Daiwa Securities Group (OTC:DSEEY) reported second-quarter financial results on Friday. The transcript from the company’s second-quarter earnings call has been provided below.
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Access the full call at https://www.daiwa-grp.jp/english/ir/presentation/
Summary
Daiwa Securities Group reported significant profit growth across all divisions in the first quarter of FY2026, with ROE reaching 12.7% and net operating revenue increasing by 11.4% to 220.3 billion yen.
The Wealth Management Division achieved record-high asset-based revenue of 35.8 billion yen due to brisk client activity and successful portfolio-based proposals.
Global Markets saw significant equity revenue increases, while Global Investment Banking’s earnings were bolstered by several large-scale deals.
Base income reached 62.8 billion yen, up 83.8% year-over-year, surpassing the Mid-Term Management Plan target pace.
SG&A expenses rose by 3.3% due to higher trading-related expenses and personnel costs, with performance-based bonuses increasing primarily in Japan.
Overseas operations set a new record with ordinary income of 13.1 billion yen, up 90%, despite sluggish M&A business in Europe due to geopolitical risks.
Daiwa Next Bank reported a 16.2% increase in interest income to 13 billion yen, with ordinary income rising 15.8% to 7.2 billion yen.
The Asset Management Division saw its net operating revenues rise by 7.8%, with AUM in publicly offered investment trusts reaching a record high.
Management highlighted record-high revenue and income levels, emphasizing the company’s structural shift towards financial and capital markets amid rising inflation and asset-building needs.
The acquisition of ORIX Bank as a 100% subsidiary was noted as an important step in advancing the company’s growth strategy centered on Wealth Management.
Full Transcript
Yoshida
Hello, this is Yoshida from Daiwa Securities Group. Thank you very much for taking the time out of your busy schedule to join our conference call today. I will now explain the financial results for the first quarter of fiscal year 2026, which we announced today, based on the presentation materials posted on our website. Please turn to page four. First, I will provide a summary of our consolidated financial results. The percentage changes in figures are compared to the fourth quarter of fiscal year 2025. In the first quarter of fiscal year 2026, we achieved profit growth across all divisions, with ROE reaching 12.7%. Net operating revenue was 220.3 billion yen, up 11.4%. Ordinary income was 88 billion yen, up 31.4%, and profit attributable to owners of the parent was 56.4 billion yen, up 13.2%.
The Wealth Management Division, in addition to brisk client activity, saw its portfolio-based proposals gain traction, resulting in record-high asset-based revenue of 35.8 billion yen. The trend of net asset inflows continues. Furthermore, not only asset-based revenue, but also flow-based revenue expanded in the Asset Management Division. Against the backdrop of continued net inflows and favorable market conditions, ordinary income at Securities Asset Management reached a record high of 15.7 billion yen.
In Global Markets, client flows expanded against the backdrop of a strong market environment, and equity revenues increased significantly. Global Investment Banking saw an increase in earnings driven by contributions from several large-scale deals. Please turn to page eight. Base income, the KPI for stable earnings set forth in the Mid-Term Management Plan, reached 62.8 billion yen, an increase of 83.8% compared to the same period last year. We are progressing at a pace that significantly exceeds the final-year target of 150 billion yen set in the Mid-Term Management Plan, and we are making steady progress in building an earnings base that is less susceptible to external conditions.
Please turn to page 11. I will now explain the income statement. Commission received totaled 143.4 billion yen, an increase of 9.3%. A breakdown of commission received can be found on page 24. Brokerage commission was 34.9 billion yen, up 9.4%. Underwriting and secondary offering commissions were 17 billion yen, up 86.4%. Distribution commission was 9.2 billion yen, up 20%, and M&A-related commissions were 12.5 billion yen, down 27.9%. Please turn to page 12. SG&A totaled 142.8 billion yen, up 3.3%. Trading-related expenses increased due to higher commission payments. Personnel expenses rose due to wage increases and, primarily in Japan, an increase in performance-based bonuses.
Please turn to page 14. Total ordinary income from overseas operations reached 13.1 billion yen, up 90%, setting a new record high. In Europe, the M&A business was sluggish due to geopolitical risks. In Asia and Oceania, ordinary income increased. In the Americas, equity revenue reached a record-high level, and ordinary income rose significantly due to an expansion in equity revenues. Next, I will explain the results by segment. Please turn to page 15. First, the Wealth Management Division. Net operating revenue was 88.2 billion yen, up 8.8%. Ordinary income was 37.2 billion yen, up 12.4%. In addition to favorable market conditions, the widespread adoption of total asset consulting allowed us to capture a broad range of clients’ asset management needs and translate them into results. Looking at results by product, trading volume in equities expanded, driven particularly by foreign stocks.
