Daiwa Securities Group Inc.

Thank you very much for waiting. Thank you very much for participating in the telephone conference for the fiscal year 2026 of the first quarter earnings announcement of Taiwan Securities Group, despite your busy schedule. I would like to start the meeting. From Taiwan Securities Group, we have Managing Executive Officer and CFO, Yoshida. I am the Head of IR, Nakamura. First, Yoshida will explain about the first quarter results of fiscal year 2026. We will receive your questions after the presentation. Today, this is streamed live on the internet and investors can view this start. Hello, this is Yoshida from the Securities Group Headquarters. 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 the 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 when 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 risk 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 and 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 8. Pays income and the KPI for stable earnings set forth in the mid-term management plan reached 62.8 billion, 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 150,000 yen set in the medium-term management plan, and we are making steady progress in building an earning space 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%. Breakdown of commission received can be found on page 24. Purpose 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%. Page 12. SG&A totaled ¥142.8 billion, up 3.3%. Trading-related expenses increased due to higher commission payments. Personal expenses rose due to wage increases, and primarily in Japan, an increase in performance-based bonuses. Page 14. Total ordinary income from overseas operations reached 13.1 billion, up 90%, setting a new record high. By region. In Europe, the M&A business was sluggish due to geopolitical risks. In Asia and North America, ordinary increased revenue by equity revenue, reaching a record high level. In the Americas, 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 a client's 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 in the mid-rising interest rates, revenue increased by 800 million yen. Furthermore, the use of rep account services continued 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 rep-related revenue, which reached a new all-time high. Asset-based revenue also reached a record high of 35.5 billion yen, driven by increases in trust agency fees and rep-related revenues. The fixed cost coverage ratio based on asset-based revenue rose to 126%. under 25.7%, while the total expense coverage ratio improves 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 rep account service performed steadily, 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 billion yen. Next, please, to Interpay 17.

This is Rafaela Sousa, Daiwa Next Bank. Next interest. Income was 13 billion yen, up 16.2%, and ordinary income was 7.2 billion, up 15.8%. Deposit acquisition progressed through collaboration with Daiwa Securities, and the deposit balance expanded to 5.3 trillion yen. Daiwan Expand continues to stiffly 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 the ordinary income was 15.7 billion yen, up 37.6%. AUM, or publicly offered investment trust, managed by Daiwa Asset Management, surpassed 43 trillion yen, a record high. Assets under investment advisory contracts, 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 2.2%. AUM and real estate asset management surpassed 1.8 trillion yen, achieving the FY2030 target ahead of schedule. Gains on property sales at diverse securities realty and income from managed REITs contributed to the increase in both revenues and income. Listen to page 20 for alternative asset management. Net operating revenues were 6.3 billion yen and the ordinary income was 4.8 billion yen. Capital gains were recorded through TDX from certain portfolio investments, among other factors. On page 21, finally, I will explain 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 industries 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. And turning to page 22, lower investment banking recorded net operating revenues of 22.6 billion yen, down 6.1%, and the ordinary income of 3.2 billion yen, up 52.5%. This concludes my explanation of the financial results for the Q1 of FY2026. Just to add some comments. The 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 the growing asset building needs, we continue to see a strong structural shift of funds into the financial and capital markets, including some needs to meet the response to the corporate governance. so that we believe our ability to strictly translate these shifts to tangible outcomes, reflecting the group's steadfast effort and disciplined application of these strategies. The total asset consulting in the wealth management division is not only a method of selling investment products, but rather to identify the customer's pain points and the needs, and broadening the range of resolution across investment management, asset succession, real estate, and corporate transactions. Continuing these efforts 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 strictly 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, The 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 worth. In addition, today we completed the process of making Oryx 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 the capital markets, and pursue sustainable growth in corporate value. We thank you for your continued support. Let's go from myself. Now let us open for Q&A session. Today's session is available in English line as well. If you wish to ask a question in either Japanese or English, press the star key followed by 1 on your telephone keypad. To withdraw your question, press the star key followed by 2. For today's Q&A session, we will first take questions in Japanese line. Followed by questions in English. We are now ready to receive your questions and we will call your name.

So, let's go to the first question from SMBC Neco Securities. Muraki-san, please. Please ask your question. Thank you. I have two questions. First, on page 21, the equity revenue, I would like to ask you a bit in more detail. In terms of position management, you said that you were good in doing that. So April, May, June, and July. So I think the GM has slowed down. But up until July, what has been the and how has the earnings been improving? So that's my first question. The second question is that besides the earnings report, the old bank, in terms of acquisition, said that they have completed the process. In the previous meeting, we had some updates that you can give us. So in terms of the capital advocacy ratio, they will have an impact of about 5%. So how about this? And from the second quarter onwards, it says that if the contribution is coming in terms of profit after the group will amortization, how much would this contribution be? And I think the next step will be the merger. So do you have any timeline? What type of cost will entail? So until the merger, there are two bank subsidiaries. How are we going to manage these subsidiaries? If you have any update about this issue, please, I would like to ask about that.

