COMPANY RESEARCH AND ANALYSIS REPORT

Japan Securities Finance Co., Ltd.
8511
Tokyo Stock Exchange First Section

28-Dec.-2018
FISCO Ltd. Analyst

Nozomu Kunishige

FISCO Ltd.
http://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Decreases in revenues and income in the FY3/19 1H results ......................................................................

01

2. Slightly revised the FY3/19 full-year results estimates . ...............................................................................

01

3. Strengthening existing businesses and meeting new transaction needs domestically andoverseas through the 5th Mid-term Management Plan. ...............................................................................

02■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Company profile.. ................................... ......................................................................................................

03

2. History................................................... ......................................................................................................

04

3. Business activities.. ................................ ......................................................................................................

05■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 06
1. Securities Finance Business ................. ......................................................................................................

06

2. Trust Business.. ...................................... ......................................................................................................

08

3. Real Estate Management Business. . ...... ......................................................................................................

09■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Summary of FY3/19 1H results.............. ......................................................................................................

09

2. Financial position and management indicators. ...........................................................................................

12■Business outlook-------------------------------------------------------------------------------------------------------------------------------------------------------- 13■Medium- to long-term growth strategy------------------------------------------------------------------------------------------------ 15
1. New medium-term management plan..........................................................................................................

15

2. Specific strategies.. ......................................................................................................................................

16■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 18■Information security measures--------------------------------------------------------------------------------------------------------------------- 19

We encourage readers to review our complete legal statement on “Disclaimer” page.

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/██Summary
Aiming to contribute to the development of securities markets andfurther improvement of enterprise value
Japan Securities Finance Co., Ltd. <8511> (hereafter “the Company”), which is listed on the First Section of theTokyo Stock Exchange (TSE), is a highly public financial institution that plays a role in lending transactions carriedout on securities exchanges. It has upwardly revised its FY3/19 full-year results estimates to reflect the strong resultsin 1H. Based on the 5th Mid-term Management Plan (FY2017 to FY2019), the Company and its group companies(hereafter “the Group”) are aiming to continue to contribute to the development of securities markets and further
improvement of enterprise value.
1. Decreases in revenues and income in the FY3/19 1H results
Reflecting the economic uncertainty, the balance of standardized margin transactions on the TSE in FY3/19 1H
trended at a low level. In addition, although the balance of loans for margin transactions and the margin loan balanceexceeded the levels of the previous year, the levels of the July-September period were below those of the previous
year, and a situation continued in which the stock loan balance was below the level of the previous year throughout
the period. As a result, due to factors including the decline in fees on lending securities in the margin loans business,consolidated revenues and profits decreased, resulting in operating revenues of ¥12,052mn (down 6.6% year on year
(YoY)), operating income of ¥2,226mn (down 8.0%), recurring income of ¥2,695mn (down 1.0%), and net income
attributable to owners of parent of ¥1,946mn (down 12.6%).
2. Slightly revised the FY3/19 full-year results estimates
The results of the Group’s Securities Finance Business, which is its main business, are greatly affected by various
trends, such as in market conditions and interest rates. Therefore, instead of results forecasts, it discloses results
estimates calculated from the assumptions for the balance of loans for margin transactions and other items at thatpoint in time. Based on the results up to 1H, for the average balance of loans for margin transactions for the full
fiscal year, which is the precondition for the results estimates, the Company has set estimates of ¥310bn for marginloans (down ¥30bn from the previous estimate) and ¥250bn for stock loans (unchanged), and while it still expects
the declines in revenues and profits to continue, it maintains and has slightly upwardly revised its estimates forconsolidated operating income of ¥3,600mn (unchanged), recurring income of ¥4,500mn (unchanged), and net
income attributable to owners of parent of ¥3,200mn (up ¥100mn). It has left unchanged the previous forecast ofan annual dividend of ¥22 (interim dividend of ¥11 and a period-end dividend of ¥11), for an expected dividend
payout ratio of 64.9%.

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01 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Summary

3. Strengthening existing businesses and meeting new transaction needs domestically and overseas
through the 5th Mid-term Management Plan
Based on the 5th Mid-term Management Plan for FY2017 to FY2019, the Company is utilizing its management
capabilities in financing- and securities-related businesses, the high level of creditworthiness it has cultivated up
to the present time, and its neutrality in the markets as it works to strengthen its margin loans business and otherexisting businesses and actively strives to meet new transaction needs domestically and overseas. In this way, it isconsidered that it is aiming to make its existing foundation even stronger and to respond to the confidence that themarkets and investors place in it. Specifically, it has set seven targets in the plan, including enhancing the marginloans business as part of the securities market infrastructure, flexibly addressing the needs of domestic and foreign
financial instruments companies, and developing new businesses, and it is aiming to further improve enterprise value.
Key Points
Reflecting the lack of strength in the stock markets, revenues and profits declined in FY3/19 1H, due in part toa drop in revenues from the margin loans business.
• FY3/19 full-year results estimates call for consolidated recurring income of ¥4,500mn (unchanged from theprevious estimate) and net income attributable to owners of parent of ¥3,200mn (up ¥100mn), while the annual
dividend forecast is ¥22 (unchanged).
• Seven targets were established in the 5th Mid-term Management Plan (FY2017 to FY2019) with the aims ofstrengthening existing businesses and meeting new transaction needs domestically and overseas.
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Source: Prepared by FISCO from the Company's financial results

We encourage readers to review our complete legal statement on “Disclaimer” page.

