COMPANY RESEARCH AND ANALYSIS REPORT

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

12-Jan.-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

12-Jan.-2018
http://www.jsf.co.jp/english/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Major increases in revenues and income in the FY3/18 1H results. .............................................................

01

2. Upwardly revised the FY3/18 full year results estimates. .............................................................................

01

3. In the Mid-term Management Plan, it is strengthening existing businesses andalso meeting new transaction needs domestically and overseas.................................................................

01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Company profile.. ................................... ......................................................................................................

02

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

03

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

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

05

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

07

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

08■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 09
1. Summary of 1H FY3/18 results.............. ......................................................................................................

09

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

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

13

2. The specific strategies........................... ......................................................................................................

14

3. The necessity for calculated targets. . ..... ......................................................................................................

16■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 16■Information security measures--------------------------------------------------------------------------------------------------------------------- 17

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

12-Jan.-2018
http://www.jsf.co.jp/english/██Summary
Aiming to contribute to the development of securities markets andfurther improvement of enterprise value
Japan Securities Finance Co., Ltd. <8511> (hereafter, also “the Company”), which is listed on the First Sectionof the Tokyo Stock Exchange (TSE), is a highly public financial institution that plays a role in lending transactions
carried out on each of the securities exchanges. It has upwardly revised its FY3/18 full year results estimates toreflect the strong results in 1H. Based on the Mid-term Management Plan (FY2017 to FY2019), the Company andits group companies (“Group”) is aiming to continue to contribute to the development of securities markets andfurther improvement of enterprise value.
1. Major increases in revenues and income in the FY3/18 1H results
With its FY3/18 1H results reflecting a favorable market environment, including the rise in the Nikkei Stock Averageand the increase in the balance of standardized margin transactions on the Tokyo Stock Exchange, the Company
achieved major increases in revenues and income in its consolidated results, including operating revenues of¥12,909mn (up 20.8% year on year (YoY)), operating income of ¥2,420mn (up 36.2%), recurring income of ¥2,723mn(up 32.8%), and net income attributable to owners of parent of ¥2,227mn (up 27.4%).
2. Upwardly revised the FY3/18 full year results estimates
Results for 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 1H results, for the average balance of loans for margin transactions for the full fiscal year,
the Company raised results estimates to margin loans of ¥310bn (up ¥10bn compared to the previous estimate)and stock loans of ¥370bn (up ¥70bn), so it upwardly revised the estimates to consolidated operating income of¥3,400mn (up ¥800mn), recurring income of ¥4,100mn (up ¥800mn), and net income attributable to owners ofparent of ¥3,300mn (up ¥700mn).
Alongside the upward revisions to the results estimates, the Company also raised the dividend forecast from theprevious annual ¥16 (interim ¥8, year end ¥8) to ¥18 (interim ¥9, year-end ¥9). As a result, the dividend payout ratio
forecast became 52.2%.
3. In the Mid-term Management Plan, it is strengthening existing businesses and also meeting newtransaction needs domestically and overseas
Based on the 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 thepresent time, and its neutrality in the markets as it works to strengthen its margin loans business and other existing
businesses and also 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.

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

01 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Summary

Key Points
Major increases in revenues and income in FY3/18 1H results, reflecting favorable stock market conditions
Based on the strong 1H results, the Company upwardly revised FY3/18 full year results estimates to consolidated
recurring income of ¥4,100mn and net income attributable to owners of parent of ¥3,300mn and raised thedividend forecast to an annual ¥18• Set seven targets in the Mid-term Management Plan (FY2017 to FY2019) with the aims of strengthening its
existing businesses and meeting new transaction needs domestically and overseas••㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻔¥㼙㼚㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼞㼑㼢㼑㼚㼡㼑㼟㻌㻔㼘㼑㼒㼠㻕㻾㼑㼏㼡㼞㼞㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻕㻟㻜㻘㻜㻜㻜

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Source: Prepared by FISCO from the Company’s financial results██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 transaction 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 doso based on the Financial Instruments and Exchange Law, and they lend to securities companies the funds and thestocks needed to settle the standardized margin transactions. For individuals also, the Company is developing asecurities-secured loan business that utilizes the Internet.