Thank you very much for your question.

First, about the first quarter, global markets, equity, revenue, or earnings. So April, May, June for the first quarter, if we look at the trend, so if it's over 10, April 3, May 3, and June, April, so I think it's like... Equal of all the three months, but generally, it was slightly better. To go into more detail, from April, the Japanese stocks have been on the upper trend, and the overseas foreign institutional investors have been coming in, and then, a little bit like that, domestic investors came in. And for the U.S. stocks, it was good. For instance, From the retail investors from Japan, there has been a lot of orders coming for the U.S. stocks. The order flow for the Japanese stocks domestically and overseas has been at a very good state through this quarter. And July, June was better, higher compared to April to May. So July has been a slow start compared to that. But in terms of the order flow, flow has been good. In terms of the position management, so for the institutional investors, there has been a lot of inquiries, a lot of block trade has been coming up, so we have been going through these order flows. So number two, about OLYX Bank, on their updates, So after the announcement, within Diary Securities Group, in terms of what we have been, we have been setting up a project and we have been going forward, but so there has been some gun-jumping regulations. So direct negotiations or discussions with OX Bank actually have not been able to do much of that. So in terms of the future synergies, and how we're going to respond to this. Compared to what we have announced in May, we have not a major update as to date. First, in terms of profit, so on the Oryx Bank on a standalone basis, the net income on five-year average is about 20 billion yen, and There's a good monetization will happen, and there'll be some cost that has to be deducted. However, the interest rate has gone up, and we think that there is a possibility that we can expect some upside, but we can't talk much about these numbers. Maybe the cost of integration and the earnings will be upset against each other. So I think there's no major update I can give you against what we have said in May. And until the merger, what your question about what's going to happen? Well, in terms of merger, we would like to conduct this as early as possible. But of course, we have to conduct negotiations and adjustments with stakeholders. So That's what we are right now. In terms of the, we have become 100%, the direct next bank has become 100% subsidiary. So in terms of the next bank to Ulrichs Bank, there is some funds that can flow to that bank. So for this situation, I think this is a type of synergy that we can enjoy early timing. So that has been my answer to your question. Thank you. So in terms of the group headquarters, so in terms of the capital legislation that's going to go down, I think you talked about the option of reaching the 81 bonds. How would you think about that? We have been continuing to consider this, and we are planning. In terms of the schedule, it's not decided yet. Understood. Thank you very much.

Muraki-san, thank you for your questions. Next question. is from Sujino-san. Sujino-san, please go ahead. Thank you. I have three questions. First, is that this time the alternative profit was big, the real estate and the PE, I guess. In the first quarter, there were some exits, maybe? After the Q2, any plan for the exit or any profit growth, any prospects that you can share with us? That's my first question. And the second question is regarding SEC, SICC. It was slightly down compared to Q4 of last year. But after June, any flash reports or any news that you can share with us? The third question is about, well, after the integration of Oryx Bank, are there going to be any big one-off cost that you think you're going to recognize? Well, you just mentioned that there's not going to be a significant impact. However, I'd like to know about that, if there's going to be any big one-off impact. Okay, thank you for your question. Question number one, regarding the alternative asset management. The current situation regarding the first quarter, the real estate and the PE had some exits, and that made a contribution factor to push up the profits. In the Q2 and Q4 last year, we had the energy-related assets in Europe. And that did not really recur for the current fiscal year. Well, there were several exits from the alternative asset management that generated the profits for the first quarter. A plan for the Q2. Well, there are some plans of the exits, but the There's nothing that I can share with you. That's a fair comment, I guess. And your second question about FICC. Well, the yen interest rate is also rising so that from that point, a variety of investors, including retail investors, are showing the interest, looking at the yen credit, and other assets like that as well. Well, as you know, we do have networks nationwide, and among some customers, especially recently because of the interest rate volatility level is going up, and also the currency is quite volatile. So that there are increasing needs of hedging, and that need has started to surge since the end of last year. So hedging those currency and the derivative income has also made a contribution, a positive contribution. Well, after June, entering into the month of July, do we see any big change? Not a big one. But in this second quarter, August, some corporate customers are probably going to the summer holidays so that it may be a bit slow as a movement. And the third question regarding the one-off big cost because of the integration of Oryx. We are not estimating any big one, big chunk to recognize. There will be, of course, some miscellaneous costs. Okay, thank you very much. Thank you very much for your question.