02 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/██Company profile
A highly public and neutral financial institution that plays a role inmargin transactions
1. Company profile
The Company is a highly public and neutral financial institution that has received designations from various stock
exchanges and plays a role in providing loans for margin transactions on those exchanges. The margin loans
business, which is its main business, can only be conducted by securities finance companies that have been
licensed to do so based on the Financial Instruments and Exchange Law, and they lend to securities companies
the funds and stocks needed to settle standardized margin transactions. Furthermore, the Company is developing
a securities-secured loan business for individuals that utilizes the Internet.
The Group consists of two wholly owned consolidated subsidiaries of the Company: JSF Trust and Banking Co., Ltd.
(JSF Trust Bank), which carries out a trust business (including trusts for the separate management of customers’
money and securities and securities trusts) and a banking business (including deposits and loans), and Nihon
Building Co., Ltd., which leases and manages the real estate owned by the Group. The Company also holds
approximately 20% stake in two equity-method affiliates, Japan Information Processing Service Co., Ltd. and JSF
Information Technology Co., Ltd. (JSFIT), which provides information processing and other services.
Group companies

Source: Company's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

03 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Company profile

2. History
During the reopening of the stock markets after the Second World War, in order to introduce anticipated demandand supply that would expand trading, the margin transactions and margin loans system was created, and securities
finance companies were established at each stock exchange. However, because there was little trading volume on
the regional stock exchanges and management conditions were severe for regional securities finance companies,
they were consolidated into the Company and (at that time) Osaka Securities Finance Co., Ltd. Together with Chubu
Securities Financing Co., Ltd. of Nagoya, these three securities finance companies coexisted for a long time. But
upon the management integration of the TSE and the Osaka Stock Exchange in 2013, the Company merged with
Osaka Securities Finance with the objectives of improving convenience for stock market participants and investors
and raising market efficiency. Moreover, in 2017, Chubu Securities Financing, which had been conducting a marginloans business on the Nagoya Stock Exchange, decided to voluntarily close its business, so these three securities
finance companies consolidated into one company, Japan Securities Finance. Currently, the Company is conducting
its margin loans business on all four of Japan’s stock exchanges in Tokyo, Nagoya, Sapporo, and Fukuoka.
The Company was newly established in 1950 and listed on the TSE. Following the creation of the margin transaction
system in 1951, it started the margin loans business, which is its main business. Subsequently, in 1977, it launched
the general stock loans business for the lending of stock certificates to securities companies separate from marginloans. In 1985, it launched a secured collateral loans business, in which loans were collateralized by the securities
held by customers of securities companies, and then in 1989, it started a brokerage business for bond lendingtransactions, with securities companies and financial institutions as counterparties to the transactions. It established
JSF Trust Bank in 1998, started the margin loans business for the JASDAQ market in 2004, and began lending tosecurities companies the funds necessary to settle negotiable margin transactions in 2005. In this way, the Company
has expanded the scope of its business. In 2013, it merged with Osaka Securities Finance, and moreover in 2017,
it inherited the margin loans business of the dissolved Chubu Securities Financing, and the Company is continuing
to grow and develop as the only currently surviving securities finance company in Japan.

We encourage readers to review our complete legal statement on “Disclaimer” page.

04 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.

28-Dec.-2018

8511 Tokyo Stock Exchange First Section

http://www.jsf.co.jp/english/ir/

Company profile

HistoryYear

Major events

1927

Established as Tokabu Daiko Co., Ltd.

1943

Name changed to Tokyo Securities Co., Ltd.

1949

Name changed to Japan Securities Finance Co., Ltd.

1950

Launched operations as a specialized securities finance institution
Began current account transactions with the Bank of Japan (BOJ) and listed on the Tokyo Stock Exchange
Launched lending business as a transitional measure prior to the introduction of a margin transaction system

1951

Launched loans for margin transactions with the establishment of a margin transaction system

1955

Established branch offices by acquiring the complete operations of securities finance companies in Hokkaido, Niigata, and Fukuoka

1956

Granted license according to the Securities and Exchange Law

1960

Launched business in loans secured by bonds

1967

Launched revolving credit line lending of short-term working funds to securities companies

1968

Launched bond financing business with the aim of facilitating bond underwriting and circulation1977

Launched general stock lending business to lend stock certificates to securities companies separate from the margin transaction business
Launched BOJ agency business after designation by the BOJ as a government bond principal and interest payment agent

1979

Launched agency services for a portion of BOJ operations following the establishment of the substitute certificate system for registeredbond system for bond financing

1985

Launched secured loans on securities using a revolving credit line format that accepts securities deposited by customers at a securities
company as collateral

1987

Launched trading via the JSF Online System after developing a network among securities companies

1989

Launched bond borrowing and lending transactions with securities companies and financial institutions as customers

1996

Launched cash-collateral bond borrowing and lending transactions

1998

Established JSF Trust and Banking Co., Ltd.

