ORIX Corporation (IX) Q3 2026 Earnings Call Transcript

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Overview

The earnings call summary reveals a mix of financial performance, with notable positives like increased profits in several segments, a raised net profit forecast, and an upward revision of dividends and share buybacks. The Q&A section highlights strong valuation gains in the USA and a cautious but strategic approach to future investments. Despite some vague responses, the overall sentiment is positive due to strong financial metrics, optimistic guidance, and enhanced shareholder returns, suggesting a likely positive stock price movement over the next two weeks.

Key Financial Performance

Net Income JPY 389.7 billion, up by JPY 117.9 billion year-over-year. This was the highest third quarter cumulative net profit level, driven by strong performance across finance, operations, and investments.

Pretax Profits JPY 567.7 billion, an increase of JPY 184.3 billion year-over-year. Growth was particularly strong in investments, including gains from the sale of Greenko shares and valuation gains on the remaining stake.

Finance Segment Profits JPY 145.5 billion, an 8% increase year-over-year. Growth was driven by increased investment income in ORIX Life and finance revenues in Australia and Asia (excluding Greater China).

Operation Segment Profits JPY 189.5 billion, a 17% increase year-over-year. Gains were recorded from the partial sale of Canara Robeco shares, improved performance in airport concessions and real estate operations, and strong earnings in the Auto and Ships businesses.

Investment Segment Profits JPY 261.4 billion, a 100% increase year-over-year. Gains were driven by the sale of Greenko and Ormat geothermal power businesses, real estate sales, and strong performance of domestic PE investees.

Corporate Financial Services and Maintenance Leasing Profits JPY 80.2 billion, a 21% increase year-over-year. Growth was driven by increased fee income, strong used car sales, and robust sales of used rental equipment.

Real Estate Segment Profits JPY 56.9 billion. Despite revenue growth from hotel and condo sales, profits declined year-over-year due to the absence of large-scale gains from the previous year.

PE Investment and Concession Segment Profits JPY 94 billion, a 42% increase year-over-year. Growth was driven by strong performance of domestic PE investees like Toshiba and DHC, and increased passenger numbers at Kansai International Airport.

Environment Energy Segment Profits JPY 102.2 billion, a substantial increase of JPY 109.1 billion year-over-year. Gains were driven by the sale of Greenko and Ormat, as well as strong electricity retail sales.

Insurance Segment Profits JPY 74.1 billion, a 20% increase year-over-year. Growth was driven by expansion in investment assets and strong sales of new insurance products.

Banking and Credit Segment Profits JPY 19.9 billion, a decrease of JPY 2.2 billion year-over-year. The decline was due to losses from selling long-term bonds and rising funding costs for deposits.

Aircraft and Ship Segment Profits JPY 48.6 billion, a 9% increase year-over-year. Growth was driven by increased aircraft sales and favorable lease rates, despite a slight profit decrease in the Ships unit.

ORIX USA Segment Profits JPY 14 billion. Profits decreased year-over-year due to the absence of credit cost reversals and impairments booked in the previous year.

ORIX Europe Segment Profits JPY 47.3 billion, a 24% increase year-over-year. Growth was driven by the sale of Canara Robeco shares and increased AUM at Robeco Group.

Asia and Australia Segment Profits JPY 39.3 billion, a 41% increase year-over-year. Growth was driven by valuation gains on unlisted equities and financial income from local operations.

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Operating Highlights

Insurance Products: Launched new insurance products such as Moonshot, Keep Up, RISE, and Yen Can, which have shown strong sales.

Aircraft Leasing: Advanced aircraft sales and profit contributions from the Castlelake portfolio acquired in January last year.

Geographical Expansion: Expanded finance revenues in Australia and Asia (excluding Greater China).

New Investments: Invested in LULUARQ, I-NET, AM Green convertible bonds, and logistics facilities. Formed a PE fund with Qatar Investment Authority for domestic investments.

Segment Profit Growth: Finance, Operation, and Investment segments all saw profit growth, with the Investment segment achieving a 100% increase year-over-year.

Capital Recycling: Recorded JPY 196.6 billion in capital gains with cash inflows from divestments amounting to JPY 790 billion and cash outflows from new investments amounting to JPY 700 billion.

