SBI Holdings, Inc. (8473) Earnings Call Transcript & Summary

Please allow me to take off my mask. Thank you very much for joining us today in the venue and online for this meeting presenting the results of SBI Holdings for the 9 months of the fiscal year ending March 2023. My name is Katsuchi, in charge of financial and accounting. The presentation will last for about 30 minutes, followed by Q&A session. Starting with the other consolidated results over 9 months until the end of the third quarter. And we are going to round up some of the other figures. The revenue, JPY 685 billion, was 30%, up year-on-year. And the pretax profit, JPY 48.1 billion, minus 86.9% year-on-year. Quarterly profit, JPY 36 billion, minus 89.4% year-on-year. Profit attributable to owners of the company, JPY 8 billion, minus 97.8%. Last year, when the Shinsei Bank was consolidated, there was negative goodwill, which was close to JPY 200 billion, quite a big impact. Without that one-off element, the results will be those numbers in parenthesis. First, the consolidated results as to the revenue, the financial services earnings grew significantly. So all in all, 30% plus. As to Financial Services business, because of the negative goodwill, down 58.4% at JPY 113.6 billion. This negative goodwill with the other consolidation of the Shinsei Bank. And with that impact, up 46.1% year-on-year. That's the result of the profit for Financial Services business. The negative factors are as follows: first, negative goodwill. And another thing is in the investment business. In some names, there were some variation losses, especially the TPBank listed in Vietnam and some other overseas listed names. There was some valuation losses of about JPY 46 billion. And in December, the BOJ changed its policy partially and the yen appreciated. And because of that, about JPY 15.7 billion FX losses incurred for other overseas private names. In the yen basis, there was losses. Not so much for the regional local currencies. And as to the crypto-assets, the mining business, about JPY 9 billion losses. And the B2C2, because of the hedge funds or the business partners, some of them went under. And because of that, JPY 17.3 billion losses. And profit attributable to owners of the parent, down 97.8%, JPY 8 billion. Those names incurring losses, because we had direct investment in them, so the impact was rather big. And this is performance by segment. Financial Services business, with a negative goodwill, minus 58.4%, but without it, plus 46.1%. And Asset Management business, revenue increased, but profit decreased. The investment business, both revenue and profit decreased. And the crypto-asset business, there's some decrease in the profit. As to investment business, a fair value decline was significant. And there was no cost there. So minus JPY 2.6 billion was hit for the revenue itself. And as to investment business, JPY 33.2 billion, minus for profit before income tax expense. But at the same time last year, about JPY 100 billion of profit existed. So it's not a collapsed portfolio, but partly, it is the reaction from the previous years. As to crypto-asset business, as I mentioned earlier, the stagnant market and the bankruptcies of exchanges resulted in minus JPY 17.3 billion. And this is the quarterly segment-wise results. The Financial Services Business and Asset Management business. First, second and the third quarter, the revenue increased. While investment business and crypto-asset business struggling, fluctuated greatly. The pretax income. As you can see, for Financial Services business and Asset Management business, it has been good. And for investment business, crypto-asset business, there were fluctuations and struggling. On a consolidated basis results, before talking about consolidated results, let me talk about the current status -- present status. Factors contributing to full year results. There were two of them. First of all, January 27, the Morningstar disclosed this information. Morningstar has decided to return the brand Morningstar to U.S. Morningstar, Inc. And we are going to receive about JPY 8 billion in this fiscal year from Morningstar, Inc. There is no original cost for the returns, so the JPY 8 billion itself will be the gain. And second factor is TPBank, fluctuating greatly. And we are going to make it equity method of the company. The stake of 19.9% was increased to 20%, up by 0.1%. In the fourth quarter and onwards, TPBank will be equity method of the company, incorporated into financial business segment. So the timing, raising 20%. At that point, JPY 4.7 billion of gains that will be booked and fixed. And so that -- the fluctuation factors will be alleviated to produce in a very steady manner. Second, current status factor. The dividend from subsidiaries, it is rather a considerable amount. And I'd like to explain about that. SBI Shinsei Bank, SBI Savings Bank, TPBank, Morningstar Japan, SBI Insurance Group, about 10 years have passed since the inception of the investment in those entities. And we received a considerable amount of dividends from those entities. As to this table, as to SBI Sumishin Net Bank, JPY 30 billion in total of the benefit. Actually, the dividend was paid. And SBI has 50% of it. So the JPY 15 billion that is received. SBI Shinsei Bank and ARUHI that we acquired recently. And we also expect dividends paid by those entities as well. In addition, IPO of subsidiaries. Currently, Rheos Capital Works and SBI Sumishin Net Bank, they filed for the listing at TSE last year. And SBI Biotech and SBI ALApromo are preparing for the listing. So it all depends on markets. But once they are the public companies, then there will be