Daiwa Securities FY26 Net Operating Revenue +11.5% to ¥720 Billion; Operating Profit +24% to ¥207 Billion as Japan Equity Cycle Lifts All Lines

Daiwa Securities Group Inc. (TSE: 8601), Japan's second-largest brokerage and investment banking group (behind Nomura) with strong franchises in retail, wholesale, asset management and online securities, reported FY3/2026 consolidated J-GAAP results showing a strong operating result amid an unusually supportive Japanese equity-market environment. Gross operating revenue rose 7.0% to ¥1,468.0 billion, but the more meaningful net operating revenue (after interest expense and commissions paid to other brokerages) climbed 11.5% to ¥720.4 billion. Operating profit jumped 24.3% to ¥207.3 billion, ordinary profit rose 4.4% to ¥234.5 billion, and profit attributable to shareholders climbed 13.5% to ¥175.3 billion. Basic EPS came in at ¥126.04 (vs ¥109.53).

Operating leverage works — but ordinary profit lags

The divergence between operating profit (+24.3%) and ordinary profit (+4.4%) is worth unpacking. The strong operating-line growth reflects clean revenue growth dropping disproportionately to the bottom line — fixed-cost businesses (retail branches, IB platform) leverage well when revenue accelerates. The slower ordinary-profit growth reflects lower equity-method investment income: ¥22.3 billion in FY26 vs ¥47.3 billion in FY25, a ¥25 billion decline (likely from Daiwa Next Bank consolidation pull-through and JV mark-to-market). Stripping out this comparison effect, ordinary profit would have grown roughly in line with operating profit.

Comprehensive income surges on AFS portfolio

Comprehensive income climbed 70.5% to ¥271.9 billion — far ahead of net profit — reflecting strong mark-to-market gains on the group's available-for-sale equity and bond holdings during a year of rising Japanese equity values and lower credit spreads. This is typical for a brokerage with a large proprietary book in a positive market backdrop.

Balance sheet and capital

Total assets grew to ¥38,077.6 billion from ¥36,024.3 billion (the bulk being securities held for customers and the trading book). Net assets rose to ¥2,045.8 billion. Owners' equity reached ¥1,763.6 billion. The equity ratio of 4.6% looks low at face value but is normal for a securities firm given the leveraged trading-book nature of the asset base — Daiwa's regulatory consolidated capital ratio remains well above the FSA minimum and consistent with global investment-banking standards. BPS reached ¥1,272.72 (vs ¥1,158.82). ROE expanded slightly to 10.3% from 9.8%.

Cash flow swings; financing activities turn positive

Operating cash flow was a positive ¥439.0 billion (vs prior-year outflow of -¥454.1 billion — a major swing reflecting customer-asset and trading-book working-capital dynamics). Investing cash outflow widened to ¥583.6 billion (vs ¥353.4 billion). Financing inflow was ¥199.4 billion (broadly flat). Cash and equivalents finished at ¥3,772.6 billion, up from ¥3,739.7 billion.

Dividend lifted to ¥64; FY27 floor at ¥44

The annual dividend was set at ¥64 per share (¥29 interim + ¥35 year-end), up from ¥56 in the prior year (¥28 + ¥28). The payout ratio of 50.8% (vs 51.1% prior) is consistent with Daiwa's policy of returning 50%+ of consolidated profit to shareholders semiannually. For FY3/2027, the group sets a ¥44 per-share annual minimum as the floor (no specific full-year forecast disclosed — typical for brokerages whose earnings depend heavily on market direction).

Outlook: cyclical, but the Japan equity revival is structural

Brokerages cannot meaningfully guide forward earnings because their revenue depends on market activity. However, structural tailwinds support Daiwa beyond pure cyclical commission income: (i) the post-NISA expansion of retail equity investment in Japan continues to add households and AUM; (ii) the corporate-governance reform cycle is driving record cross-shareholding unwinds and buyback announcements — fueling IB advisory and equity-block fee streams; (iii) the BOJ rate normalization environment supports net interest income on customer deposits and margin lending. The cyclical risk remains a sharp Nikkei reversal, but FY26 confirmed the durability of the franchise. No material going-concern issues or significant subsequent events noted.

JapanStockPulse provides informational content only and does not constitute investment advice. Figures are taken from the company's published earnings short report and may be subject to subsequent revision.