Organizational Restructuring: Restructured 10 segments into 3 business divisions: APAC, Infrastructure, and Europe & America, along with new banking and insurance units.

Focus on Kansai Region: Highlighted initiatives in the Kansai region, including the Osaka Integrated Resort project and globally branded hotels.

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Risk or Challenges

Inbound Tourism Impact: The number of Chinese passengers has declined approximately 40% year-on-year, and major Chinese airlines have extended deadlines for free cancellations for Japan-bound tickets. This is expected to exert downward pressure on earnings, particularly in the Kansai region.

Real Estate Operations: Real estate operations, including hotels and inns, are affected by inflation and rising construction costs. Additionally, bookings have slowed during the Lunar New Year period, particularly in the Kansai region.

Banking and Credit Segment: Profit decreased due to rising funding costs for deposits outpacing asset management yields. Losses were also booked from selling long-term bonds aimed at improving the bond portfolio.

US Operations: Credit losses and impairments were booked, stemming from real estate lending originated during the post-COVID period of financial easing and legacy assets. Higher U.S. dollar interest rates, prolonged inflation, and an uncertain economic outlook contributed to these challenges.

Aircraft and Ships Segment: The Ships unit experienced a slight profit decrease due to the absence of sharp rises in charter fees seen in previous periods. Additionally, asset levels in the Ships unit were lower due to sales of owned ships.

Insurance Segment: Insurance contract liabilities and policy reserves decreased due to higher discount rates, which could impact the balance sheet stability.

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Guidance & Outlook

Full Year Net Income Forecast: No change to the full year net income forecast of JPY 440 billion for the fiscal year ending March 2026.

Capital Recycling: Capital gains of JPY 196.6 billion recorded for the 9-month period, with cash inflows from divestments amounting to JPY 790 billion and cash outflows from new investments amounting to JPY 700 billion. New investments are being pursued domestically and overseas, focusing on operations and investments.

Segment Reorganization: Organizational reforms announced to restructure 10 segments into 3 business divisions (APAC, Infrastructure, Europe and America) and new banking and insurance units starting January 1, 2026. However, FY '26 March results will still use the existing 10-segment framework.

Inbound Tourism Impact: Earnings from Kansai International Airport are expected to face downward pressure due to reduced Chinese passenger numbers. However, overall inbound tourism-related businesses remain balanced, with steady performance in hotels and inns.

Aircraft and Ships Segment: Steady passenger traffic and solid supply and demand in aircraft leasing are expected to continue. Lease rates are improving, and the business environment remains favorable.

Real Estate Operations: Real estate operations, including hotels and inns, are affected by inflation and rising construction costs. The company aims for sustainable growth while carefully selecting new investments.

Financial Strategy: Total assets increased by JPY 1.2594 trillion compared to the end of last year, driven by the consolidation of Hilco Global and growth in PE investments, insurance, and banking. The company aims to maintain an international credit rating at the A level and reduce capital costs through diversified funding.

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Shareholder Return Plan

Payout Ratio: Payout ratio for full year is 39% of our net income per share. Left bottom, JPY 153 or so per share, this is based on the assumption of net income forecast of JPY 440 billion.

Share Buyback Program: We also announced the expansion of the share buyback program from JPY 100 billion to JPY 150 billion. By the end of January, we had completed buybacks equivalent to JPY 128.1 billion with a progress rate of 85%. This is the increased program. We will continue to make steady progress on acquiring shares to complete our full share buyback program.

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Key Q&A

Q:What is the status of ORIX USA and its recent activities?

A:ORIX USA has seen significant growth in EBITDA within its portfolio, leading to valuation gains. The company is planning to exit some investments sooner rather than later. Hilco Global, which has been integrated under ORIX, is executing a 100-day plan to explore collaboration opportunities within the group. The business plan for ORIX USA, including Hilco Global, is being scrutinized and will be explained in the next earnings call.

Q:What is the outlook for the fourth quarter and beyond?

A:The company has seen strong progress in the first nine months, with investments like JPY 261 billion in Greenko and JPY 95 billion in Toshiba non-core business divestiture. However, the company is cautious about the next fiscal year and the next three years, focusing on capital efficiency and solidity of the earnings plan. Specific deals or projects were not disclosed.

