Regional and Independent Brokerages Q2 FY2027: Bull market widens profit gap

Four of the five firms increased revenue, with average sales of ¥28.94 billion, up 19.1% year on year. A buoyant stock market boosted commission income, but differences in trading and bond earnings separated the stronger performers from the weaker ones.

• More active stock trading: Commission and fee income at Okasan rose 44.9%, while stock brokerage commissions at Tokai Tokyo climbed 53.7%.
• Broader fee growth: Marusan Securities increased mutual fund sales commissions by 28.8% and trust fees by 24.9%. Kyokuto also lifted commission and fee income by 47.5%.
• Uneven market-related earnings: IwaiCosmo's stock trading gains grew 21.9%, while Kyokuto's trading gains fell 69.1%.
• Costs also rose: Selling, general and administrative expenses increased 11.8% at Okasan and 13.5% at IwaiCosmo, putting the ability to convert revenue growth into profit to the test.

Active stock trading was a common tailwind, but the effect on profits varied with each firm's revenue mix. The sector-wide challenge is to sustain earnings if market activity slows.

Okasan led in profit growth, while Kyokuto was the only firm among the five to report declines in both revenue and profit. Average operating profit was ¥7.64 billion and the average operating margin was 29.9%, but companies' ability to capture fee and market-related revenue drove a wide gap in profit growth.

• Okasan: Operating profit rose 136.6% year on year. Commission and fee income increased 44.9%, outpacing an 11.8% rise in selling, general and administrative expenses.
• Kyokuto: Operating profit fell 21.3%. Commission and fee income rose 47.5%, but trading gains declined 69.1%.
• IwaiCosmo: Operating profit grew 44.3%, and its key interim profit measure reached a record high. Stock trading gains also rose 21.9%.
• Marusan Securities: Operating profit increased 88.7%, as mutual fund commissions and trust fees grew, along with recurring revenue from assets under management.

Okasan's fee income grew faster than expenses, driving a sharp rise in profit. At Kyokuto, shrinking trading income, including bond-related earnings, wiped out the growth in fees. A high margin alone could not prevent a profit decline. IwaiCosmo, by contrast, grew both fee income and trading gains, underscoring how revenue diversification shaped results.

Alongside efforts to benefit from the stock market tailwind, the firms are working to broaden their customer bases and revenue sources. Several increased interim dividends, while some left full-year forecasts or year-end dividends undecided.

• Marusan Securities: The interim dividend was ¥36 per share, up ¥4 from a year earlier. It maintained a special dividend of ¥15 and grew recurring revenue, including trust fees on mutual funds.
• Tokai Tokyo: It raised its interim dividend to ¥25 per share from ¥22. The firm booked a ¥2.8 billion business transfer gain and is also strengthening research and developing digital asset management proposals.
• Okasan: It launched its first securities platform for regional banks and integrated management with the platform operator. The ordinary portions of its interim and year-end dividends remain uncertain alongside its full-year outlook.
• Kyokuto: Its interim dividend was unchanged at ¥50 per share. Sales commissions and trust fees from mutual funds helped lift commission and fee income.
• IwaiCosmo: It raised its interim dividend to ¥65 per share from ¥60. Its offerings include advisory sales of U.S. stocks and mutual funds ranging from beginner-focused products to those tied to advanced technologies.

Across the sector, firms are looking to build revenue from mutual funds and client assets alongside brokerage commissions. Okasan's regional bank platform and Marusan Securities' growth in trust fees are notable efforts to build customer relationships that do not depend solely on trading volumes.

The rising market boosted earnings, but uncertainty over full-year performance remains. Tokai Tokyo, Okasan and Kyokuto did not disclose full-year forecasts, citing market volatility, making it difficult to judge the outlook on the basis of short-term profit growth alone.

• Market swings: Commission income could slow if trading activity cools from current levels. The uncertainty is reflected in the absence of full-year forecasts from Tokai Tokyo, Okasan and Kyokuto.
• Bond and trading gains: Earnings can fluctuate with interest rates and market prices. The impact was especially clear at Kyokuto, where trading gains from bonds and other products fell sharply.
• Rising costs: Selling, general and administrative expenses increased at Okasan and IwaiCosmo. If revenue growth slows, the focus will be on whether higher costs put pressure on profit.
• Changing capital measures: Marusan Securities' equity ratio fell to 48.4% from 58.0% at the end of the previous fiscal year. Its regulatory capital adequacy ratio was 530.1%, and the two measures should be tracked separately.

The results show that profits can fall even when commission income rises, if other revenue items move against a company. Investors should examine revenue breakdowns and capital measures, while job seekers should consider both market-sensitive businesses and the work involved in building customer relationships.

Net income increased at Okasan, Tokai Tokyo, IwaiCosmo and Marusan Securities, but declined at Kyokuto. The industry average was up 37.3% year on year, but differences in extraordinary items mean investors should also compare net income with operating profit growth.

Tokai Tokyo booked a business transfer gain in the current period, while it had recorded gains on sales of investment securities a year earlier. At Marusan Securities, net income grew more slowly than operating profit, reflecting the decline in extraordinary gains from the prior-year period and a higher tax burden. Assessing the durability of profit growth requires separating recurring commission income at the operating level from one-off gains and losses.

The results show that securities firms do more than arrange stock trades. Across the group, firms are seeking to turn long-term customer relationships into revenue through mutual fund advice, growth in assets under management and partnerships with regional banks.

• Sales and client advice: IwaiCosmo expanded advisory sales of U.S. stocks and its range of mutual funds. At Marusan Securities, both mutual fund sales commissions and trust fees increased.
• Research and information: Marusan Securities is focusing on information related to semiconductors and data centers, while Tokai Tokyo has pledged to strengthen its research capabilities.
• Digital and corporate partnerships: Tokai Tokyo is developing digital asset management proposals, while Okasan has rolled out a securities platform for regional banks.

When markets are active, commission income and trading gains tend to rise, but earnings at some firms remain sensitive to market conditions. Job seekers should look at how each firm's work in client advice, research, digital services and corporate platforms can help stabilize revenue.