some capital gains expected some recovery of the investment. Last year and onwards -- last 2 years, M&A results. And we are going to remain aggressive for M&As. The recovery of the invested money and also the money coming from outside will be combined for aggressive M&A activities. The shareholder returns and its basic policy. It remains unchanged. The total amount, that will be approximately 30% of pretax profit in the Financial Services business. Year-end dividend is yet to be decided, but the Financial Services business is going very well. As to shareholder benefits, although we will continue to implement them, you can choose ADA or XRP. Business overview of core businesses, starting with Financial Services business. Revenue increased and profit decreased. Without the one-off element of the negative goodwill, the plus 46.1%, that is for the profit. And the securities business, there are two things. First, SBI SECURITIES results and the Neo-securities initiative. SBI SECURITIES' consolidated results. I'm not going to read numbers. Please look at those numbers. Some increase in revenue and profit decreased. That is for a J-GAAP basis. Some comparison with other major securities companies. year-on-year basis, compared to major securities funds, operating income and profit attributable to owners of the company, SBI SECURITIES are number one. And other securities firms are decreasing their profit by 2 digits, double digit, but our decline is limited. Next, we compare here against online securities and second tier and mid-tier securities. And the same trend can be applied. Other companies are struggling, whilst we are doing well. Here, we show SBI SECURITIES' breakdown of consolidated operating revenue. We use this as a way of measuring diversification. And on an ongoing basis, the breakdown is well balanced. That is the way we view it. And for online soft trading in our dependence, it went down even more -- when it comes to online domestic stock transactions, it went down to 11.7%. And we believe Neo-securities initiatives are working well. As for our market share. For individual stock trading and individual margin trading, we have been able to maintain 45% or more. And for the number of accounts, we have the most in the industry at 9.5 million plus. And ever since COVID, especially growth of the number of accounts have been accelerating. For Neo-securities initiative, we expect our accounts to increase even more. And also for NISA, on an ongoing basis, the number of accounts are growing. Other companies are stagnant, but SBI SECURITIES still sees growth. And for new customers as well as beginner investors, the proportion is very high at 74%. So you could see we are attracting more. So with this as an entry point, we would like to expand our customer base so that it will lead to future business opportunities. That is our stance. For iDeCo, once again, the number of customers on a cumulative basis is top in the industry. And diversification of our revenue base, one of them is -- we're showing here a foreign stock trading value revenue. It has recorded record highs, whether it be trading value or high levels of revenue as well. And we also began offering a substitute security service on top of U.S. dollars. And by starting the service, we are striving to increase our services. We hope this will turn into another earnings source going forward. So for the FX business, trading revenue has been growing because of the strengthening of the FX business, for trading revenue. For crypto-assets, it has been gone due to the reorganization of the group, but FX-related revenue as well as foreign currency bond related revenue has been growing. So numbers continue to be good. So for FX-related businesses. The dollar market, since April last year until October last year, the yen depreciated substantially. And then from December onwards, the yen strengthened. So volatility became extremely high. We were impacted by that, and SBI Liquidity Market was able to see operating revenue reach record highs. FX trade, which is in that -- is under the umbrella, it also did well. And looking at this comparison chart, whether it be size or growth, relative to other companies, we have been showing overwhelming strength in our business. And here, we show investment trust balance. The stock market has been relatively weak. But when it comes to investment trust balance, we were able to reached record highs, which is shown on the left-hand side. On the right-hand side, we show the trends of investment trust fees. Basically, SBI SECURITIES saw a steady investment trust fee growth because of higher investment trust balance. And this page shows our alliance with Sumitomo Mitsui Card, which is a trust accumulation service. And we also saw the transfer AUM for SBI Wrap. For accumulated funds, we started this 1.5 years ago. After 1.5 years, as of January, we have seen the funds exceed JPY 16 billion. And the number of accounts have exceeded 450,000 accounts. And for SBI Wrap, it's only 7 months since we were able to start the service, but we have been seeing it exceed JPY 20 billion in assets under management already. Regarding the tie-up with Sumitomo Mitsui Financial Group. Last year, in July, we received an investment from them. And SMFG became a shareholder, but for personal digital services, we have been strengthening the services we offer. Specifically, with SMBC and SMCC, they offer an online securities function called Olive. And SBI SECURITIES will be offering the online securities function. And we will provide highly convenient securities-related services for SMBC and SMCC apps. And going forward, in 5 years, we would like to reach 2 million