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

02 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Company profile

The Group consists of two wholly owned consolidated subsidiaries of the Company: JSF Trust and Banking Co.,
Ltd. (hereafter, “JSF Trust Bank”), which carries out a trust business, including trusts for the separate managementof 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 stake of approximately 20% 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: The Company’s results briefing materials

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 Company, 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.

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

03 17

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

Japan Securities Finance Co., Ltd.

12-Jan.-2018

8511 Tokyo Stock Exchange First Section

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

Company profile

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 with securities companies, and then in 1989, it started a brokerage business for bond lendingtransactions, with securities companies and financial institutions as the other parties to the transactions. It established JSF Trust and Banking Co., Ltd. (JSF Trust Bank) in 1998, started the margin loans business for the JASDAQ
market in 2004, and began loans for negotiable margin transactions, to lend to securities 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.
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

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

04 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Company profile

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 the 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 percentages of total operating revenues provided by each business in
FY3/18 1H, the margin loans business provided 51.4%, general loans business 3.2%, securities lending business
17.4%, and others 13.9%, meaning that the Securities Finance Business contributed 85.9% of the Group’s total
revenues. The Trust Business contributed 10.7% and Real Estate Management Business 3.4%.

Percentage of operating revenues by business (FY3/18 1H: ¥12,909mn)
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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 the margin loans business
Below is an overview of the contents of each business.
1. Securities Finance Business
The Securities Finance Business, which is conducted by the Company itself, contributed 85.9% of FY3/18 1H
consolidated operating revenues. The Securities Finance Business is divided into the margin loans business, generalloans business, securities lending business, and others.
(1) Margin Loans BusinessThis is the Group’s core business and it contributed 51.4% of consolidated operating revenues. It involves the lending to securities companies of the funds and stock certificates necessary to settle standardized margin transactions.

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

05 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Business overview

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.
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 the transaction conditions
between them, but securities companies cannot use a margin loans to settle a negotiable margin transaction.
In this way, margin loans are a transaction in which the Company receives a certain amount of collateral for theloan from the securities companies, which trade on the stock exchanges, 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 companies on the trading
date of the standardized margin transaction. For the execution of the loan, instead of the securities company,
the Company transfers the funds for the purchase of the stock to be held or sold to clearing facilities of stock
exchanges. In return, it receives the purchased stock certificate (collateral stock certificates for loans) or thesale fee (collateral money for stock loans), which it allocates to the collateral for each respective loan, and thetransaction is completed.
In the event that the Company cannot cover applications for margin loans and stock loans from securities
companies using its collateral stock or money of internal holdings, it responds through methods such as raisingfunds from the 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: The Company’s results briefing materials

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

06 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Business overview

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 ultra-monetary easing policy, the loan rate is at ahistorically low level.
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Source: Company 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 3.3% 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 17.4% 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 includes the management of government bonds and other securities, and it contributes 13.9% 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.

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

07 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Business overview

The Trust Business contributes 10.7% of the Group’s consolidated operating revenues, and the main sources ofrevenues in it are trust charges, interest on loans, interest and dividends from securities, and gains on the sale ofgovernment bonds and other bonds. Stable revenues in the Trust Business are provided by trust charges, whichhave continuously increased in recent years and achieved record highs, but even so, the Company Group is working
to develop new trust products toward further improving revenues. Also, looking at the lenders, we see that morethan 90% of the total lending amount is to the 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 3.4% of the Group’s consolidated operating revenues.

