SBI Holdings, Inc. (SBHGF) Q3 2023 Earnings Call Transcript

SBI Holdings, Inc. (OTCPK:SBHGF) Q3 2023 Earnings Conference Call February 7, 2023 2:00 AM ET

Company Participants

Conference Call Participants

Unidentified Company Representative

Let us begin. 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 nine-months of the fiscal year ending at March 2023. My name is Katachick [Ph] incharge of financial and accounting. The presentation will last for about 30 minutes followed by Q&A session.

Starting with the other consolidated results over the nine months until the end of the third quarter. And we are going to round up some of the other figures. The revenue JPY68 billion or 30% up year-on-year and the pretax profit JPY48.1 billion minus 86.9% year-on-year quarterly profit JPY36 billion minus 89.4% year-on-year profit attributable to owners of the company JPY8 billion and minus 97.8% last year, when the Shinsei Bank was consolidated there was negative, the goodwill which was close to JPY200 billion had a quite a big impact.

Without that one of element, the results will be those numbers in parenthesis. First, the consolidated results our study or the revenue, the financial services, earnings grew significantly. So the all-in-all 30% plus as to financial services business because of the negative goodwill down 58.4% at JPY113.6. This negative goodwill with the other consolidation of the other Shinsei Bank, and the result of that impact up 46.1% year-on-year that’s the result of the profit for financial services business.

The other negative factors are as follows; first, negative goodwill and another thing is in the investment business. In some other names there were some variation losses, especially the TP Bank listed in Vietnam and some other overseas listed names. There were some evaluation losses of about JPY46 billion, and in December, the BOJ changed its policy partially and the Yen appreciated. And because of that, about JPY15.7 billion effects losses incurred for the overseas private names. In the Yen basis, there was losses, not so much for the other regional local currencies.

And as to the crypto assets, the mining business about JPY9 billion, versus and the B2C2 because of the hedge funds or they are business partner some of them went under. And because of that JPY17.3 billion losses. And the profit attributable to owners of the impairment down 97.8%, JPY8 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 at the goodwill minus 58.4%, but without it plus 46.1% [Ph] and the asset management business revenue increased but the profit decreased the investment business. The both revenue and profit decreased and the crypto-asset to business the sudden decrease in the profit. As to investment, the business a fair value decline was significant and there was no cost there. So minus JPY2.6 billion was hit for the revenue itself and as to investment the business JPY33.2 billion minus for profit before income tax expense but that is around the same time last year, about JPY100 billion of profit existed. So it’s not the collapse of portfolio, but partly it is the reaction from the previous years.

As to crypto-asset the business as I mentioned earlier, the stagnant market and the bankruptcies all of the exchanges resulted in minus JPY17.3 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 the investment business and crypto-asset business struggling, they 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 the deal 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 are 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 JPY80 billion in this fiscal year from Morningstar Inc. There is no original cost the for the other return. So, the JPY8 billion itself will be the gain and the second factor is TP Bank, fluctuating greatly and we are going to make it to equity method company, the stake of 19.9% was increased to 20% up by 0.1%. In the first quarter and onwards, TP Bank that will be equity method company incorporated into financial business segment.

So, the timing raising 20% at that point JPY4.7 million of gains that will be booked and fixed and so, that the fluctuation factors will be alleviated to produce in a very similar manner.

Second, current status factor. The dividends from subsidiaries, it is rather considerable amount and I’d like to explain about that SBI Sumishin Net Bank, SBI Savings Bank, TD Bank, Morningstar Japan, SBI Insurance Group about 10 years have passed since the inception of an investment in those entities and we receive a considerable amount of dividends from those entities. As to this table, as to SBI Sumishin Net Bank JPY30 billion in total of the benefit of actually the dividend was paid. And SBI has 50% of it. So, the JPY15 billion that is received.

SBI Shinsei Bank and other key [Ph] 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 other – are preparing for the listing.

So, it all depends on markets. But once they are ready, the other public companies then there will be some capital gains expected some recovery of the other investment. Last year and onward, last two years M&A results and we are going to remain aggressive for M&A. The recovery of be 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, we will continue to implement them, you can choose ALA or XRP, for ALA or XRP.

Business overview of core businesses starting with financial services business, revenue increased and profit decreased without that one-off element of the donated goodwill, the plus 46.1% and that is where the profit and the securities business, there are two things first SBI SECURITIES results and the other new securities initiative. SBI SECURITIES Consolidated results, I’m not going to read numbers, please look at those numbers. As the sum increased in revenue and profit decreased. That is for J-GAAP basis, some comparison with other major securities companies. Year-on-year basis compared to major securities firms, operating income and profit attributable to owners of the company SBI SECURITIES number one. And other securities firms decreasing their profit by two digit 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’re doing well. Here we show SBI SECURITIES, breakdown of consolidated operating revenue. We use this as a way of measuring diversification and on an on-going basis the breakdown is well balanced that is the way we view it. And for online stock trading and our dependence, it went down even more. When it comes to online domestic stock transactions it went down to 11.7%. And we believe the Neo-securities initiative are working well, as for our market share. For individual stock trading and individual more Gen 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 on-going 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 volume and 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 this service, we are striving to increase our services. We hope this will turn into another burning source going forward.

So for the FX business, our 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, about 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. And 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 reach record highs, which is shown on the left hand side. On the right hand side, we show the trends of Investment Trusts Fees. Basically, SBI SECURITIES show — saw a steady Investment Trust Fee growth because of our 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 a year and a half ago. After one and a half years, as of January, we have seen the funds exceed JPY16 billion. And the number of accounts have exceeded 450,000 accounts. And for SBI Wrap, it’s only seven months since we were able to start the service but we have been seeing it exceed 20 billion in assets under management already.