accounts. And in 3 years, we would like to reach set card savings of JPY 50 billion in 3 years. And we would like to strengthen our alliance in doing so. Here, we show our wholesale business. For POs and corporate bond underwriting, we have been seeing steady expansion. From April until December last year, there were 76 listings. Except for one, we were able to be involved in 75 of them. And also for underwritings, we were able to see 11 companies as lead manager. Here, in diversifying our earnings base, this is something new that we're doing, which is to strengthen the real estate finance business. On January 31, we announced the capital and business alliance with CREAL, which is a company with strength in asset management focused on real estate investment. It's a comparable funding business. And we acquired approximately 20%. And by doing so, we can expect a very good effect. The development and origination and sales of real estate though will be provided as services at one stop. Neo-securities initiative and one of the initiatives that we are taking. It is not only about the revenue sources diversification, but a very strong system is needed. That's why we went into the capital business agreement with Simplex Holdings. We are going to set up a joint venture with them. And the outline of that entity is to develop and operate systems for SBI Group, including SBI SECURITIES. We already have business relationship with Simplex, and SBI's customer base is expected to expand furthermore. And Simplex, the very trustworthy partner, we decided to go ally with them. Financial Services business, banking business. First, there were three banks. The first one SBI Shinsei Bank and its results. Today, SBI Shinsei Bank is announcing its results and it is on a J-GAAP basis. Each department is doing well, especially wholesale business expanded, increased greatly. So both revenue and profit increased. And the profit attributable to owners of the company is JPY 40.4 billion, exceeding JPY 35 billion full year forecast for FY '22. And the contribution to IFRS basis by SBI Shinsei, JPY 44.7 billion is the contribution. So not only on J-GAAP basis, but on an IFRS basis, SBI Shinsei Bank is playing a very important role. And this is its customer basis, the number of retail accounts and the deposit amount. Up until becoming a member, number of accounts was on the decline. But once they become a member of the group, it hit the bottom and it's now increasing. And as to the amount of deposit, after the consolidation, it increased by more than JPY 3.3 trillion, reaching JPY 9.7 trillion as of the end of December. Collaboration between SBI Group and SBI Shinsei Bank is progressing. One example is SBI Wrap. In October, we launched the service. And as of the end of December, JPY 3.3 billion of the value. With SBI MONEYPLAZA, after Ikebukuro and Umeda, the Ginza branch started its operation on February 1, '23, reinforcing the services for net worth -- high net worth customers. In the wholesale area and the collaboration there, the wholesale itself has a big momentum at SBI Shinsei. And the collaboration with SBI Group is also progressing, and we are looking at very good results as well. The other loans originated, the SBI Shinsei Bank amounted to JPY 270 billion. And sales to other financial institutions, that is the 9-month cumulative basis, and the JPY 99.3 billion with 43 deals, this is to offer the other loan services. And ARUHI, that we acquired in November last year, they are also collaborating with the bank. The ARUHI, the Flat 35 is the major product. But the long-term interest rate is on the rise so they are facing with some tough situation. But in 42 prefectures, they have 140 shops. So they have a very strong sales channel. SBI Shinsei Bank Group, they have a very competitive product, but the sales channel is limited. So by collaborating with ARUHI, we expect a good cycle -- good synergy. Next, SBI Sumishin Net Bank. This is on a J-GAAP basis. The housing loan business increased, lending increased. Ordinary revenue, ordinary profit increased. As I mentioned earlier, we optimized the capital level. And at the same time, we would like to improve ROE. That's why in January, we had the dividend of JPY 30 billion, and SBI received 50% of it. And SBI Sumishin Net Bank, non-IFRS based results. Because of the interest rate situation, fair values are on the decline. So year-on-year basis, down 73.1% to JPY 1,690 million. And the major driver there is as follows. Because of the change in fair value, we are currently considering and discussing with SBI Sumishin Net Bank and the other audit company to come up with measures to deal with the impact of the fair value changes. And their number of accounts and deposits are increasing. Their housing loan is increasing steadily, and now exceeding JPY 8.5 trillion of cumulative housing loans. Thirdly, SBI Savings Bank. On the IFRS basis and on a K-GAAP basis, the profit decreased. The reason -- there are two reasons. The other -- in Korea the, last year, Central Bank in South Korea, they increased the interest rate, pushing down interest margin. And also in that circumstances, the interest rate burden on the borrower increased, delinquencies increased, and the value of collaterized real estate went down and the other write-offs increased, pushing down profit. But there are some good news as well. With the fiscal year 2022, the cumulative losses in the past were written off and the other profits are being accumulated to pay out JPY 9.9 billion of dividend. So exactly 10 years have passed since this -- the Savings Bank in Korea became a member of the group. Not only profit but also on the investment