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

08 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/██Results trends
Major increases in revenues and income, reflecting favorable stock
market conditions
1. Summary of 1H FY3/18 results
In the stock markets in FY3/18 1H, the Nikkei Stock Average, which at the beginning of the period was ¥18,983, fell
to its lowest level in the period during April due to the increased risk relating to North Korea. But in early June, themarkets reacted favorably to the results of the French presidential elections and it recovered to the ¥20,000 level
for the first time in around a year and a half. However, concerns about North Korea reignited and it fell again at thestart of September. But then, against the backdrop of developments such as the reports of the dissolution of theHouse of Representatives and expectations for an additional interest rate hike in the United States, it began risingagain based on the strong dollar and the weak yen. In September, it recorded a record high for the first time in two
years, and at the end of September, it ended trading at ¥20,356.
In 1H on the TSE, the margin transactions buying balance decreased from ¥2.35 trillion at the start of the period toaround ¥1.80tn in early May. But after that, supported by buying from individual investors during a phase of fallingshare prices, it recovered and reached its peak for the 1H in late August, at ¥2.15tn, and at the end of September,it was ¥2.30tn. Conversely, the margin transactions selling balance, which was ¥580bn at the start of the period,
decreased and bottomed-out in the middle of April at ¥570bn. But new selling could be seen during the phase ofrising share prices in early June, and it increased to as high as ¥770bn. Subsequently, it temporarily decreasedin late August during a phase of falling share prices from repurchases by investors looking to lock-in profits, but it
recovered again in late September, and had reached ¥730bn by the end of this month.
Based on these stock market trends, in FY3/18 1H, the Group’s outstanding loan balance (average for the period)
increased ¥84.3bn YoY to ¥536.7bn. Due to the increase in fees on lending securities in the margin loans business,consolidated operating revenues rose greatly to ¥12,909mn (up 20.8%). Also, operating expenses were ¥6,518mn(up 32.8%), because of factors including an increase in fees on the borrowing securities in the margin loans businessand bond borrowings, but general and administrative expenses were basically unchanged YoY at ¥3,970mn (down
0.7%). As a result of these factors, income increased greatly, with operating income of ¥2,420mn (up 36.2%),
recurring income of ¥2,723mn (up 32.8%), and net income attributable to owners of parent of ¥2,227mn (up 27.4%).
As the market environment was better than expected, the Company had achieved approximately 85% of its full year
estimate for net income attributable to owners of parent by the end of July.
1H FY3/18 consolidated results(¥mn)
1H 3/17

1H 3/18

YoY

Amount% ofoperatingrevenues

Amount% ofoperatingrevenues

ChangeChange (%)

Operating revenues

10,683100.0%

12,909100.0%

2,226

20.8%

Operating profit

5,774

54.0%

6,391

49.5%

617

10.7%

General and administrative expenses

3,996

37.4%

3,970

30.8%

-26

-0.7%

Operating income

1,777

16.6%

2,420

18.8%

643

36.2%

Recurring income

2,049

19.2%

2,723

21.1%

673

32.8%

Net income attributable to owners of parent

1,747

16.4%

2,227

17.3%

479

27.4%

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

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09 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Results trends

The operations of each segment in 1H are outlined below.
(1) Securities Finance BusinessIn the margin loans business, the average margin loan balance for the period increased ¥50.2bn YoY to ¥313.8bn,
so interest on loans rose. Also the balance of stock loans during the period climbed by ¥146.5bn to ¥373.8bn, so
stock lending fees also rose. In addition, premium charges relating to over-lent issues increased, and in conjunction
with this, fees on lending securities grew. As a result, operating revenues in this business were ¥6,640mn (up51.1%).
In the general loans business, lending to individuals, general business corporations, and securities companies
each trended at low levels, and the average lending balance during the period in this business declined ¥11.3bn
YoY to ¥36.1bn. Conversely, alongside the recovery of the stock market cash-secured stock lending transaction
increased. As a result of the above, operating revenues in this business were ¥414mn (down 9.4%).
In the securities lending business, the general stock lending secured higher revenues, while in the bond lending
also, revenues greatly increased due to the rise in the lending balance. As a result, operating revenues were¥2,242mn (up 14.5%).
In others, operating revenues were ¥1,794mn (up 2.4%), mainly because while interest income from government
bond holdings declined, revenues from dividend income from holdings of investment trusts and other securities
increased.
(2) Trust Business
Trust charges continued to increase from the strengthening of custodian-type services, but gains on the salesof holdings of government bonds and other bonds declined. Revenues from interest on loans also fell due to thelower interest rate, and as a result, operating revenues were ¥1,380mn (down 18.3%).
(3) Real Estate Management Business
Operating revenues were ¥435mn (up 1.7%).