2000

Launched securities business limited to Gensaki for treasury bills, etc

2002

Launched e Stock Lending, a stock borrowing and lending transaction system
Began handling “new” Gensaki

2003

Increased capital in JSF Trust and Banking Co., Ltd

2004

Launched margin loans business for the JASDAQ market
Renewed the JSF Online System and launched trading via JSFNET

2005

Launched the loans for negotiable margin transaction business2013

Merged with Osaka Securities Finance Company, Ltd.

2017

Launched margin loans business for the Nagoya Stock Exchange

Source: Prepared by FISCO from Company materials

3. Business activities
The Group’s businesses are divided into three segments: the Securities Finance Business conducted by theCompany and the Trust Business and Real Estate Management Business conducted by its two subsidiaries. The
Securities Finance Business is further divided into the margin loans business, general loans business, securities
lending business, and others. Looking at the composition of total operating revenues by business in FY3/19 1H(excluding premium charges), the margin loans business provided 22.1%, general loans business 7.0%, securities
lending business 34.8%, and others 16.9%, meaning that the Securities Finance Business contributed 80.8% of
the Group’s total revenues. The Trust Business contributed 14.5% and Real Estate Management Business 4.7%.

We encourage readers to review our complete legal statement on “Disclaimer” page.

05 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Company profile

Composition of operating revenues by business (FY3/19 1H: ¥9,428mn)
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Source: Prepared by FISCO from the Company's results briefing materials██Business overview
Main business is the Securities Finance Business, centered on themargin loans business1. Securities Finance Business
The Securities Finance Business, which is conducted by the Company itself, contributed 80.8% of FY3/19 1H
consolidated operating revenues (excluding premium charges). The Securities Finance Business is divided into themargin loans business, general loans business, securities lending business, and others.
(1) Margin loans businessThis is the Group’s core business and it contributed 22.1% of consolidated operating revenues (39.1% including
premium charges). It involves the lending to securities companies of the funds and stock certificates necessary
to settle standardized margin transactions.
In a margin transaction, investors buy and sell stocks by depositing a certain amount of collateral (margin money)
to a securities company and borrowing from the securities company the funds to buy the stock they wish to holdor sell. This system enables investors to buy stocks of an amount greater than their cash on hand or sell stocks
that they do not own, which adds to the expanse of trading and contributes to the smooth circulation of stocks
and formation of appropriate prices.

We encourage readers to review our complete legal statement on “Disclaimer” page.

06 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Business overview

There are two types of margin transactions: standardized margin transactions and negotiable margin transactions.
In a standardized margin transaction, aspects such as premium charges and a term of repayment are stipulatedby the stock exchange, and securities companies can borrow from the Company the stock certificates to be soldor the funds for the purchase that they need to settle the transaction (the margin loan). On the other hand, in anegotiable margin transaction, the customer and the securities company can freely set transaction conditions,but securities companies cannot use margin loans to settle negotiable margin transactions.
In this way, margin loans are a transaction in which the Company receives a certain amount of collateral for a loan
from a securities company, which trades on a stock exchange, and in return it loans to them the funds or stocks
needed for a standardized margin transaction. These transactions are carried out through the stock exchange’s
clearing corporation.
The Company receives an application for a loan for each issue from the securities company on the trading dateof the standardized margin transaction. For the execution of the loan, instead of the securities company, theCompany transfers the funds for the purchase of the stock to be held or sold to the clearing corporation of thestock exchange. In return, it receives a purchased stock certificate (collateral stock certificate in the case of aloan) or a sales fee (collateral money for a stock loan), which it allocates to the collateral for each respective loan,
and the transaction is completed.
In the event that the Company cannot cover applications for margin loans or stock loans from securities companies
using its collateral stock or money from internal holdings, it responds through methods such as raising funds fromthe call market or elsewhere or borrowing the stock in question from institutional or other investors.
Structure of margin transactions and loans for margin transactions

Source: Company's results briefing materials

For the Company, its main revenues are interest on loans (loan rate, currently 0.60%) and fees on lending securities(stock lending fees, 0.40%). But affected by the long-term super monetary easing policy, the loan rate is at ahistorically low level.

We encourage readers to review our complete legal statement on “Disclaimer” page.

07 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Business overview

Interest rate for loans for margin transactions

Source: Company's results briefing materials(2) General loans businessThis business involves lending to securities companies, such as for working capital, and also to individuals andgeneral business corporations via the Internet, using securities as the collateral. It contributes 7.0% of consolidated
operating revenues.
(3) Securities lending businessThis business involves brokerage operations on the government bonds lending and borrowing markets and lendingof stocks necessary to settle trades. It contributes 34.8% of consolidated operating revenues. The lenders aremainly securities companies and the borrowers are institutional investors, such as life and non-life insurancecompanies.
(4) Others
Others include the management of government bonds and other securities, and it contributes 16.9% of consolidated operating revenues.
2. Trust Business
Since its establishment in 1998, JSF Trust Bank, which is the Company’s wholly owned subsidiary, has been focusing
on trusts to protect customer assets for individual investors and others, in order to protect the money and otherassets they have deposited with securities companies, FX traders, commodity futures traders, and others. Also, in
recent years, it has been accumulating a track record for the acceptance of ABL (asset backed loan) trusts basedon introductions by securities companies. In addition, it has recently begun engaging in cloud funding and protection
trusts for lump-sum payments on entering a residence. In such ways, alongside the development of the financial
markets, JSF Trust Bank is provided highly precise services that meet the needs of customers.

