issuance cost. Secondly, we made good progress in refinancing existing debt with cheaper debts. Please turn to Page 37. Outstanding debt shown on the left increased by JPY 8.1 billion to JPY 505.1 billion, with the average borrowing cost coming down by 13 basis points to 0.52%, as is illustrated by the line graph. The pie chart on the right shows funding sources and their proportions. The split between direct and indirect funding is 25.7% and 74.3%, with funding from MUFG representing 39.5%. While market rates remain unstable, given that 91.2% of total debt is at fixed rates and that 93.1% is long-term, the magnitude of impact from fixed rate hikes is immaterial. For your reference, Page 39 and following pages show the trend of the size of the personal card loan market, a trend of interest repayment and the impact from COVIDE009 and the mid-term management plan. This will do for financial results for the year ended March 2023. We would like to do our utmost to achieve the targets in the mid-term plan, while securing stable growth of the 3 core businesses. I would like to conclude my presentation by asking for your continued support and guidance to our goal. Thank you. Thank you very much. Now, we'll have to entertain questions from the participants.

Now I'll have to explain how you can start asking questions. [Operator Instructions] Those people who are asking questions over the Zoom, after your names are called, please state your company name and your personal name and then ask questions. So, questions please. We are receiving questions. We're trying to receive questions. [Operator Instructions] Since there seem to be no questions from the participants, we would like to conclude our online financial results presentation for the year ended March 2023. For additional questions, please do not hesitate to contact our PR and IR team. Thank you once again for your kind participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]