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㻔¥㼙㼚㻕㻝㻡㻘㻜㻜㻜

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㻥㻜㻥㻌
㻠㻟㻡㻌㻝㻜㻘㻢㻤㻟㻌
㻠㻞㻤㻌㻝㻜㻘㻜㻜㻜

㻝㻘㻟㻤㻜㻌
㻝㻘㻣㻥㻠㻌

㻝㻘㻢㻥㻜㻌

㻞㻘㻞㻠㻞㻌

㻝㻘㻣㻡㻞㻌㻡㻘㻜㻜㻜㻠㻝㻠㻌㻝㻘㻥㻡㻤㻌
㻠㻡㻣㻌㻢㻘㻢㻠㻜㻌
㻠㻘㻟㻥㻡㻌

㻜㻝㻴㻌㻲㼅㻟㻛㻝㻣㻝㻴㻌㻲㼅㻟㻛㻝㻤

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

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10 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Results trends

In assets, both current assets and non-current assets increased
2. Financial position and management indicators
At the end of FY3/18 1H, total assets were up ¥190.8bn on the end of the previous fiscal period to ¥4.8358
trillion. This was because while items including short term investments and collateral money for securities borrowed
decreased, items such as cash and operating loans increased. The majority of cash are temporary deposits arisingfrom borrowed money and cash flow in the trust account of JSF Trust Bank.
The equity ratio fell 0.1 of a percentage point on the end of the previous fiscal period to 2.9%. Also, annualized
ROA (return on assets) was unchanged YoY at 0.1%, but ROE (return on equity) rose to 3.2%. As the amount of
the assets held for business purposes in the Company Group is large, its equity ratio and ROA tend to be low
compared to other industries.
Consolidated balance sheet(¥mn)
March 31, 2017

September 30, 2017

3,942,440

4,003,878

61,437

1,076,761

1,339,661

262,899

Short-term investments

238,498

218,001-20,496

Operating loans

587,752

634,457

46,705

1,930,722

1,666,706-264,016

702,610

831,974

129,363

690,208

819,957

129,749

Total assets

4,645,051

4,835,853

190,801

Current liabilities

4,477,440

4,668,760

191,319

Call money

626,898

963,206

336,307

Short-term borrowings

13,01014,0101,000

Commercial paper

185,000

263,000

78,000Collateral money for securities lent

2,492,578

2,244,111-248,466

Borrowed money from trust account1,095,054

1,108,001

12,94627,89824,572-3,325

4,505,339

4,693,333

187,994

139,712

142,519

2,807

Current assets
Cash

Collateral money for securities borrowed
Non-current assets
Investments in securities

Non-current liabilities
Total liabilities
Net assets

ChangeSource: Prepared by FISCO from the Company’s financial results and results briefing materials

Management indicators
FY3/17

1H FY3/18

Current ratio

88.1%

85.8%

Equity ratio

3.0%

2.9%

Operating income ratio

12.1%

18.8%

ROA (return on assets)

0.1%

-

ROE (return on equity)

2.2%

-

[Stability][Profitability]

Source: Prepared by FISCO from the Company’s financial results

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11 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/██Business outlook
Based on the favorable 1H results, the full year results estimates
were upwardly revised
The results of the Securities Financing 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.
In a situation in which the Nikkei Stock Average reached its highest level in 20 years in the 1H, the loans averagebalances were ¥313.8bn for margin loans (up 19.0% YoY) and ¥373.8bn for stock loans (up 64.5%), exceeding
the previous assumptions (as of July, ¥300bn for margin loans and ¥300bn for stock loans). Therefore, the newly
calculated assumptions were upwardly revised to ¥310bn for margin loans and ¥370bn for stock loans. Conversely,
as it is difficult to anticipate any changes during FY3/18 to the trend in monetary policy, which affects both the levelof the lending interest rate and the demand for financing from securities companies, the Company assumed thatthe current situation would continue when estimating the results.
Based on the above, for the Company on a non-consolidated basis, the FY3/18 results estimates were upwardly
revised from the previous estimates to operating income of ¥2,500mn (up ¥631mn YoY), recurring income of¥3,200mn (up ¥563mn), and net income of ¥2,700mn (up ¥367mn).
Furthermore, JSF Trust Bank upwardly revised its previous estimates, as its trust business performed steadily, but it
is forecasting a decline in income YoY from the effects of the increase of borrowed money from the trust account. In
Nihon Building also, the real estate management properties are fully occupied and it is anticipated that the revenue
level will exceed the previous estimate. But net income is still expected to decline YoY due to the fall in the gain onsale of investment securities that was previously recorded as extraordinary income.
As a result, the Group’s consolidated results estimates are for revenues and income to increase significantly, for
operating income of ¥3,400mn (up ¥597mn YoY), recurring income of ¥4,100mn (up ¥488mn), and net income
attributable to owners of parent of ¥3,300mn (up ¥221mn).
On entering the 2H also, the Nikkei Stock Average in early November temporarily exceeded ¥23,000, and during
October, the Company’s average margin loans balance was ¥328.4bn and the average stock loans balance was¥423.2bn, both trending above the assumptions for the results estimates. While it will be dependent on the market
environment in the future, if the results continue to trend around the current level, the FY3/18 full year results may
even exceed the Company’s new estimates.