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08 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Business overview

The Trust Business contributes 14.5% of the Group’s consolidated operating revenues, mainly sourced from trust
charges, interest on loans, interest and dividends from securities, and gains on the sale of government bonds andother bonds. Stable revenues in the Trust Business are provided by trust charges, which have continuously increased
in recent years and achieved record highs, but even so, the Company is working to develop new trust products
aimed at further improving revenues. Also, looking at the lenders, we see that 98.4% of the total lending amountis to the central government (including government guarantees), so it can be said that the loans are highly stable.

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Source: Prepared by FISCO from the Company's results briefing materials

3. Real Estate Management BusinessThis business, which is conducted by the wholly owned subsidiary Nihon Building, involves leasing real estate ownedby the Group companies. It is small scale and contributes only 4.7% of the Group’s consolidated operating revenues.

██Results trends
Revenues and profits declined, reflecting the lack of strength in thestock markets
1. Summary of FY3/19 1H results
In the world economy in FY3/19 1H, the economic recovery in the United States continued, while the European
economy also recovered moderately. In addition, the Japanese economy maintained its gradual recovery trend
through improvements to corporate earnings and to the employment and income environments. However, theunclear outlook for the economy will continue due to factors including uncertainty regarding policies in the UnitedStates, developing trade issues, and impacts from a series of natural disasters.

We encourage readers to review our complete legal statement on “Disclaimer” page.

09 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Results trends

In the stock markets, the Nikkei Stock Average, which started the year at ¥21,388, had declined to as low as ¥21,292
by April 3, which was its lowest price for the period, due to factors including the sense of caution surrounding trade
friction between the United States and China. However, it rebounded when this excessive sense of caution receded,and had risen to around the ¥23,000 level by the end of May. Subsequently, due to various concerns, including about
U.S. trade policy and the depreciation of the currencies of emerging countries, it continued to develop, heavily testing
the upper limit of ¥23,000. But since the middle of September, it has been supported by the easing of concerns
about trade friction, the strengthening of the U.S. dollar and the weakening of the yen, and by the close of tradingat the end of September, it had risen to as high as ¥24,120, its highest price in the period.
The buying balance of standardized margin transactions (transactions between securities companies and investors)
on the TSE during this period declined gradually from its peak at the start of the period of the ¥2.90tn level. In
addition to disposal sales during a phase of falling stock prices, there were sales to lock in profits during a phase ofrising stock prices, which meant that by the end of September, it had declined to the ¥2.13tn level, its bottom forthe period. On the other hand, for the same selling balance, which was at the ¥500bn level at the start of the period,
there were repurchases during the phase of falling stock prices up to early July, and it declined to the ¥470bn level,
its bottom for the period. But it subsequently trended moderately upwards alongside the recovery in stock prices.
By late September, it had increased to as high as ¥680bn, its peak for the period, and was at the ¥660bn level atthe end of September.
In these ways, the stock markets have lacked strength, but the Group’s outstanding loan balance (average during
the period) for FY3/19 1H was ¥833.7bn, an increase of ¥297bn YoY. Mainly due to the decrease in fees on lending
securities in the margin loans business (transactions between the Company and securities companies), consolidated
operating revenues declined to ¥12,052mn (down 6.6%). Also, operating expenses were ¥5,748mn (down 11.8%),
due in part to decreases in fees on borrowing securities in margin loan and bond loan transactions, while generaland administrative expenses were basically unchanged at ¥4,077mn (up 2.7%). As a result, operating income was¥2,226mn (down 8.0%), recurring income was ¥2,695mn (down 1.0%), and net income attributable to owners ofparent was ¥1,946mn (down 12.6%). The reason for the large decrease in net income attributable to owners ofparent was an increase in extraordinary loss (loss on a system disposal) and an increase in the tax burden due
to the reversal of deferred tax assets (which became the same as the ordinary effective tax rate from this period).
FY3/19 1H consolidated results(¥mn)
FY3/18 1H

FY3/19 1H

YoY

Amount% of operating
revenues

Amount% of operating
revenues

Operating revenues

12,909100.0%

12,052

Operating profit

6,391

49.5%

6,303

General and administrative
expenses

3,970

30.8%

Operating income

2,420

Recurring income

2,723

Net income attributable toowners of parent

2,227

ChangeChange (%)

100.0%

-856

-6.6%

52.3%

-88

-1.4%

4,077

33.8%

106

2.7%

18.7%

2,226

18.5%

-194

-8.0%

21.1%

2,695

22.4%

-27

-1.0%

17.3%

1,946

16.1%

-280

-12.6%

Source: Prepared by FISCO from the Company's financial results and results briefing materials

The business overview of each segment in 1H is as follows. In order to present the Company’s business condition
more accurately, this explanation excludes premium charges in the margin loans business, which do not affect theCompany’s earnings (the amount of so-called premiums the Company receives is paid as is to the lenders, so thesepremiums are excluded from the results for neutrality purposes).

We encourage readers to review our complete legal statement on “Disclaimer” page.