Revenue increased by 900 million yen in the fixed income segment as well. By capturing investment needs amid rising interest rates, revenue increased by 800 million yen. Furthermore, wrap account services continue to grow as a solution for inflation hedging and medium- to long-term asset management needs, resulting in a 1.1 billion yen increase in wrap-related revenue, which reached a new all-time high. The fixed cost coverage ratio based on asset-based revenue rose to 125.7%, while the total expense coverage ratio improved to 77.3%.
Detailed data is provided on page 28, so please refer to it later. Please turn to page 16. This page shows the status of product offerings and sales amounts for the Domestic Wealth Management Division. The wrap account service performed similarly, with contract value reaching 357.7 billion yen and a net increase of 237.6 billion yen, bringing the total contracted AUM to a record high of 6,765,000,000,000 yen. Next, please turn to page 17. This is the status of Daiwa Next Bank. Interest income was 13 billion yen, up 16.2%, and ordinary income was 7.2 billion yen, up 15.8%. Deposit acquisition progressed through collaboration with Daiwa Securities, and the deposit balance expanded to 5.3 trillion yen. Daiwa Next Bank continues to steadily fulfill its gateway function for the shift from savings to investment. In addition, the increase in the policy rate widened the interest margin, resulting in higher revenues and income.
Please turn to page 18. The Asset Management Division. First, Securities Asset Management: net operating revenues were 21.2 billion yen, up 7.8%, and ordinary income was 15.7 billion yen, up 37.6%. AUM of publicly offered investment trusts managed by Daiwa Asset Management surpassed 43 trillion yen, a record high. Assets under investment advisory contract, including those related to the alliance with Japan Post Insurance, continue to expand steadily, further strengthening the revenue base.
Please turn to page 19. For Real Estate Asset Management, net operating revenues were 13.3 billion yen, up 47.2%, and ordinary income was 9.8 billion yen, up 0.2%. AUM in Real Estate Asset Management surpassed 1.8 trillion yen, achieving the FY2030 target ahead of schedule. Gains on property sales at Daiwa Securities Realty and income from managed REITs contributed to the increase in both revenues and income. Please turn to page 20. For Alternative Asset Management, net operating revenues were 6.3 billion yen, and ordinary income was 4.8 billion yen. Capital gains were recorded due to exits from certain portfolio investments, among other factors.
On page 21, finally, I will explain the Global Markets and Investment Banking Division. In Global Markets, net operating revenues were 53.8 billion yen, up 4.9%, and ordinary income was 18.1 billion yen, up 2.3%. In equities, client order flows from both institutional investors and Wealth Management clients remained solid in both Japanese and foreign equities despite elevated market volatility. We captured order flows effectively and, combined with successful positioning of the position management, secured a high level of revenues.
In FICC, order flows in both domestic and foreign bonds declined from the previous quarter’s high level but remained solid overall. Turning to page 22, Global Investment Banking recorded net operating revenues of 22.6 billion yen, down 6.1%, and ordinary income of 3.2 billion yen, up 52.5%. This concludes my explanation of the financial results for Q1 of FY2026. Just to add some comments, this first quarter’s revenue and income both reached historically high levels. That said, we do not view this result as simply the product of a favorable market environment. Against the backdrop of rising inflation and growing asset-building needs, we continue to see a strong structural shift of funds into the financial and capital markets, including needs to meet the response to corporate governance.
We believe our ability to steadily translate this shift into tangible outcomes reflects the Group’s steadfast effort and disciplined execution of these strategies. The total asset consulting in the Wealth Management Division is not merely a method of selling investment products, but rather to identify customers’ pain points and needs and broaden the range of solutions across investment management, asset succession, real estate, and corporate transactions. Continuing this effort has, as a result, led to growth in both balance-based revenues and flow revenues. In the Asset Management Division, the accumulated AUM has contributed to higher profitability, further demonstrating the strength of a stock-type business model.
In Global Markets and Investment Banking as well, we have accurately captured structural changes such as progress in capital market reforms and shifting client needs, and have steadily captured revenue opportunities. This fiscal year, the final year of our Mid-Term Management Plan, is positioned as a year to further drive these achievements. This first quarter marks a good start towards that goal. Regarding the current market environment, uncertainty continues to linger. Even so, Wealth Management is tracking at roughly the same pace as the first-quarter average. In the meantime, Global Markets is off to a start below the high first-quarter average, though we continue to see solid client flows.
In addition, today we completed the process of making ORIX Bank a 100% subsidiary. We believe this represents an important step forward in advancing a growth strategy centered on Wealth Management. Going forward, we will continue to respond to our clients’ diverse needs, contribute to the development of the financial and capital markets, and pursue sustainable growth in corporate value. We thank you for your continued support. That’s all from myself.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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