Zenkoku Hosho Q1 FY2027: Net Profit Up 9.4% on Higher Investment Income

Zenkoku Hosho reported first-quarter results for FY2027, with operating revenue up 2.5% year-on-year to ¥11.77 billion. Net profit attributable to parent company shareholders rose 9.4% to ¥6.56 billion. Operating profit edged 0.1% higher to ¥7.72 billion, but non-operating income soared 58.6% to ¥1.85 billion on higher investment returns and equity-method gains, lifting recurring profit 7.9% to ¥9.34 billion.

Guarantee obligations outstanding reached ¥21.58 trillion at the end of June 2026, aided by new guarantees and inorganic M&A growth. Operating expenses increased 7.4% to ¥4.05 billion, with credit-related costs (provision for guarantee loss reserves) up 25.1% to ¥1.32 billion. Rising mortgage rates have not significantly affected the subrogation rate and are instead boosting financial institutions' demand for external guarantees.

Zenkoku Hosho operates a single credit guarantee segment centered on mortgages. The bulk of operating revenue comes from guarantee fees charged to financial institutions, supplemented by investment income in non-operating revenue. Guarantee fee income grew alongside the outstanding guarantee balance.

Operating expenses totaled ¥4.05 billion (up 7.4% year-on-year), including ¥1.32 billion in provision for guarantee loss reserves (up 25.1%), ¥623 million in personnel expenses (up 6.8%), and ¥2.36 billion in other expenses (up 8.0%). The pace of credit cost increases is easing, with full-year credit costs projected at ¥6.0 billion, up 8.1% from the previous year.

Non-operating income surged 58.6% to ¥1.85 billion, driven by higher interest and dividend income as the company replaced maturing held-to-maturity bonds in a rising rate environment. With over ¥400 billion in unearned guarantee fee income and required capital, the company expects improved portfolio yields to boost future earnings.

Total assets at June 30, 2026, were ¥493.71 billion, down 1.4% from a year earlier. Current assets fell 6.0% to ¥123.02 billion mainly due to a decline in securities, but investment securities rose 3.2% to ¥319.03 billion, keeping fixed assets nearly flat. Liabilities decreased 1.9% to ¥250.74 billion on lower tax payables, while net assets stood at ¥242.97 billion, yielding a solid equity ratio of 49.2%.

On shareholder returns, Zenkoku Hosho raised its FY2027 dividend forecast to ¥123 per share, up 2.5% from ¥120, maintaining a 50% payout ratio. The company also plans to conduct share buybacks flexibly. ROE is targeted at 14%, up from 13.4% in the previous year, driven by growth in guarantee obligations and improved asset management efficiency.

Rising interest rates are a net positive, and while a sharp increase in subrogation rates is unlikely given the 125% rule on variable-rate mortgages, prolonged economic downturns or worsening employment could raise credit costs. Corporate bankruptcies are trending up amid inflation and higher labor costs, and a spillover to household income and mortgage repayments cannot be ruled out. A persistent slump in new housing starts could slow organic growth in guarantee obligations; while the company is compensating by gaining share in existing home sales and loans (M&A, ABL, etc.), competition may intensify. Stricter lending standards or regulatory changes could also affect guarantee demand.

For the full year ending March 2027, Zenkoku Hosho forecasts operating revenue of ¥60.6 billion (up 3.2% year-on-year), operating profit of ¥42.0 billion (up 1.5%), and net profit attributable to parent company shareholders of ¥32.7 billion (up 0.5%). The modest operating profit growth reflects a one-time ¥900 million expense related to a new stock-based compensation trust and higher operating costs, including an 8.1% rise in credit-related expenses. Non-operating income will be supported by investment gains from rising rates, offsetting the absence of negative goodwill.

Guarantee obligations outstanding are planned at ¥22.5 trillion by March 2027 (up 5.0% from March 2026), with new guarantee execution of ¥1.96 trillion (up 2.1%). Credit-related costs are expected to be held to ¥6.0 billion (up 8.1%), assuming low subrogation rates.

On July 31, 2026, Zenkoku Hosho acquired shares in Chubu Nippon Sogo Shinyo Co., Ltd., making it an equity-method affiliate. This adds ¥241.0 billion to guarantee obligations (based on its stake) out of the company's total ¥625.9 billion guarantee portfolio, accelerating inorganic growth. The deal is also expected to strengthen relationships with regional banks in the Chubu area.

The company continues to expand in the existing mortgage market through diverse methods, including ABL lending, RMBS (totaling ¥1.768 trillion) and loss compensation contracts (¥374.1 billion); cumulative inorganic acquisitions now stand at 7 companies and ¥1.5207 trillion.

Additionally, Zenkoku Hosho launched a new collaboration with IntelliX Holdings group companies (IntelliX and FLIE) and Rakuten Bank to assist prospective home buyers in assessing borrowing capacity and loan screening prospects at the property selection stage, reducing anxiety around financing for pre-owned homes. This is expected to facilitate real estate transactions and expand Zenkoku Hosho's guarantee opportunities.