10 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Results trends(1) Securities Finance Businessa) Margin loans business (excluding premium charges)
The average margin loan balance during the period was ¥326bn, an increase of ¥12.2bn YoY, so interest on loans
increased. Conversely, the average stock loan balance during the period was ¥261.6bn, down ¥112.2bn, so stock
lending fees decreased, and therefore fees on lending securities also decreased. As a result, operating revenues
in this business were ¥2,083mn (down 20.4%).
b) General loans business
Lending to individuals and general business corporations were higher than in the same period in the previous fiscal
year, while lending to securities companies also trended steadily. Therefore, the average lending balance during
the period in this business was ¥94bn, up ¥57.8bn YoY. The use of cash-secured stock lending transactions also
greatly increased, and as a result, operating revenues in this business were ¥659mn (up 58.9%).
c) Securities lending businessIn bond lending and general stock lending, fees on lending securities increased. As a result, operating revenues
in this business were ¥3,281mn (up 46.3%).
d) Others
Interest income from and gains on sales of government bond holdings both declined. As a result, operating
revenues in this business were ¥1,598mn (down 10.9%).
(2) Trust Business
Trust charges and gains on sales of government bond holdings increased, but interest income from securities
decreased due to the decline in the balance of government bond holdings and other holdings. In addition, interest
on loans fell due to lower interest rates. As a result, operating revenues in this business were ¥1,364mn (down
1.2%).
(3) Real Estate Management Business
Operating revenues were ¥441mn (up 1.2%).

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11 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Results trends㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼞㼑㼢㼑㼚㼡㼑㼟㻌㼎㼥㻌㼎㼡㼟㼕㼚㼑㼟㼟㻹㼍㼞㼓㼕㼚㻌㼘㼛㼍㼚㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟㻿㼑㼏㼡㼞㼕㼠㼕㼑㼟㻌㼘㼑㼚㼐㼕㼚㼓㻌㼎㼡㼟㼕㼚㼑㼟㼟㼀㼞㼡㼟㼠㻌㻮㼡㼟㼕㼚㼑㼟㼟㻔¥㼙㼚㻕㻳㼑㼚㼑㼞㼍㼘㻌㼘㼛㼍㼚㼟㻌㼎㼡㼟㼕㼚㼑㼟㼟㻻㼠㼔㼑㼞㼟
㻾㼑㼍㼘㻌㻱㼟㼠㼍㼠㼑㻌㻹㼍㼚㼍㼓㼑㼙㼑㼚㼠㻌㻮㼡㼟㼕㼚㼑㼟㼟㻝㻞㻘㻜㻜㻜
㻝㻜㻘㻜㻜㻜

㻥㻘㻠㻞㻤

㻤㻘㻤㻤㻢

㻠㻠㻝

㻠㻟㻡
㻤㻘㻜㻜㻜

㻝㻘㻟㻤㻜

㻢㻘㻜㻜㻜

㻝㻘㻣㻥㻠

㻠㻘㻜㻜㻜

㻞㻘㻞㻠㻞

㻝㻘㻟㻢㻠
㻝㻘㻡㻥㻤

㻟㻘㻞㻤㻝

㻠㻝㻠

㻢㻡㻥

㻞㻘㻜㻜㻜
㻞㻘㻢㻝㻣

㻞㻘㻜㻤㻟

㻲㼅㻟㻛㻝㻤㻌㻝㻴㻲㼅㻟㻛㻝㻥㻌㻝㻴㻜
Source: Prepared by FISCO from the Company's results briefing materials

In assets, current assets increased significantly
2. Financial position and management indicators
At the end of FY3/19 1H, total assets were up ¥500.7bn compared to the same period of the previous fiscal year
to ¥5.46tn, due to increases in cash and deposits, securities, and collateral money of securities borrowed, despitea decrease in operating loans. The majority of cash and deposits are temporary deposits arising from borrowed
money from trust account of JSF Trust Bank and situation of funding.
The equity ratio fell 0.3 of a percentage point on the end of the previous fiscal period to 2.6%. The Group’s equity
ratio and ROA (return on assets; the ratio of recurring income to total assets) tends to be low compared to those ofcompanies in other industries, because the asset amount it holds is large for business purposes.

We encourage readers to review our complete legal statement on “Disclaimer” page.

12 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Results trends

Consolidated balance sheet(¥mn)
March 31, 2018

September 30, 2018

Change4,161,486

4,825,059

663,573

Cash

777,895

1,042,461

264,566

Short-term investments

60,817

142,437

81,620Operating loans

1,002,931

881,989-120,942

Collateral money for securities borrowed

2,168,170

2,179,271

11,101

798,674

635,866-162,808

Current assets

Non-current assets

787,231622,400-164,831

Total assets

4,960,161

5,460,926

500,765

Current liabilities

4,792,452

5,297,432

504,980

Call money

771,4141,254,497

483,083

Short-term borrowings

15,5108,010-7,500Commercial paper

459,000

194,000-265,000

Collateral money for securities lent

2,505,135

2,392,698-112,437

Borrowed money from trust account961,611935,944-25,667

23,897

19,988-3,9094,816,350

5,317,420

501,070

143,811

143,505-306

Current ratio

86.8%

91.1%

Equity ratio

2.9%

2.6%

Operating income ratio

14.7%

18.5%

ROA (return on assets)

