CCI Group Q2 FY2027: Net profit jumps 69%, outlook raised

CCI Group reported higher revenue and profit for the first half of FY2027. Ordinary revenue rose 32.7% year on year to ¥71.2 billion, ordinary profit increased 24.2% to ¥15.3 billion, and net profit attributable to owners of the parent climbed 68.6% to ¥13.6 billion. Higher interest income, against a backdrop of rising rates, expanded net interest income and supported earnings growth.

The year-on-year change in ordinary profit, viewed through the main items in a financial institution's income statement, was as follows.

• Main earnings driver: Consolidated gross operating profit rose ¥9.0 billion year on year. Higher interest on loans and interest and dividends on securities expanded net interest income.
• Factors weighing on profit: Gains on stocks and other securities turned into losses, a deterioration of about ¥6.0 billion from a year earlier. Higher losses on sales of government bonds and other debt securities also pushed other operating income into deficit.
• Costs and credit-related items: Operating expenses increased from a year earlier, while expenses for loan write-offs and allowance for loan losses declined.

Higher pretax profit contributed to the increase in first-half net income. The tax adjustment also reduced the tax burden compared with a year earlier. Comprehensive income moved in the opposite direction, falling 17.1% year on year to ¥28.8 billion. Investors will also want to monitor movements outside the income statement, including valuation differences on stocks and bonds.

The banking business posted higher profit, while leasing revenue increased but profit declined. The banking business was the main contributor to the group's overall profit growth, with a much stronger year-on-year change in ordinary profit than leasing.

Banking: Ordinary revenue rose 36.9% year on year and segment profit increased 25.8%. Higher interest on loans and interest and dividends on securities expanded net interest income as rates rose. Growth in loans also supported revenue, with business lending and other financing increasing amid a recovery in the regional economy and corporate capital investment.

Leasing: Ordinary revenue increased 7.1% year on year, but segment profit fell 64.8%. The earnings release did not specify the reasons for the decline. With profit falling despite higher revenue, cost trends and profitability warrant monitoring in the next quarter.

• Other: Ordinary revenue and profit both increased year on year. The group changed its segment classification, separating sports and entertainment from the banking reportable segment, and recast prior-year segment data to match the new classification.

The banking segment includes banking services as well as credit guarantees, cards and consulting. The pace of interest income growth, deposit rate increases and gains or losses from securities investments will all shape future profit growth.

Total assets declined from the end of the previous fiscal year at the interim period-end, while loans and net assets increased. CCI Group raised its dividend forecast, signaling an enhanced shareholder return policy.

The full-year dividend forecast comprises an interim dividend of ¥15 and a year-end dividend of ¥20. CCI Group revised its dividend forecast alongside its earnings outlook, raising it from the previous forecast, although the latest earnings release did not state the previous forecast amount. The company also acquired treasury stock, but the release did not describe a buyback plan with a specified limit or period.

Deposits and negotiable certificates of deposit fell ¥185.7 billion from the end of the previous fiscal year, while loans increased ¥111.5 billion. Securities also declined ¥383.7 billion, making changes in the asset mix worth monitoring. The earnings release did not include cash flow statement figures, so a separate document is needed to assess cash movements.

CCI Group revised its FY2027 forecast to ordinary profit of ¥26.5 billion and net income attributable to owners of the parent of ¥19.0 billion. Both figures imply year-on-year growth. The company also raised its dividend forecast following the earnings outlook revision.

First-half ordinary profit equaled about 57.9% of the full-year forecast, while net profit represented about 71.9%. But market investments and bond sales can cause earnings to fluctuate in the second half for a bank, so it is too early to judge full-year performance based on interim progress alone. CCI Group provided details on the reasons for its forecast revisions in a separate notice issued the same day, titled 'Revision of Full-Year Earnings Forecast and Dividend Forecast (Increase).'

The regional economy has shown signs of recovery, but shifts in prices, interest rates and overseas conditions could affect businesses, households and the bank's investment activities. Higher rates can boost interest income, while also affecting deposit funding costs and bond valuations.

• Higher deposit rates: Interest paid on deposits increased from a year earlier. If funding costs rise faster than lending rates or yields on securities improve, the expansion in net interest margins could slow.
• Bond and market investment volatility: Losses on sales of government bonds and other debt securities increased, leaving other operating income in deficit. Changes in interest rates and share prices can affect realized gains and losses as well as the valuation of securities held.
• Operating conditions for regional businesses: Persistently high raw material and energy prices, labor shortages and uncertainty about the global economy could pressure regional companies' earnings. Weaker repayment capacity could lead to higher credit costs.
• Disclosed claims: Claims disclosed under the Financial Revitalization Act stood at 2.14% of total credit exposure, up 0.20 percentage point from the end of the previous fiscal year. Trends in loan management and provisions for loan losses warrant continued attention.

CCI Group described both the Japanese and local economies as recovering gradually or showing signs of improvement, while also flagging uncertainty ahead. Assessing the outlook will require tracking together the earnings boost from higher rates and changes in funding costs, market gains and losses, and credit costs.