Daiwa Securities Group Inc. (8601) Earnings Call Transcript & Summary

I'm Sato of Daiwa Securities Group. Again, thank you very much for taking time out of your busy schedules to join us today at the conference. So we'd like to start the explanation of the financial results for the fourth quarter of fiscal 2020, which were announced today. That materials are posted on our website. So please refer to Page 4. I'd like to explain the summary of consolidated financial results. The percentage of change is compared to the third quarter of fiscal 2020. Net operating revenues were JPY 124.5 billion, down by 1.2%. Retail division revenues increased. In addition to an increase in equity transaction backed by the strong stock market, sales value of stock investment trust, wraps and bonds also hiked. Wholesale division revenues also increased. In Global Markets, both equity and FICC revenues grew, while in Global Investment Bank, revenues from M&A grew. Ordinary income was JPY 35.5 billion, up by 3%. Net income attributable to owners of parent was JPY 50.6 billion, up by 102.5%. Annualized ROE was 15.7%. And BPS as of the end of March, reached a record high JPY 875.12. The year-end dividend is JPY 25, the record high than half a year, combined with the full year dividend of JPY 36. The dividend also hit the record. As a part of capital policy, there is a setup of the buyback to the up limit of 45 million shares or JPY 30 billion. Please turn to Page 10. So this is our profit and loss summary. Commission received was JPY 81.6 billion, up by 6.5%. This breakdown is available on Page 23. As a result of the increased trading in both Japanese and foreign equities, brokerage Commission hit JPY 24.1 billion, up by 19.3%. Underwriting commission was JPY 7.3 billion, down by 38.1%. Due to the stronger sales of stock investment trust, distribution commission was JPY 6.3 billion, up by 37.1%. M&A-related commission was JPY 10.6 billion, up by 31.6%. Other operating revenue and expenses increased due to SPC consolidation. As for non-operating income and loss dues from equity method investment in hybrid business as well as gains from investment partnerships increased. Extra ordinary gains and losses was JPY 26.7 billion. Daiwa office REIT was consolidated, and there was a freezing acquisition gains. And the extraordinary gain was JPY 47.7 billion. As a part of structural reform in the meantime, all the real estate such as branch offices and company housings are going to be sold. And the group's footprints are also going to be integrated, which led to impairment losses and the structural reform-related expenses to be posted. So the current quarter loss became JPY 21 billion, as a result, including system removals. Let me move to Page 11. This is for SG&A. SG&A increased mainly in personnel expenses, landing at JPY 99.9 billion, up by 6.1%. Trading-related expenses increased due to fee payments and the rising personnel expenses was attributable to the hike in earnings-linked bonuses. Please turn to Page 13 for the overseas operations. Ordinary income of overseas business in total was JPY 5.6 billion, up 63.2%, hitting the record high for an annual base. The results also show that all regions had revenue growth. In Europe, revenues from M&A and the primary increased. In Asia and Oceania, Asian stocks performed well. Ordinary income on a quarterly basis hit the record high. Americas had a growth in both equity and FICC. Next is segment information starting from retail division on Page 14. Net operating revenues were JPY 49.3 billion, up 11.4%, with ordinary income of JPY 11.3 billion, up 63.6%. Equity revenues were up as Japanese equity trading volume increase. Fixed income revenues were also up as the structured bond sales rose. Distribution commission for investment trust rose led by an increase in stock investment trust sales, while investment trust agency fee increased as well due to a rise in the average asset under custody. Now moving on to Page 15, that explains sales and distribution announced by product and the CapEx of the fourth quarter. Sales and distribution amount of investment trust increased broadly. Sales announced of the asset based fee plan for investment trust, flex plan, launched in the third quarter also rose. As for wrap account service, contract AUM was a record high of JPY 2,574.1 billion, as at the end of March, driven by a rise in contract amount and the market momentum. Let me next explain about the wholesale division, starting off with global markets. Net operating revenues were JPY 43 billion, up 7.4%. Ordinary income was JPY 17.7 billion, up 14.6%. We made a record high net operating revenues and ordinary income on an annual basis. Equity revenues increased, driven by higher customer order flow for Japanese and foreign equities as well as derivatives on the back of the value on the stock market. FICC revenues also increased. In Japan, the customer order flows for structured bonds and the derivatives increased and the JGB was strong. Please turn to Page 18. This page is on the global investment banking. Net operating revenues were JPY 16.5 billion, down 2.3%, and ordinary income was JPY 2.5 billion, down 54.8%. In the equity underwriting business, we accumulated managed deal mandates by meeting various funding needs. In the debt underwriting business, we underwrote large sustainability bonds. With regards to M&As, we executed many mandates, both in Japan and overseas, driving revenues to the record high. Please turn to Page 19. Let me next explain the asset management division. Net operating revenues were JPY 13.3 billion, up 4.1%. And ordinary income was JPY 10 billion, which was up 30.8%. Organic income was a record high, both on the quarterly and annual basis. Daiwa Asset Management revenue increased on the back of net capital inflows as well as higher AUM or public stock investment trust during the quarter upon the higher stock market level. With regards to Daiwa Real Estate Asset Management, AUM has been increasing. Please turn to Page 21. Let me explain the results in the Investment division. Net operating revenues were negative JPY 3.2 billion, and ordinary income was negative JPY 3.1 billion. Daiwa PI partners posted a loss associated with reevaluation over a multiple number of existing investments. Daiwa Energy Infrastructure posted both income and capital gains. This completes my explanation of the results in the fourth quarter of FY 2020 . This fiscal year has become a year of dramatic changes with COVID-19. The stock market experienced a big crash in March last year, followed by a strong risk on sentiment on the stock of the global QE and economic stimulus measures such that Nikkei average recovered to JPY 30,000 level, which was the first in 30 years. Under this circumstance, we are pleased to report strong business results where all business divisions achieved increase both in revenues and profits. In particular, retail division achieved a remarkable recovery, which gives us good confidence in our future. While we have taken many actions in areas like cost income structure reform, promotion of asset management-based consulting, productivity improvement utilizing the IDX, customer satisfaction has been steadily improving, which gives us confidence that we are on the right track. I would summarize this year as a fruitful year when we laid out stepping stones to the future. Looking at the current situation in April, customer activity levels are trending actively. In the retail division, sales of major products such as Investment Trust, , fixed income are at a high level, just like Q4 over the last fiscal year. In the Investment division, we see increases in equity financing, mainly from growing companies. With regards to M&As, there is a significant increase in the number of consultation inquiries, both in Japan and overseas. In particular, in the U.S. and Europe, the pipeline has stacked up to the record high level. Lastly, but not least, the new medium-term management plan, which covers 3 years, has just started in this April. We are determined to establish a stronger income model, which is resilient against the market environment by actively securing flow income, capital and customer needs specifically and expanding the asset-based income as well as hybrid income. I would appreciate your continued support and good cooperation to us. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]