Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Wrap account service contracts reached a record high on a quarterly basis in the wealth management division.
- Net inflow of investment trusts remained high, with asset-based revenues steadily increasing to a record high.
- Securities Asset Management achieved record high AUM and increased revenues and profits.
- Fixed income revenues increased due to large-sized bond sales in the wealth management division.
- Base income, comprised of ordinary income from wealth management and securities asset management divisions, was up by around 20% year on year.
Negative Points
- Net operating revenues for Q1 were JPY149.1 billion, down 9.4% from Q4 of FY 2023.
- Ordinary income dropped by 33.5% to JPY37.7 billion.
- Profit attributable to owners of the parent company was down 39.4% to JPY23.9 billion.
- Global markets saw a decline in revenues and equities due to lower activity from individual investors.
- Ordinary income for overseas operations totaled JPY2.2 billion, down 50.5% Q-on-Q.
Q & A Highlights
Q: Can you elaborate on the reasons behind the significant drop in ordinary income for Q1 FY 2024?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The decline in ordinary income, which dropped by 33.5%, was primarily due to lower revenues in the wealth management and global markets divisions. In wealth management, despite record-high wrap account service contracts, overall revenues and profits were down. In global markets, the decline was driven by reduced activity from individual investors and lower M&A-related revenues compared to the previous quarter.
Q: What factors contributed to the record high AUM in the securities Asset Management division?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The record high AUM in the securities Asset Management division was driven by an increase in the average AUM during the quarter for Daiwa Asset Management. Both net operating revenues and ordinary income reached record highs on a quarterly basis due to this increase.
Q: How did the global markets division perform in Q1 FY 2024?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The global markets division saw a decline in net revenues by 13.3% and ordinary income by 48.6%. Equity revenues declined due to a slowdown in retail investor activities and the absence of large deals, although institutional investor flows remained high. FICC revenues increased domestically due to higher interest rates, but overseas revenues were down due to a decline in customer flows for treasuries.
Q: Can you provide more details on the performance of the wealth management division?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The wealth management division's net operating revenues were JPY62.6 billion, down 2.3%, and ordinary income was JPY20.4 billion, down 8.6%. Equity revenues were lower due to decreased trading values in Japanese equities, while fixed income revenues increased due to large-sized bond sales. Asset-based revenues reached JPY27.2 billion, accounting for 48.9% of the division's net operating revenues.
Q: What were the main challenges faced by the global investment banking division in Q1 FY 2024?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The global investment banking division faced a decline in net operating revenues by 26.2% and reported an ordinary income loss of JPY2 billion. While debt underwriting income increased due to large-sized deals, M&A income decreased, particularly from overseas, compared to the high levels of the previous quarter.
Q: How did the alternative asset management division perform in Q1 FY 2024?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The alternative asset management division saw a significant decline in performance, with net operating revenues down 61.8% and ordinary income down 87.3%. This was mainly due to a decrease in capital gains related to energy and infrastructure investments at Daiwa Energy and Infrastructure.
Q: What is the outlook for the wealth management division moving forward?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The wealth management division is off to a strong start in July, with higher sales of fund wrap and investment trusts compared to Q1. Equity income has also recovered to levels higher than the average of the last fiscal year. We are focused on deeply understanding customer needs and providing optimized solutions to maximize customer asset value.
Q: How is Daiwa Securities Group planning to navigate the changing market environment following the BOJ's monetary policy changes?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The BOJ's decision to change its monetary policy indicates a normalization of market functions, transferring the interest rate division to the market. Our group is committed to performing our responsibilities as market leaders, accumulating customer trust, and establishing a stable income structure less affected by external factors. We aim to maximize customer asset value and contribute to the normalization of market functions.
Q: What are the key performance indicators (KPIs) for Daiwa Securities Group's new medium-term management plan?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: The main KPIs for our new medium-term management plan include asset under custody in the wealth management division and AUM in the Asset Management division. These indicators reflect customer trust and are used to measure the progress of our policy to maximize customer asset value. Base income, which grew significantly over the past year, is also a key indicator of our financial performance stability.
Q: How did the overseas operations perform in Q1 FY 2024?
A: Kotaro Yoshida, Managing Executive Officer, Chief Financial Officer: Overseas operations reported an ordinary income of JPY2.2 billion, down 50.5% quarter-on-quarter. In Europe, M&A revenue decreased, and overall P&L worsened despite lower expenses. Asia and Oceania secured high profits, driven by contributions from the US wealth management business and equity method income from SSI securities. However, Americas saw a profit decline due to decreased FICC customer flows amid lower interest rate volatility.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
