Q2 2018 Daiwa Securities Group Inc Earnings Call
Oct 25, 2017 AM JST
8601.T - Daiwa Securities Group Inc
Q2 2018 Daiwa Securities Group Inc Earnings Call
Oct 25, 2017 / 09:00AM GMT
==============================
Corporate Participants
==============================
* Mikita Komatsu
Daiwa Securities Group Inc. - Senior Executive MD, CFO, Corporate Executive Officer & Director
==============================
Presentation
------------------------------
Mikita Komatsu, Daiwa Securities Group Inc. - Senior Executive MD, CFO, Corporate Executive Officer & Director [1]
------------------------------
I'm Komatsu from Daiwa Securities Group Inc. Thank you very much for taking time out of your busy schedule to join our teleconference today.
I'd like to explain the results of the second quarter of FY 2017, which we have just announced today along with the presentation material we have uploaded on our homepage.
Please turn to Page 4. Let me first take you through the summary of the consolidated results. Increase and decrease shown in this material are versus Q1 of FY 2017. Net operating revenues of Q2 of 2017 were JPY 130.9 billion, up 20.6%. In Retail Division, net operating revenue increased on the back of high levels of trading volume of foreign equities and the primary offering. In the Wholesale Division, net operating dividend increased as primary and M&A business in the Global Investment Banking expanded. Ordinary income was increased to JPY 43.8 billion, up 74.3%.
All businesses other than Asset Management saw an increase both in revenue and profits. And especially profits in Investment Division increased, largely driven by capital gains from an exit of investment. Profit attributable to owners of the parent company was JPY 31.9 billion, up 64.5%. Annualized ROE was 10.1% and BPS was JPY 772.32.
Interim dividend is JPY 13 per share. As a part of our shareholders return policy, we have set up a share buyback program of 52 million shares or a total of JPY 40 billion as the upper limit.
Please turn to Page 10. Let me explain P/L Summary. Commission received was JPY 78.7 billion, up 12.9%. We are disclosing the breakdown of commission received in details on Page 23, but, briefly, brokerage commission was JPY 16.6 billion, up 2.9%, as stock trading volume increased.
Underwriting commission was JPY 13 billion, 2.2x higher due to a multiple number of large PO deals. On the other hand, distribution commission was JPY 10.8 billion, down 3.1%. Although, stock investment trust sales were solid Q-on-Q.
M&A commission was JPY 3.5 billion, up 14.9%, driven by many deals centered on overseas deals. Net gain on private equity and other securities increased significantly to JPY 13.8 billion, 7.9x higher with an exit of the existing investment. Net trading income was down 4.1% on the financial accounting basis. However, as you can see on Page 17, equity trading income increased on the financial accounting basis.
Please turn to Page 11. Let me explain the breakdown of SG&A. Trading related expenses were JPY 18.6 billion, up 12.1% due to higher advertisement expenses relating mainly to sales promotion of foreign bonds, JGBs for individual investors, iDeCo and so forth. Personnel expenses were JPY 44.6 billion, up 3.3%, with bonus linked to earnings increase and others. Depreciation was JPY 6 billion, down 1.8% due to the fact that some systems have been fully depreciated. As a result, total of SG&A ended up with JPY 90.9 billion, up 4.4%.
Please turn to Page 13. Next, I'd like to explain ordinary income of overseas operation. Ordinary income of overseas operation in total was JPY 3.8 billion, 2.2x higher Q-on-Q, which marked a positive ordinary income for 6 quarters in a row.
Now let's discuss by region. Starting with Europe. Equity underwriting revenue increased very much attributable to Japanese companies' global offering mandates and the euro NCDs and the revenue from M&A business increased as well, which turned European operation into profitability. Asia/Oceania posted an increase in income thanks to growth in revenue from equity brokerage and bond underwriting commission. Americas also increased its income driven by higher equity income on the back of higher transaction volume of U.S. equities and so on, although their main FICC revenue remained flat.