0.1%

-

ROE (return on equity)

3.0%

-

Investments in securities

Non-current liabilities
Total liabilities
Net assets[Stability][Profitability]

Source: Prepared by FISCO from the Company's financial results and results briefing materials██Business outlook
Based on 1H results, full-year results estimates have been slightly
revised
The results of the Securities Finance Business, which is the Group’s main business, are greatly affected by trends
in market conditions, interest rates, and other factors, so it does not disclose results forecasts. However, it does
announce results estimates with the aim of appropriately disclosing the Group’s business conditions. It reviews theseestimates every quarter and announces them when it announces its results.
From April to September 2018, the Nikkei Stock Average trended in a box range, from ¥21,000 to ¥24,000, and in
this situation, the average margin loan balance was ¥326bn (up ¥12.2bn YoY), and the average stock loan balancewas ¥261.6bn (down ¥112.2bn). Therefore, the Company revised the conditions for the results estimates from its
previous announcement (as of July, ¥340bn for margin loans and ¥250bn for stock loans) and it now projects ¥310bn
for margin loans and ¥250bn for stock loans. So it expects lower levels than the FY3/18 average balances (¥350.1bn
for margin loans and ¥366.1bn for stock loans). On the other hand, it is difficult to imagine there will be any majorchanges during FY3/19 to monetary policy, which effects both the loan-interest level and securities companies’
demand for funds. So it seems that the current conditions will continue for the results estimates.

We encourage readers to review our complete legal statement on “Disclaimer” page.

13 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Business outlook

From the above, on a stand-alone basis, the Company’s FY3/19 results estimates are for operating income of¥2,500mn (down ¥405mn YoY), recurring income of ¥3,300mn (down ¥325mn), and net income of ¥2,300mn (down¥1,139mn), and each estimate has been downwardly revised by ¥100mn from the previous estimates. Conversely,
JSF Trust Bank upwardly revised its previous estimates because its trust business is performing strongly, and it isanticipating recurring income of ¥590mn (up ¥168mn) and net income of ¥510mn (up ¥143mn). Also, Nihon Building
is maintaining its previous estimates, and it expects operating income of ¥545mn (down ¥22mn), recurring incomeof ¥650mn (up ¥1mn), and net income of ¥430mn (up ¥2mn).
As a result, the Group’s consolidated results estimates are for declines in revenue and profits, including operating
income of ¥3,600mn (down ¥281mn YoY), recurring income of ¥4,500mn (down ¥185mn), and net income attributable to owners of parent of ¥3,200mn (down ¥1,025mn). However, the estimate of net income attributable toowners of parent has been upwardly revised by ¥100mn compared to the previous estimate. The reasoning behind
full-year results estimates being restricted to 1.6 to 1.7 times that of 1H results is that the collection of dividends isconcentrated in the first half, in addition, JSF Trust Bank does not expect gains on sales of bonds in 2H.
Upon entering 2H, the Nikkei Stock Average temporarily exceeded ¥22,500 in early November, and during October,
the Company’s average margin loan balance was ¥284.2bn and average stock loan balance was ¥280bn, trending
above the conditions for the results estimates but below the average margin loan balance. Taking into consideration
the current state of the stock markets, which lack strength due to uncertain outlooks on the Japanese and overseas
economies, it does not seem that the Company’s FY3/19 full-year results can maintain the momentum of theprevious fiscal period.
Estimated figures for FY3/19* Previous estimates were announced with the FY3/19 1Q financial results
Source: Company's results briefing materials

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14 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/██Medium- to long-term growth strategy
Working to strengthen the revenue base by developing businesses
other than the margin loans business
1. New medium-term management plan
More than five years have passed since the Company merged with Osaka Securities Finance, and during thattime, the Group has worked to integrate its businesses, organizations, and systems and progressed in establishinga structure that is efficient and full of vitality under the 4th Mid-term Management Plan (FY2014 to FY2016).
On the other hand, the business environment facing the Group is changing greatly. Specifically, the globalizationand increased sophistication of financing is accelerating in conjunction with the technological improvements thatutilize artificial intelligence (AI) for products and services. Moreover, international financial regulations and securities
settlement systems to stabilize the financing markets have been reviewed, and based on these developments, newneeds for financing transactions are being created.
While keeping in mind the possibility that the current low interest rate will continue, the Group is utilizing its management capabilities in financing- and securities-related businesses, the high level of creditworthiness it has cultivated
up to the present time, and its neutrality in the markets as it works to strengthen its margin loans business andother existing businesses and actively strives to meet new transaction needs domestically and overseas. Throughthis, it is considered that the Company is aiming to make its existing foundation stronger and to respond to theconfidence that the markets and investors have placed in it. In other words, its intention is to strengthen its revenue
foundation by, on the one hand, working to enhance the margin loans business that is its main business, but on theother hand, also developing other businesses.
Based on this approach and in advance of the 70th anniversary of its establishment in 2020, the Company iscurrently executing the 5th Mid-term Management Plan, with FY2017 as its first year. Through this plan, it intends
to continue to contribute to the development of the securities markets.
The 5th Mid-term Management Plan has qualitative targets, but it does not present quantitative calculated targets,
such as for revenues and income. Certainly, the margin loans business, which accounts for the majority of theCompany’s revenue, is greatly affected by stock market conditions and the financing environment, so it is understandably difficult to present revenue estimates for three years in the future. However, at FISCO, we think that inorder for investors to understand the Company’s image of itself in the future and to confirm the progress madein each fiscal period, it would be meaningful for it to present calculated targets of some sort, even if they are notquantitative figures such as for revenues and income.

