Wealth Management And Global Investment Banking Will Drive Future Success

Key Takeaways

• Wealth management and investment banking growth, driven by increased customer inflows and M&A activity, likely boosts future revenue and ordinary income.
  
• Share repurchase program and alternative asset management focus could enhance earnings per share and stabilize long-term profits.
  
• Daiwa's challenges in profitability, investment strategy risks, and dependency on market stability expose it to potential revenue volatility and profitability issues.

Catalysts

Operates in the financial and capital markets in Japan and internationally.

• Daiwa Securities Group's wealth management division is experiencing a strong net increase in customer inflows, driven by effective asset consulting and investment in private assets, which is likely to boost future asset-based revenue.
  
• The group is focusing on maximizing customer asset value through comprehensive portfolio proposals, enhancing earnings by reducing market dependency, potentially improving net margins.
  
• Global Investment Banking has seen robust growth in M&A revenues, equity underwriting, and large-scale deals, which may drive future revenue and ordinary income growth.
  
• The implementation of a share repurchase program up to ¥50 billion, a record high, complements dividend payouts and could significantly enhance EPS.
  
• Despite short-term challenges, the company's alternative asset management division focuses on renewable energy and data centers, aiming for long-term profit growth, which could positively impact earnings stability.

Daiwa Securities Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Daiwa Securities Group's revenue will grow by 23.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 20.2% today to 10.5% in 3 years time.
• Analysts expect earnings to reach ¥150.4 billion (and earnings per share of ¥112.3) by about May 2028, down from ¥154.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from 8.6x today. This future PE is greater than the current PE for the JP Capital Markets industry at 12.5x.
• Analysts expect the number of shares outstanding to grow by 0.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.39%, as per the Simply Wall St company report.

Daiwa Securities Group Future Earnings Per Share Growth

Risks

• The decline in ordinary income by 19.1% indicates that Daiwa Securities Group is experiencing challenges in maintaining profitability, which could impact future earnings.
  
• The Alternative Asset Management segment reported losses due to impairments and revaluations, highlighting potential risks in their investment strategies affecting future profits.
  
• The decrease in trading revenues in FICC, both domestically and overseas, reflects volatility and investor caution, which could hinder revenue growth in the Global Markets division.
  
• Daiwa's overseas operations reported a decrease in ordinary income of 25.4% year-on-year, suggesting potential revenue and profitability issues in those markets.
  
• The company's reliance on market stability for key revenue-driving sectors, like Wealth Management and Investment Banking, subjects it to risks from external economic factors, which could lead to fluctuations in net margins and overall earnings.

Valuation

• The analysts have a consensus price target of ¥1130.0 for Daiwa Securities Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥1350.0, and the most bearish reporting a price target of just ¥980.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥1429.0 billion, earnings will come to ¥150.4 billion, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of ¥934.2, the analyst price target of ¥1130.0 is 17.3% higher.
  
• 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.