basis, they are on the other different transition space. So here are some KPIs for our Savings Bank. So for assets, it is on an increasing trend. However, at the end of the year, we have been slightly conservative in our lending attitude. So because of the brakes we stepped on, the balance went down slightly. Delinquency rates are slightly up. It used to be 1.44% as of September. But in December, it was at 2%. However, compared to the past, it's sufficiently at a controllable level. That is our view. Next is the third financial services business, which is the insurance business. For this business, here's the consolidated performance of the insurance group. In 2 days, on the 9th, results are going to be announced. So today, it's a flash report, but both ordinary revenue and ordinary profit went up. So both items went up. As for in-force contracts, we've been seeing a steady increase. The next segment is the asset management business. For this business, we saw an increase in revenue. But due to bonds as well as the deterioration in the stock market, we saw a decline in income. As I mentioned at the beginning, for Morningstar Japan, because of the brand return, we are expecting to recognize approximately JPY 8 billion in profit as of Q4. And the name of the company is going to change its name to SBI Global Asset Management. And in conjunction with the return of the brand, we're not going to transfer the business. It's just going to be a return of the brand. Meaning, we're not going to be able to no longer use the name Morningstar. And in return, we'll be receiving JPY 8 billion. Currently, for the valuation business. The current Financial Services business, including investment trust evaluation, it will continue as wealth advisers. And also Shinsei Investment Management plans to dissolve through an absorption-type merger with SBI Asset Management as the surviving company. So we will be converging our resources so that we can reduce excess cost. So for assets under management, we continue to see a steady increase. Shinsei Investment Management has been added. That's one reason why. But overall, the AUM has now reached JPY 4.5 trillion. So for the PE and Okasan Asset Management and CREAL Capital of the other businesses, if you add them all together, group assets under management has now exceeded JPY 7.5 trillion. And for the AUM of JPY 7.5 trillion, we would like to exceed JPY 10 trillion by fiscal 2024. That is our target, which is unchanged. Next is the investment business. For this business, like I mentioned at the beginning, it is minus JPY 33.2 billion because of the changes in fair value in profit and loss. JPY 46 billion minus due to TPBank and others and JPY 15.7 billion due to FX. So at the revenue level, it was down by JPY 2.6 billion and PBT was also down as well. For TPBank, the market in Vietnam, it went down by more than 20% from the beginning of the year. But when you look at the performance of TPBank, as you can see on the right-hand side, revenue and profits both have been going up. So it's not bad. It's actually doing well. However, the market tends to weigh on stock prices, and therefore, stock prices were weak. And we used to own 19.9% in TPBank. But from -- we would like -- we raised it to 20% so that we could treat it as an equity method affiliate. And also for the first time, dividends will be paid. So it's not just profit contribution, but it will be able to contribute from a funding point of view as well. That is our expectation. For the number of IPOs and M&As, last year, it was 22 companies. And for this fiscal year, although we are in a weak market, we are expecting 25 companies to either go through IPOs or M&A. So for the CVC fund, on a cumulative basis, JPY 133 billion is the commitment amount. And fund #2 has been established as well, and we continue to see steady growth. For crypto-asset business, for this business, once again, for Q1 and Q3, due to bankruptcies of our counter-parties. B2C2 recorded a loss of JPY 5 billion as of the third quarter. And for the mining business, because of sluggish crypto-asset prices, a loss of JPY 9 billion was recognized. And also, we have completed the withdrawal from the mining business in Russia. And for B2C2 and current trends, we are seeing an improving trend. And we're not sure whether this trend is going to continue from Q4 onwards. That is hard to assume. And this is about the business. It's not just major currencies, but also minor currencies as well. SBI VC Trade and BITPoint has been increasing what they carry. And for the 9 financial business, which is the last segment. Last fiscal year, it was minus JPY 8.7 billion. Due to some extraordinary factors, the losses were great. But this fiscal year rather reflects our underlying business. And for the bio-related business, we have SBI Biotech, first of all. In a cumulative basis, in Q3, we were -- we recognized a loss. However, R&D has been progressing steadily. And for 5 ALA-related business, in COVID-19 sales expansion has run its course, but we continue to see it operating in the black. And -- with that in our promo, we will continue to prepare for an IPO. Our final slide is an example of business for the Web3 era. SBI Traceability is an entity that uses the blockchain platform. And whether it be products -- it is a company that engages in traceability. And lately, Japanese sake, to determine whether they are authentic or not, there are needs for technology. Therefore, at famous breweries, they have decided to implement this technology. So we would like to put importance on all new business opportunities and work hard on a group-wide basis. That concludes my explanation. Thank you very much.