Let me next explain details in each segment. Please turn to Page 14. Let me explain our results in Retail Division. Net operating revenues were JPY 51.2 billion, up 5%. Ordinary income was JPY 10.6 billion, up 2.3%. Equity revenue increased driven by equity in sales commission relating to equity underwriting and higher trading volumes of foreign equities. Furthermore, fixed income revenue increased, also driven by higher sales of domestic bonds as well as foreign bonds. Distribution commission for investment trust decreased by 4.8% due to a decline in the sales amount of stock investment trust, however, agency fee for investment trust increased by 1.5%, with a strong market trend.
Other revenues increased by 5.7% from rise in investment advisory and accounting management fees, which are wrap-related fees. Please turn to Page 15. These are the highlights in sales and distribution amounts for our Retail Division for this quarter. Thanks to multiple large-sized PO deals, the equity distribution amount reached a record high of JPY 371.8 billion. For wrap accounts, the contract AUM renewed a previous record high, thanks to the Q-on-Q growth in contract amount and market appreciation.
For stock investment trust, funds mainly invested in foreign equities with the IoT and robotic themes as well as the newly launched Daiwa DB Momentum Strategy Fund enjoyed brisk sales. For foreign equities, rise in the European and U.S. markets and our focus on providing information to the customers boosted the trading volume to JPY 276.5 billion, a new record high.
Please turn to Page 16. This is our Wholesale Division. And let me start with the global markets business. Net operating revenues marked JPY 30 billion, up by 10%, and ordinary income grew by 46.9% to JPY 7.8 billion. Equity revenue grew on the back of upbeat U.S. equity markets driving the client flow for foreign equities as well as contribution from block trades. Revenues of our fixed income were weak, with the continued low volatility in the domestic and overseas financial market slowing down the client flow.
Please turn to Page 18. This is our Global Investment Banking business. Net operating revenues were up by 63.6% Q-on-Q to JPY 12.9 billion. With ordinary income growing by 6.44 to JPY 4.8 billion, marking a huge increase in both sales and profit. For equity underwriting, Daiwa served as global coordinator for multiple big deals, including the second round of Japan Post offerings, which was the largest deal in Q2, and equity raising transaction for Idemitsu Kosan. Revenue was steady with debt underwriting. In our very busy insurance market, we managed a number of deals for straight bonds and RMBS. We also served as their lead manager for JBIC benchmark issue, which was the largest foreign bond PO ever by a Japanese issuer.
In M&A, overseas and cross-border deals capitalizing on our global networks drove the top line. Whilst in Japan, we executed deals such as business integration.
Please turn to Page 19. Let me talk about the Asset Management Division. Net operating revenues grew by 1.1% to JPY 12.1 billion. And ordinary income was down by 0.9% to JPY 7.1 billion. For Daiwa Asset Management, market value appreciation and net inflow helped the AUM to grow, resulting in top line and profit growth.
Please turn to Page 21. This is our Investment Division. Revenues grew 7.74 to JPY 13.9 billion, with ordinary income increasing by 9.2x to JPY 13.1 billion. The growth in both the revenue and profits was substantial, and this was especially a function of the capital gain enjoyed by exiting from the real estate investment. And that will be all on the details of the Q2 results for FY '17.
Looking back at the second quarter, Retail Division enjoyed top line and profit growth and despite the weakness in bond trading sales, the profit for the Wholesale Business doubled during Q2, thanks to the brisk performance of equity trading in Global Investment Banking. Furthermore we had a big exit transaction in the Investment Division boosting the ordinary and net income to the highest level since Q1 of FY '15. The Japanese equity market has enjoyed the longest rally for the 16th day in a row. As for the Japanese equity market its finally catching up with the fundamentals of the economy and many customers are enjoying successful investment experiences. Corporate Japan is expected to post another record-high earnings this fiscal year and beyond. So under such a buoyant market environment, we are eager to support the first-time investors as well as those who have their cash on the sidelines to build their asset portfolio. To that end, we will endeavor to enhance the skill sets of our sales reps, open new branches, and augment our product offerings as well as online services. We hope to seek your ongoing support for our business. Thank you for your attention.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------