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12 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Business outlook

Estimated figures for FY3/18

Source: The Company’s results briefing materials██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 four years have passed since the Company merged with Osaka Securities Finance, and during this time,
based on the 4th Mid-term Management Plan (FY2014 to FY2016), the Group has worked to integrate its businesses,organizations, and systems, and it has progressed the construction of a structure that is efficient and fully of vitality.
On the other hand, the business environment facing the Group is changing greatly. Specifically, the globalization andincreased sophisticated of financing is accelerating in conjunction with the technological improvements that utilize
artificial intelligence (AI) for products and services. Moreover, the reviews of the international financial regulations andthe securities settlement system have been further advanced toward stabilizing the financing markets, and basedon these developments, new needs for financing transactions are being created.
While keeping in mind the possibility that the current low interest rate will continue, the Group is utilizing themanagement capabilities in the financing- and securities-related businesses and 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 businessand other existing business, and also actively strives to meet new transaction needs domestically and overseas.
Through this, it is considered that the Company is aiming to make its existing foundation stronger and to respondto the confidence 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 the other hand, also developing other businesses.

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13 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Medium- to long-term growth strategy

Based on this approach and in advance of the 70th anniversary of its establishment in 2020, the Company iscurrently progressing the 5th Mid-term Management Plan, with FY2017 as its first year. Through it, it intends tocontinue to contribute to the development of the securities markets.
Outline of the 5th Mid-term Management Plan (FY2017 to FY2019)

Source: Company’s results briefing materials

2. The specific strategies
The seven basic strategies in the 5th Mid-term Management Plan are as follows.
(1) Enhancing the margin loans business as part of the 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 fields of view of investors.
In terms of examples of specific measures, in addition to improving its ability to procure stock certificates, it isenhancing the provision of information relating to stock procurement, targeting major domestic and overseas
securities companies, in order to promote the use of stock loans. It is also holding seminars and study meetings
for securities companies on the margin transactions and loans for margin transactions to promote its 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 the margintransactions and loans for margin transactions in the divisions responsible for IPO within securities companies).

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14 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Medium- to long-term growth strategy(2) Flexibly addressing the needs of domestic and foreign financial instruments companies
The Company is aiming to expand direct transactions with non-residents of Japan, including overseas corporations
that are its existing trading partners, and also 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 andoverseas securities companies and others, and thereby to expand revenue opportunities. In addition, alongside
the shortening of the settlement period for securities, it is actively working to meet new transaction needs in order
to expand the securities lending business.
In terms of specific measures, the Company has been lending funds collateralized by foreign securities andalso lending foreign securities. It has concluded stock lending and borrowing contracts with overseas financial
institutions using standard international contracts. Moreover, it is responding in order to meet the new needs thatare being created in conjunction with the shortening of the settlement periods for government bonds and stocks(government bonds: it is responding to the transition to repurchase agreement method from the former lending
and borrowing method. Stocks: it will consider new schemes and improving its ability to procure stock certificatesas a response to fail-cover 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 (technological support) the establishment of securities financecompany in Indonesia. 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 positions compliance as a prerequisite of management so that it may
actively respond to the social demands required of it and to realize its corporate philosophy. In order to establish
society’s unwavering trust in it, it is striving to ensure the effectiveness of internal audits and to further enhancerisk management to respond to the diversification and increasingly complexity of the risks associated with thefinancing business. To continue the margin loans business, which is its most important business, even in theevent of a major disaster, it will establish a remote site backup system, while also paying attention to the trends
in the finance and securities industries.
A specific example of this is its ongoing effort to strengthen cyber-security measures.