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15 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Medium- to long-term growth strategy

Outline of the 5th Mid-term Management Plan (FY2017 to FY2019)

Source: Company's results briefing materials

2. Specific strategies
The seven basic strategies of the 5th Mid-term Management Plan are as follows.
(1) Enhancing the margin loans business as part of securities market infrastructure
The Company is aiming to respond appropriately to the environmental changes in the stock markets and to
conduct stable management and improve the convenience of the margin loans business. It is also working toaccurately ascertain trends among market participants and promote the use of loans for margin transactions,to strengthen its dissemination of information relating to standardized margin transactions and loans for margintransactions and to expand the field of view of investors.
In terms of examples of specific measures, in addition to improving its ability to procure stock certificates, theCompany is enhancing the provision of information relating to stock procurement, targeting major domestic andoverseas securities companies, in order to promote the use of stock loans. It is also holding seminars and study
meetings for securities companies on margin transactions and loans for margin transactions to promote morewidespread use. Moreover, in order to expand the issues that it lends and borrows, the Company is improving
its methods of approaching the issuing companies (including by aiming to promote understanding of margintransactions and loans for margin transactions in the divisions responsible for IPOs within securities companies).
As a result, stock borrowers have recently expanded to include regional financial institutions which previously
were mainly life and non-life insurance companies.
(2) Flexibly addressing the needs of domestic and foreign financial instruments companies
The Company is aiming to expand direct transactions with entities outside Japan, including overseas corporations
that are its existing trading partners, and to expand transactions through accepting foreign securities as collateral.
In such ways, it intends to actively respond to a diverse range of transactions with domestic and overseas
securities companies and others, and thereby expand revenue opportunities. In addition, alongside the shorteningof the settlement period for securities, it is actively working to meet new transaction needs in order to expand
the securities lending business.

We encourage readers to review our complete legal statement on “Disclaimer” page.

16 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/

Medium- to long-term growth strategy

In terms of specific measures, the Company has been lending funds collateralized by foreign securities and lending
foreign securities. It has concluded stock lending and borrowing contracts with overseas financial institutions using
standard international contracts. Moreover, it is responding to new needs that are being created in conjunction
with the shortening of settlement periods for government bonds and stocks (government bonds: responding
to the transition to the repurchase agreement method from the former lending and borrowing method; stocks:
considering new schemes and improving its ability to procure stock certificates as a response to fail-cover needs).
Recently, there has been an increase in lending funds collateralized by Asian securities to meet trading partners’
needs.
(3) Developing new businesses
Against the backdrop of its business history as a securities finance company, the Company is utilizing its features
to develop new businesses from a long-term perspective in collaboration with related parties domestically andoverseas, and with its Group companies.
A specific example of this is its activity to support the establishment of securities finance companies in Indonesia(technological support). In such ways, it is aiming to develop new businesses and enhance existing businesses,
while collaborating with overseas finance- and securities markets-related parties, particularly in Asia.
(4) Diversified management of securities as an efficient use of capital
The Company will secure stable revenues by responding to changes in the external environment and flexibly
reviewing its portfolio, based on appropriate risk controls. It will also establish methods of procuring foreign currencies in order to expand its management of foreign currency-denominated securities, such as foreign government
bonds, and to support the development of its businesses using foreign currencies.
(5) Enhancing collaboration with Group companies
The Company will enhance collaboration with Group companies, particularly its subsidiaries, and actively respondto diversifying transaction needs. It will also work to further solidify the revenue foundation for the Group as awhole through measures that are integrated between it and the subsidiaries.
(6) Strengthening the business management structure
The Company has reconfirmed that it regards compliance as a basis for management to actively respond tosociety’s demands of it and realize its corporate philosophy. In order to establish society’s unwavering trust, it
is striving to ensure the effectiveness of internal audits and to further enhance risk management to respond todiversifying and increasingly complex risks associated with the financing business. To continue the margin loans
business, which is its most important business, even in the event of a major disaster, it will establish a remote
backup system, while also paying attention to trends in the finance and securities industries.
A specific example of this is its effort to strengthen cybersecurity measures. In addition, as a measure to strengthen
its approach to BCP, it will utilize the Osaka branch office in the event of a large-scale disaster in the Kanto region.
(7) Developing an employee-friendly work environment and making the Company more dynamic
The Company is working to improve productivity per employee and become more dynamic by establishing an
employee-friendly work environment that provides its employees with job satisfaction.