Q:What is the status of valuation gains in the USA?

A:Valuation gains in the USA, particularly in telecom network data center services impacted by the AI boom, have been strong. EBITDA growth in these companies has been incorporated at fair value, contributing to the third-quarter performance.

Q:What are the expectations for credit costs and losses in the fourth quarter?

A:The company is cautious about potential credit costs and losses, particularly in areas like real estate and legacy assets. They are taking a proactive approach to incorporate foreseeable losses in advance rather than waiting until the fourth quarter.

Q:What is the status of Elawan and its goodwill?

A:Elawan's projects are being carefully scrutinized on a project-by-project basis. While there have been delays compared to the initial plan, signs of improvement are emerging. The company is reviewing the plan to avoid carrying over negative legacies into the next term.

Q:What is the employed capital ratio and its implications?

A:The employed capital ratio has improved from 92% to 89% due to more detailed risk management and project-level analysis. This does not directly impact the company's risk appetite but provides a 10% investment capacity buffer.

Q:What is the status of Robeco's AUM and its growth?

A:Robeco's AUM has increased significantly, driven by winning sizable mandates and a strong equity market. The company aims to enhance profitability alongside quantitative growth.

Q:What is the company's approach to domestic and overseas business?

A:The company sees opportunities in domestic tangible asset-related businesses like auto lease and CapEx investments. Overseas, they are cautious but see potential in areas like aircraft and ships. The domestic-to-overseas business ratio is not expected to change significantly.

Q:What is the company's strategy for capital gains and base profits?

A:Capital gains are disclosed under the capital recycling page, with JPY 195.6 billion generated. The company has shifted to disclosing results based on three categories rather than separating capital gains and base profits. Base profits are steadily growing.

Q:What is the company's focus for the next fiscal year and beyond?

A:The company aims to increase ROE and focus on high-quality investments. While profit growth is a goal, the emphasis is on capital efficiency. Shareholder returns, including share buybacks, are being considered flexibly.

Q:Review of Unclear Management Responses

A:Management avoided giving direct answers or lacked clarity on several occasions. For example, when asked about specific deals or projects for the next fiscal year, they did not provide details. Similarly, the response to the question about liability assessment evaluation and its impact on excess capital utilization was vague. Additionally, the explanation of Robeco's AUM growth lacked specific strategies or details. Lastly, the discussion on domestic and overseas business opportunities was broad and lacked concrete plans or examples.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

IX Transcript

ORIX Corporation (IX) Q3 2026 Earnings Call Transcript

Positive2-9

ORIX Corporation (IX) Q2 2026 Earnings Call Transcript

Unknown11-12

The earnings call summary presents mixed signals: strong sales in insurance, but significant profit declines in key segments like Aircraft and Ships, and ORIX USA. The Q&A reveals management's cautious outlook amidst macroeconomic challenges and unclear responses on impairment risks. Despite a positive joint venture announcement, the overall sentiment remains neutral due to the company's uncertain earnings outlook and volatile profit expectations for next year. The lack of clear guidance and significant profit declines overshadow the positive aspects, resulting in a neutral prediction for stock price movement.

ORIX Corporation (IX) Q1 2026 Earnings Call Transcript

Unknown8-7

The earnings call highlights mixed signals: a slight decrease in Europe profits, a minor increase in Asia and Australia, and conservative asset management due to high interest rates and tariffs. The Q&A reveals cautious guidance reviews and unclear responses on share buybacks, which could dampen investor confidence. Despite a JPY 100 billion buyback program and a solid first-quarter base profit, the lack of specific guidance and conservative management approach suggest a neutral market reaction.

ORIX Corporation (IX) Q2 2025 Earnings Call Transcript

Positive11-11

The earnings call highlights strong financial performance, including record high net income and a significant interim dividend increase. The Q&A section reveals management's confidence in meeting profit goals despite some uncertainties, and plans for continued investment and asset management improvements. While there are some concerns about interest rates and political impacts, the overall sentiment is positive, especially with the focus on shareholder returns and growth areas. The market is likely to react favorably over the next two weeks, resulting in a positive stock price movement.

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