Zenkoku Hosho (7164) 1Q results: Inorganic investment contribution and operating expenses better than our estimate

Research evidence excerpt

J P M O R G A N

Asia Pacific Equity Research

06 August 2026

Zenkoku Hosho (7164)

1Q results: Inorganic investment contribution and

operating expenses better than our estimate

Somewhat positive: 1Q FY2026 net profit rose 9% YoY to ¥6.6 billion, materially

beating our estimate (¥5.6 billion). The top line came in as expected, but operating

expenses and equity-method investment income/loss were better than we had

forecast. The stronger-than-expected equity-method investment in 1Q reflects

contributions from inorganic investments that are not incorporated in guidance.

However, we do not think the magnitude is large enough to meaningfully lift fullyear net profit guidance. Management maintained FY2026 net profit guidance.

Stable growth in operating revenue: YoY operating revenue growth was

+2.5% in 2Q FY2025, +2.7% in 3Q FY2025, +1.9% in 4Q FY2025, and +2.5%

in 1Q FY2026. Business momentum was solid, with the amount of new

guarantees granted up 14% YoY in 1Q, a good start versus full-year guidance

of +2% YoY. In operating expenses, expenses related to credit rose +6.5% YoY,

labor costs +6.8% YoY, and other expenses +8.0% YoY. Management plans to

record a provision (¥0.9 billion) for benefit payments covering a five-year

period following the introduction of the employee stock ownership plan at

some point during FY2026, and we had assumed this would be booked in 1Q.

However, this one-off cost did not arise in 1Q, which is a key reason 1Q profit

exceeded our forecast. 1Q net profit represents 20% progress versus full-year

guidance. We note the seasonality of the company’s earnings, with profits

typically higher in 4Q.

Guidance for usable capital as of end-March 2027 is ¥32.2 billion:

Management explained that usable capital stood at ¥28.3 billion as of endMarch 2026. If profits reach FY2026 guidance, it expects usable capital to

increase to ¥32.2 billion by end-March 2027. There has been no buyback

announcement as the 1Q announcement, following the full-year results in May.

However, management highlights two uses of usable capital: (1) investment in

housing-related fields (hurdle rate of 10%+) and (2) flexible share buybacks

when capital is unused.…