For 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 a online security’s 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 five years, we would like to reach 2 million accounts in three years. We would like to reach set card savings of JPY50 billion in three years. And we would like to strengthen our alliances in doing so.

Here we show our wholesale business for POs and corporate bond underwriting. So 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 or earning space, this is something new that we’re doing, which is to strengthen the real estate finance business.

On January the 31st, we announced the capital and business alliance with CREAL which is a company with strengths in asset management focused on real estate investment. It’s a crowdfunding business and we acquired approximately 20%. And by doing so, and we can expect a very good the effect. The development and origination and sales of real estate, though will be provided as services at one stop.

New securities initiative and one of the initiatives that we are taking it is not only about the revenue sources diversification, but the very strong systems is needed. That’s why we went into the capital business and 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 other operating systems for SBI Group including SBI SECURITIES.

We already have business relationship with Simplex and the SBIs customer base that is expected to expand further and more and Simplex delivery trustworthy partner we decided to go all [Ph] with them.

Financial Services Business, Banking Business. First there were three banks. The first one, SBI Shinsei Bank and it’s results. Today SBI Shinsei Bank is announcing its results, and it is on 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 JPY40.4 billion exceeding JPY35 billion per year forecast for FY 2022. And the contribution to IFRS basis by SBI is the same, JPY44.7 billion is the other contribution. So not only on J-GAAP basis, but on 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 the deposit after the consolidation it increased by more than JPY3.3 trillion reaching JPY9.7 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 JPY3.3 billion of the deal value. SBI MONEY Plaza after Ikebukuro and Umeda, the Ginza branch started its operation on February 01, 2023 reinforcing the services for net worth, high net worth customers.

In the wholesale area, and 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 a very good results as well. The other loans originated that SBI Shinsei Bank amounted to JPY270 billion at sales to other financial institutions, that is the other nine months cumulative basis and the JPY99.billion with 43 deals this is two offer the loan the services and ARUHI that the we acquired in November last year, they are also collaborating with the bank.

The ARUHI, the Flat 35 is the other major product, but the longer term interest rate is on the rise. So they are facing with some tough situation. But in 42 prefectures, they had 140 shops. So they have a very strong sales channel. SBI Shinsei Bank Group, they have a very competitive products, but the sales channel is limited. So, by collaborating with our APLUS [Ph] we expect at a good cycle, good synergy.

Next, SBI Sumishin Net Bank. This is on J-GAAP basis. The housing loan business increased, lending increased. Ordinary revenue, ordinary profit increased. As I mentioned earlier, that we optimize the capital level and at the same time we would like to improve ROE. That’s why in January, we had the dividend of JPY30 billion and SBI received 50% of it. And SBI Sumishin Net Bank on IFRS based result because of the interest rates situation fair values are on the decline. So year-on-year basis, down 73.1% to JPY1690 million. And the major driver there is as follows; because of the change in fair value we are currently considering in discussing with SBI Sumishin Net Bank and the other audit company to come up with some measures to deal with the other impact of the fair value changes and their number of accounts and deposits are increasing and their housing loan is increasing steadily and now exceeding JPY8.5 trillion of accumulative housing loans.

Thirdly SBI Savings Bank on the IFRS basis and on the CAGR basis, the profit decreased. The reason there are two reasons. The other in Korea last year, central bank in South Korea increased its, the interest rate pushing down interest margin. And also in that circumstances, the interest rate burden on the other borrower increased delinquencies increased, and the value of collateralized real estate went down and the other loan-write-offs increased pushing down profit. But there’s some good news as well.

With the other fiscal year 2022, the cumulative losses in the past were written off, and the other profits are being accumulated to pay out JPY9.9 billion of dividend. So 10, exactly 10 years have passed since this the savings bank in Korea became a member of the group, it not only profit, but also on the other investments basis, they are on the different chain — the transition phase.

So here are some KPIs where Savings Bank, so for assets, it is on an increasing trend. However, at the end of the year, we had 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, is 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 two days on the ninth, it is — 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 of 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 JPY8 billion in profits, 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 JPY8 billion. Currently for the valuation business, the current financial services business including investment trust evaluation, it will continue as Wealth Advisors, and also Shinsei Investment Management plans to dissolve through an absorption type merger with SBI Asset Management as the surviving company.

So by we will be converting our resources so that we could 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 4.5 trillion. So for the PE and Okasan Asset Management, and Rheos Capital, the other businesses if you add them all together, group assets under management has now exceeded JPY7.5 trillion yen. Therefore the AUM of JPY7.5 trillion, we would like to exceed JPY10 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 JPY33.2 billion because of the changes in fair value in profit and loss. JPY46 billion minus are due to TP Bank and others and 15.7 billion are due to FX So at the revenue level, it was down by JPY2.6 billion and PBT was also down as well.

For TP Bank, 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 TP Bank, 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, it the market tends to weigh on stock prices, and therefore stock prices were weak. And we used to own 19.9% in TP Bank, but from out 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 133 billion is the commitment amount. And fund number two 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 counterparties, B2C2 recorded a loss of JPY5 billion as of the third quarter. And for the mining business because of sluggish crypto-asset prices, loss of JPY9 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. SBIVC Trade and BITPOINT has been increasing what they carry. And for the non-financial business, which is the last segment. Last fiscal year there was minus JPY8.7 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 SPI Biotech first of all, and cumulative basis in Q3 we were — we recognized the 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 ALApromo, we are continuing 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 in for [Indiscernible] all the new business opportunities and we are caught on a group wide basis. That concludes my explanation. Thank you very much.

Question-and-Answer Session

End of Q&A