Going to the next question. My son from Global Advisors, please. Go ahead with your question. We cannot confirm your audio. Can you hear us? We seem not to have been able to receive the audio. After the asterisk, please press 1 on your phone. We continue to ask for questions. Going to the next question, from JP Morgan Securities, Kato-san, please. This is Sato for JPMorgan Securities. One question for my side. So in terms of the securities asset management, in terms of earnings, the profitability is quite high. So I would like to ask about how sustainable this is and why this is happening. In terms of the securities asset management, as you know, from the earnings that we get from AUM and in terms of the cost, it's a lot of fixed costs. So it means that against the increase of the earnings, the cost increase is limited. So in terms of the profitability, not only this quarter, in this past one to two years, it has consistently been improving Going forward, so Daiwa Asset Management, it is true that they have a following coming from the market cap situation, but in terms of the inflow of net cash, they have been able to maintain a net increase for a certain period of time. It means that they have a very attractive product, and we want to continue to increase the AUM. So in terms of Japan Post Insurance, we have their alliance, and we have the investment advisory contracts, the balance is increasing. And from last fiscal year, we have the U.S. Global X, which has been a equity-based affiliated company from last year. So they have very kind of ETF that is quite different. and they have been able to improve the earnings of the asset management and they have served to improve the earnings of this business. So from wealth management for the Securities AM in terms of the operating margin enhancement, we will continue to monitor this trend. So in terms of the fourth quarter, I think there has been I said if you subtract the cost, is that due to the equity method? Is this a kind of a disruptive factor that because in the first quarter you saw a decline? Yes, maybe that is a part of the impact. Yes, then I understand. Thank you.

Thank you for your question, Sato-san. I have two questions about wealth management. The first question is about the performance of that RAP account. On a daily basis, the I do think the wrap-around customers do not really be swayed by the daily move of the pricing, but when you compare to what is happening in the performance of today, compared to the best timing, do you think there are some changes? Can you comment some details? And also the inquiries from the customers or the advice from your own company, I'd like to and know what kind of points that you are providing, meaning because I do think that the market is a bit in confusion. So when we look at the stock balance or the customer's balance, it's not that negative. That's my reading of what's happening today. So am I right? Or if I'm missing, please tell me. And also on page 29, I'd like to know the POS fee. The balance fee itself is increasing, which is favorable. But at this timing, the flow, I thought that it could grow much stronger. So when the environment is good, do you have any comment about your own appetite of how much you want to grow? Thank you for your questions. First of all, about the fund wrap performance. Well, including our company, I think we have the common KPI from all peers in the market. And the customers with the disposal of the unrealized gains in 2026 About 95% of the FundWeb customers, the account holders, had the positive unrealized gain. And at June end of this year, 99% of the customers, or more than that, had the surplus or the positive unrealized gain. Well, because of the nature of the FundWeb products, people normally hold it for a medium to long-term basis not short-term. So when we make some information for the customers, we always say that it will be probably wide and the purchase for the longer-term period, not for the short-term period, because the average tenure is actually increasing. It's about 11 years that the people are holding on average. So the market is volatile, just in ups and downs right now, but that is not really affecting that customers float. Well geopolitical risks have been happening and there's been some drops in the stock market but even at that time we did not see a big cancellation or the realization gain or anything. Well at the terrorist time of the Trump administration or this Middle East crisis of this year our consultants provided information to the rep account holders. But we did not see a panic among the rep account holders. So because of the nature of the products, I think the sales and the marketing activities have been quite appropriate and making a good communication to the customers as far as we are concerned. And also the fund rep, the fund for the fund rep is normally the funds that customer has and then manage the asset for the long-term period. So regarding the core asset for the customers, we think our product is a good receiving end. Well, when the real estate price is going up or the equity market is up, the customers sometimes wish to review their portfolio of the asset. For example, they want to get the disposal gain of the real estate, or they want to just liquidate the company. Then there will be some surplus of the fund, which often customer would select fund wrap for diverting their amount for the investment. And a second question about the flow income. with the stock business or the fund wrap business. It's actually the other side of the coin. But by having such a diverse portfolio, the asset replacement sometimes happens and the movement from the saving to investment or marketable securities. So that kind of We are not thinking about to what extent. We are just looking at the accumulation of the balance and also getting the tangible outcome as a result of us simply translating our initiatives. But when it comes to the actual trading, Well, we want to respond to the needs of the customers and then respond accordingly. Not to go after the immediate gain or the short-term outcome. We're talking about the total asset consulting, and that should be applied to a variety of assets of the customers. And the tenure of the front rep, the average tenure is about 12 years now. Thank you very much for your comprehensive answers. Thank you.

Thank you very much for your question. Once again, for those who have questions, please press the asterisk and number one on your telephone if you want to ask a question. We are calling in questions right now. Thank you very much for your participation today. So we'll ask you for your continued support in this learning school at this point. Thank you very much for your participation.