Tightening Crypto Regulation And Rising Costs Will Erode Fundamentals

Key Takeaways

• Heavy exposure to crypto and digital assets, combined with tough global regulation, threatens SBI Holdings' profitability and increases earnings volatility.
  
• Digital disruption, costly global expansion, and slow legacy segments heighten risks of margin compression and weaker long-term revenue growth.
  
• Strong multi-segment growth, rapid digital and international expansion, and early moves in alternative assets and Web3 position SBI Holdings for resilient, diversified, and long-term profitability.

Catalysts

Engages in the online securities and investment businesses in Japn and Saudi Arabia.

• Ongoing worldwide regulatory tightening on crypto, alternative assets, and fintech operations is set to increase compliance costs, restrict new business launches, and slow innovation across SBI Holdings' platforms. Given SBI's significant exposure to volatile digital assets, digital banking, and cross-border financial initiatives, mounting regulation is likely to directly dampen net margins and suppress future revenue growth.
  
• Increasing global digital disruption and widespread fintech disintermediation threaten the long-term relevance and fee streams from SBI's core banking, asset management, and brokerage segments. The company's push into new digital and media ecosystems, while ambitious, could accelerate margin compression as customer acquisition costs rise, legacy revenue streams erode, and price competition intensifies-with negative implications for both top-line growth and long-term profitability.
  
• Overreliance on the cryptocurrency and digital asset sector-including heavy investments in entities like Ripple, B2C2, and SBI VC Trade-creates substantial earnings volatility and risk of impairment losses. As regulatory, technological, and competitive headwinds mount in global crypto markets, sharp declines in crypto valuations or unsuccessful monetization efforts could materially reduce net income and return on equity over the next several years.
  
• Aggressive international expansion and serial M&A activity, especially across Southeast Asia, Russia, and new ventures like Solaris in Germany, exposes SBI Holdings to uneven integration, unpredictable local market risk, and potential writedowns if synergies fail to materialize. Sustainably replicating Japanese growth abroad is uncertain, and unsuccessful overseas operations would pressure group earnings and dilute overall profit margins.
  
• Prolonged low interest rate environments caused by global demographic aging and subdued inflation-particularly in Japan and key Asian markets-will continue to compress net interest margins and limit traditional lending income for SBI's substantial banking operations. Unless the macro backdrop improves substantially, future revenue and bottom-line growth are likely to underwhelm current high market expectations.

SBI Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on SBI Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming SBI Holdings's revenue will grow by 1.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 11.2% today to 9.1% in 3 years time.
• The bearish analysts expect earnings to reach ¥135.4 billion (and earnings per share of ¥447.21) by about July 2028, down from ¥162.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from 12.2x today. This future PE is greater than the current PE for the JP Capital Markets industry at 13.3x.
• Analysts expect the number of shares outstanding to grow by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.99%, as per the Simply Wall St company report.

SBI Holdings Future Earnings Per Share Growth

Risks

• The strong, consistent growth across SBI Holdings' financial services, asset management, and securities businesses-demonstrated by double-digit revenue and profit increases, record results in multiple segments, and robust ROE-suggests persistent top-line and earnings expansion, which may boost investor sentiment and share price in the long term.
  
• Aggressive expansion into alternative investments, digital assets, and global asset management-supported by partnerships with renowned players (e.g., Franklin Templeton, KKR, Man Group)-positions SBI to capture secular growth in alternative and digital asset demand, underpinning resilient revenue streams and potential margin uplift.
  
• The Group's ambitious medium-term vision, targeting a customer base of 100 million and more than 250% profit growth by 2028 through organic growth and continued M&A, provides a strong narrative and credible roadmap for substantial value creation, supporting long-term earnings and market capitalization growth.
  
• Rapid internationalization-expanding in Southeast Asia, the Middle East, and Australia, increasing overseas profit share (targeting 30%), and leveraging localized partnerships-diversifies earnings, reduces dependence on Japan's domestic market, and mitigates volatility from local economic fluctuations, thereby enhancing overall revenue and net profit stability.
  
• Early investments and ecosystem-building in Web3, blockchain, and crypto (with ties to players like Ripple and Circle, and the creation of new digital asset-related businesses) enable SBI Holdings to remain at the forefront of secular digital transformation in finance, which could drive new fee-based and recurring revenues, higher cross-selling, and improved long-run profitability.

Valuation

• The assumed bearish price target for SBI Holdings is ¥4130.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SBI Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥6610.0, and the most bearish reporting a price target of just ¥4130.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ¥1492.4 billion, earnings will come to ¥135.4 billion, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 11.0%.
• Given the current share price of ¥5978.0, the bearish analyst price target of ¥4130.0 is 44.7% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.