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17 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/██Shareholder return policy
Provides enhanced returns to shareholders
The Company maintains a firm level of capital in order to ensure the stability of management and the financial soundness that is required of it as part of the securities market infrastructure. But at the same time, its basic approach is tostably return profits to shareholders, while comprehensively considering aspects such as the earnings environment
and the investment plan. As the standard that reflects results, its policy for returning profits to shareholders is forthe consolidated dividend payout ratio to not fall below the 60% level, while also considering consolidated dividends
on equity (DOE).
Based on this policy, in FY3/18, the Company paid an interim dividend of ¥9 and a year-end dividend of ¥17, for a
total dividend of ¥26, an increase of ¥8 YoY, for a dividend payout ratio 58.8%. For FY3/19, taking into consideration
the results estimates, it has left unchanged the initial dividend forecast of ¥22, comprised of an interim dividend of¥11 and a year-end dividend of ¥11, and the expected dividend payout ratio is 64.9%.
Furthermore, since FY3/15, the Company has been buying back its own shares, which has led to improvements inearnings per share and the shareholders’ equity ratio. In FY3/9 also, it has set a framework for acquiring 1 million
shares for ¥0.8bn, and is currently acquiring them. As a result, the total return ratio ((dividend payment amount +share buyback amount) / net income attributable to owners of parent) is forecast to be 85.0% (compared to 66.3%
in the previous fiscal year). From FY3/19 onwards as well, the Company will investigate buying back its own shares
while considering factors such as the capital level and risk conditions.
As the Company’s results are greatly affected by the market environment, the actual year-end dividend will be
determined by the 2H results. But up to the present time, it would seem that the market environment and the results
are trending basically in line with the Company’s expectations.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼐㼕㼢㼕㼐㼑㼚㼐㼟㻌㼍㼚㼐㻌㼠㼔㼑㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㼅㼑㼍㼞㻙㼑㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㻔㼘㼑㼒㼠㻕㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕㻔¥㻕㻵㼚㼠㼑㼞㼕㼙㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㻔㼘㼑㼒㼠㻕

（㻑）

㻟㻜㻚㻜

㻤㻜㻚㻜
㻢㻠㻚㻥㻌

㻞㻡㻚㻜

㻡㻥㻚㻡㻌

㻡㻤㻚㻤㻌
㻡㻢㻚㻠㻌

㻞㻜㻚㻜

㻠㻠㻚㻞㻌

㻝㻝㻚㻜㻌

㻝㻡㻚㻜
㻝㻜㻚㻜
㻡㻚㻜

㻢㻜㻚㻜
㻥㻚㻜㻌

㻤㻚㻜㻌
㻣㻚㻜㻌

㻠㻜㻚㻜

㻤㻚㻜㻌
㻝㻣㻚㻜㻌

㻤㻚㻜㻌

㻤㻚㻜㻌

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻞㻜㻚㻜
㻝㻝㻚㻜㻌

㻝㻜㻚㻜㻌

㻜㻚㻜

㻜㻚㻜
㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤

㻲㼅㻟㻛㻝㻥 㻱

Source: Prepared by FISCO from the Company's results briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.

18 19

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Japan Securities Finance Co., Ltd.
8511 Tokyo Stock Exchange First Section

28-Dec.-2018
http://www.jsf.co.jp/english/ir/██Information security measures
As part of the securities market infrastructure, the Company isimplementing measures to ensure that there are no impediments to
its businesses
As part of measures to establish and maintain a structure for business continuity, the Company is working to deal
with cyberattacks. Specifically, centered on the BCP Measures Headquarters that supervises business continuity
during times of emergency, its efforts include ascertaining the damage situation, communicating with externalorganizations, and preparing reports.
The Company has been implementing a variety of measures up to the present time, including creating a contingency
plan assuming a virus infection (from a cyberattack, such as a targeted attack email), holding cyberattack drills,
participating in the joint exercises held by Financials ISAC Japan, and using external experts to conduct reception
tests of targeted attack emails. Also, its technological measures include separating the Internet environment andthe business environment and installing software to protect against targeted attack emails.
Going forward, the policy is to improve the ability of the Company as a whole to respond to risks, including throughdrills based on various conditions and assumptions and various types of training.

We encourage readers to review our complete legal statement on “Disclaimer” page.

19 19

Disclaimer
FISCO Ltd. (the terms “FISCO”, “we”, mean FISCO Ltd.) has legal agreements with theTokyo Stock Exchange, the Osaka Exchange,and Nikkei Inc. as to the usage of stock priceand index information. The trademark and value of the “JASDAQ INDEX” are the intellectual
properties of the Tokyo Stock Exchange, and therefore all rights to them belong to the Tokyo
Stock Exchange.
This report is based on information that we believe to be reliable, but we do not confirm or
guarantee its accuracy, timeliness,or completeness, or the value of the securities issued bycompanies cited in this report. Regardless of purpose,investors should decide how to use
this report and take full responsibility for such use. We shall not be liable for any result of its
use. We provide this report solely for the purpose of information, not to induce investment or
any other action.
This report was prepared at the request of its subject company using information provided
by the company in interviews, but the entire content of the report, including suppositions andconclusions, is the result of our analysis. The content of this report is based on informationthat was current at the time the report was produced, but this information and the content of
this report are subject to change without prior notice.
All intellectual property rights to this report, including copyrights to its text and data, areheld exclusively by FISCO. Any alteration or processing of the report or duplications of thereport, without the express written consent of FISCO, is strictly prohibited. Any transmission,
reproduction, distribution or transfer of the report or its duplications is also strictly prohibited.
The final selection of investments and determination of appropriate prices for investment
transactions are decisions for the recipients of this report.
FISCO Ltd.