Performance Trend 1. Overview of performance for FY3/2024 Consolidated performance for FY3/2024 of G-7 Holdings <7508> was 192,992 million yen in increased operating income of 9.1% over the previous year, and increased ordinary income of 7.4% to 7,318 million yen, and attributed to the parent company's net income of 5,175 million yen, an increase of 35.3% over the previous year. Sales were driven by the Business Supermarket Business and the Meat Business, and continued to set a new record high, exceeding the company's plan by 4.3%. However, in terms of profits, the automobile-related business was affected by a decrease in profits due to poor sales of winter tires due to a warm winter, and could not reach the company's plan, it turned to a profit increase for the second time due to the growth of other businesses centered on the Business Supermarket business. The sales cost ratio has increased by 0.8 points over the previous year due to changes in the sales composition ratio; however, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main reasons for the increase/decrease of selling, general and administrative expenses were a decrease of 600 million yen in energy costs due to subsidies from rising electricity prices, and an increase of 1 billion yen in labor costs due to improvements in employee treatment and increased education costs. In addition to this, depreciation expenses increased by nearly 600 million yen due to rising construction material costs and rising costs of opening stores etc. The EBITDA margin has increased by 0.1 points from the previous year. Also, the reason for the large increase in the net income of the parent company's shareholders attributable to the current period is due to the elimination of 500 million yen in retirement benefits paid to executives that were recorded as special losses in the previous year, a decrease of 455 million yen in impairment losses, and a gain of 127 million yen on the sale of investment securities in FY3/2024.
Performance summary for the first quarter of the fiscal year ending in December 2024.
J-Trust's first quarter of the fiscal year ending in December 2024 saw operating revenue of 31,554 million yen (+21.2% year-on-year), operating loss of 281 million yen (compared to profit of 10,135 million yen in the same period last year), pre-tax profit of 563 million yen (-94.8% year-on-year), and quarterly profit attributable to owners of the parent company of 38 million yen (-99.6% year-on-year). Operating revenue was the highest ever for the first quarter. However, this was due to the recognition of negative goodwill gains of 10,113 million yen in the same period last year, which resulted in a significant decline in profit. Excluding this, the actual operating profit/loss was 303 million yen lower than the same period last year, but still exceeded the plan by 900 million yen. In the main financial three businesses, while the fourth quarter of the fiscal year ending in December 2023 saw an operating loss of 2,739 million yen, the first quarter of the fiscal year ending in December 2024 exceeded the plan with an operating profit of 1,203 million yen. This is due to the strong performance of the Japanese financial business, as well as significant improvement in the profit and loss of the Southeast Asian financial business. On the other hand, the Korean and Mongolian financial businesses recorded the planned operating losses, but we expect them to turn profitable in the latter half and to expand profits. In the fiscal year ending in December 2023, all revenue and profit items fell below expectations due to measures such as increasing allowance for doubtful accounts conservatively to prepare for future growth, but we believe that we have prepared for a restart toward a growth trajectory from the fiscal year ending in December 2024, and the results are already apparent in the first quarter.
Segment trends by business:
(1) Japanese Financial Business
Operating revenue for the first quarter of the fiscal year ending in December 2024 was 3,768 million yen (+23.4% year-on-year), and operating profit was 1,463 million yen (+66.4% year-on-year). Progress rates for full-year performance forecasts were 24.3% for operating revenue and 25.6% for operating profit, as planned. The Japanese financial business is believed to have entered a growth phase.
The total balance of debt guarantee was increased for nine consecutive quarters and reached 236.3 billion yen at the end of March 2024. Among the apartment loan guarantees, which account for 80% of the guarantee balance, the guarantee balance for used apartment loans, which began in November 2020, has increased steadily, pushing up the overall guarantee balance. The market is buoyant due to increased demand from wealthy individuals, and the shortage of guarantee companies for used apartment loans is said to be one of the reasons for the favorable situation. The guarantee balance is planned to increase to a total of 250 billion yen by the end of December 2024, of which 62.7 billion yen is for used apartment loans. In addition, the sales of luxury one-building apartments for investment, which are being promoted by J Grand Co., Ltd. (formerly Japan Funding Co., Ltd.) in the real estate business, are expected to contribute to a buildup of guarantee balance. Secured loan for wealthy individuals through cooperation between J Trust Global Securities, partner banks, and Japan Guarantee is also doing well, and the entrusted assets increased to 386.1 billion yen at the end of March 2024 and are planned to reach 430 billion yen by the end of December 2024. Moreover, with the growth of Nexus Card Co., Ltd. and the subsidiary of MIRAI Co., Ltd. (formerly Nishikyo Card Co., Ltd.), the balance of installment sales receivables also increased to 16.2 billion yen at the end of March 2024, contributing to the increase in guarantee balance for Japan Guarantee.
The outstanding accounts receivable for the entire service business increased to 995.9 billion yen at the end of March 2024. The reason for the rapid increase in balance was the acquisition of face value 71 billion yen in accounts receivable in the first quarter of the fiscal year ending in December 2024 by Partial Receivables Recovery Co., Ltd., which is making good progress in the handling of receivables. On the other hand, there was no significant movement in off-balance-sheet receivables (recoverable receivables) inherited by Japan Guarantee from TFK Co., Ltd. (formerly Takeshia Kogyo Co., Ltd.).
(2) Korean and Mongolian Financial Business
In the first quarter of the fiscal year ending in December 2024, the operating revenue was 1,193.9 million yen (+6.0% from the same period of the previous year), and the operating loss was 128.6 million yen (compared to a loss of 578 million yen in the same period of the previous year). The increase in interest income led to an increase in operating revenue. On the other hand, due to the continued lingering of the downturn in the South Korean economy, planned loan loss reserves were piled up, resulting in a decrease in revenue. However, the cost of stabilizing future performance can be considered. However, the operating loss in the first quarter was landed by compressing the planned value by 10 million yen. We expect to return to profitability from the latter half of the year as planned by implementing a comprehensive improvement of the business process and restructuring the management organization for credit management at two savings banks.
JT Dear Savings Bank, Inc. strategically suppressed lending to individuals to comply with BIS regulations and reduce non-performing loans, resulting in a decrease in outstanding loans to 247.1 billion yen at the end of March 2024. This was a result of emphasizing quality over quantity, as it was not a situation to step on the accelerator, given the unclear response of financial authorities. The non-performing loan ratio was 9.55% at the end of March 2024, but it has remained low at 2.88% net after deducting loan loss reserves. We have strengthened collection and monitoring by reorganizing the management organization, and expect the non-performing loan ratio to decrease in the future.
JT Savings Bank, Inc.'s outstanding loans remained almost flat at 219 billion yen at the end of March 2024. This was a result of prioritizing the improvement of the quality of loans and controlling the outstanding balance. The non-performing loan ratio rose to 7.50% at the end of March 2024, but remained low at 4.29% net after deducting loan loss reserves. Although the net non-performing loan ratio is higher than that of JT Dear Savings Bank, Inc., there is no problem because there are many real estate project finances for corporate lending, and collateral is set. We continue to focus on suppressing non-performing loans by strengthening collection and monitoring through the restructuring of the management organization.
(Written by FISCO guest analyst Nozomi Kokushige).