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15 17

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

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

12-Jan.-2018
http://www.jsf.co.jp/english/

Medium- to long-term growth strategy(7) Developing an employee-friendly work environment and making the Company more dynamic
The Company is working to improve productivity per employee and make the Company more dynamic by establishing an employee-friendly work environment that provides its employees with job satisfaction.
3. The necessity for calculated targets
As described above, the Company’s 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 the Company’s revenue, is greatly affected by stock-market conditions and the financing
environment, so it understandable that it is difficult for it to present revenue target for three years in the future.
However, at FISCO, we think that in order for investors to share the Company’s image of itself in the future and to
confirm the progress made in each fiscal period, it would be meaningful for it to present calculated targets of some
sort, even if not numerical figures such as for revenues and income.

██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-markets infrastructure. But at the same time, its basic
approach is to stably 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 toshareholders is for the consolidated dividend payout ratio to not fall below the 60% level, while also considering
consolidated dividends on equity (DOE).
Based on this policy, in FY3/17, the Company paid an interim dividend of ¥8 and a year-end dividend of ¥10, for a
total dividend of ¥18, which was an increase of ¥2 YoY for a dividend payout ratio 56.4%. Also, on considering thefavorable FY3/18 1H results and the new results estimates, it has upwardly revised the previous dividend forecast,which was for an interim dividend of ¥8 and a year-end dividend of ¥8 for a total dividend of ¥16, to an interim
dividend of ¥9 and a year-end dividend of ¥9, for a total dividend of ¥18. Consequentially, the dividend payout ratio
will be 52.2%.
Further, 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 FY3/18 also, it has set a framework for acquiring 1.5 million
shares for ¥1bn, and it is currently acquiring them. As a result, the total returns ratio ((dividend payment amount +share buyback amount) / net income attributable to owners of parent) is forecast to be 82.5% (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.
Looking at the FY3/18 dividend payout ratio forecast, we see it is below the Company’s standard. As its results are
greatly affected by the market environment, the actual year-end dividend will depend on the 2H results. But up to
the present time, the market environment and the results have trended above the Company’s expectations. So in
the event that the actual results exceed the estimates, it is possible that the actual dividend will be increased fromits current forecast.

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16 17

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

Japan Securities Finance Co., Ltd.

12-Jan.-2018

8511 Tokyo Stock Exchange First Section

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

Shareholder return policy㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼐㼕㼢㼕㼐㼑㼚㼐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）
㻡㻥㻚㻡㻌

㻞㻜㻚㻜

㻡㻢㻚㻠㻌
㻡㻞㻚㻞㻌

㻢㻜㻚㻜

㻠㻠㻚㻞㻌
㻝㻡㻚㻜

㻠㻡㻚㻜

㻤㻚㻜㻌
㻣㻚㻜㻌

㻝㻜㻚㻜

㻣㻚㻜㻌

㻥㻚㻜㻌

㻤㻚㻜㻌
㻟㻜㻚㻜

㻞㻟㻚㻞㻌

㻡㻚㻜
㻣㻚㻜㻌

㻤㻚㻜㻌

㻤㻚㻜㻌

㻲㼅㻟㻛㻝㻠

㻲㼅㻟㻛㻝㻡

㻲㼅㻟㻛㻝㻢

㻝㻜㻚㻜㻌

㻥㻚㻜㻌

㻲㼅㻟㻛㻝㻣

㻲㼅㻟㻛㻝㻤㻌㻱

㻜㻚㻜

㻝㻡㻚㻜

㻜㻚㻜

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

██Information security measures
As part of the securities market infrastructure, it is implementing
measures to ensure that there are no impediments to its businesses
As part of its measures to establish and maintain a structure for business continuity, the Company is working to deal
with cyber-attacks. 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, such as constructing a contingency plan for an anticipated targeted attack email, surveying the effects on the management of each business inthe event that the Internet connection was completely severed and improving the contingency plan based on the
results of this survey, holding cyber-attack 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 and the business environment and installing software to protect against
targeted attack emails.
Going forward also, the policy is to improve the ability of the Company as a whole to respond to risks, including
through drills based on various conditions and assumptions, and various types of training.

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17 17

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.