ORIX Q1/FY2024 Earnings

ORIX Corporation delivered a strong performance in the first quarter of FY25.3, reporting a net income of 86.7 billion JPY, a significant 38% increase year-on-year and achieving 22% of their full-year target. This translated to an annualized ROE of 8.7%. The company witnessed robust growth across all three core categories: Finance, Operations, and Investments.

Orix’s three categories: Finance, Operations, and Investments

Within Orix’s three categories, the expectation is for stable “Finance” earnings to be supported by changes in the macro climate, the ongoing shift to an asset manager model to boost “Operations” and an increased focus on capital recycling to drive the “investments” category.

Key Drivers of Growth

• Rebound in Inbound Tourism and Global Travel: The Aircraft and Ships segment, along with airport concessions, saw a sharp profit increase (up 78% YoY) fueled by the resurgence of inbound tourism and global travel. Higher lease rates and aircraft prices, coupled with tight supply demand in the aircraft market, further contributed to this growth.
• Strategic Capital Recycling: The Investments category saw a substantial profit jump (up 194% YoY) driven by a domestic private equity exit and other strategic divestments. This successful capital recycling initiative resulted in Q1 capital gains of 35 billion JPY, paving the way for future growth.
• Stable Performance in Finance: The Finance category delivered steady profits, reflecting ORIX’s resilience in adapting to changes in the macro environment.

Segment Highlights

Orix ten segments, broken down by category

• Corporate Financial Services and Maintenance Leasing: While slightly down YoY due to the absence of one-time profits from FY24.3, the Auto segment achieved record Q1 performance, bolstered by robust used car sales and growth in rental cars. The Rentec business also saw profit growth thanks to higher operating lease income.
• Real Estate: Strong performance driven by sales of investment condos and other properties boosted profits. Facilities operations also contributed significantly to the positive results.
• PE Investment and Concession: Robust performance driven by strategic exits and strong growth at existing portfolio companies. The concession business, particularly airport concessions, benefited from the recovery in inbound tourism.
• Environment and Energy: Segment profits were negatively impacted by higher rebuilding costs in the domestic market and seasonal weakness coupled with flood damage losses in overseas operations.
• Insurance: Investment income surged, leading to higher overall profits. Growth in premium income also contributed to the positive results.
• Banking and Credit: Profitability was down YoY due to the sale of a partial stake in ORIX Credit. However, the banking business saw growth in financial revenues on the back of a higher long-term prime rate.
• Aircraft and Ships: Strong performance driven by expansion in global passenger markets and contributions from Santoku Senpaku.
• ORIX USA: While segment profits were slightly lower YoY due to a slump in the real estate and private equity market, the private credit business performed well. Profits were up significantly QoQ due to the absence of allowances booked at the end of FY24.3.
• ORIX Europe: Profitability soared YoY on the back of higher asset management fees fueled by robust AUM growth.
• Asia and Australia: Although leasing exposure increased across South Korea, India, and Australia, profits were down YoY due to the absence of a valuation gain recorded in the previous year.

Strategic Outlook

ORIX is committed to achieving its FY25.3 targets through the following key initiatives:

Accelerating capital recycling model led to company-wide net income growth of 3.1X, CAGR of 11%

• Capital Recycling: The company anticipates continued progress in capital recycling throughout FY25.3, aiming for capital gains that exceed FY24.3 levels. Already announced deals, aircraft purchases, and other investments currently underway are expected to drive future growth.

Orix’s shift to an asset manager model, as size of investments increases

• Shift to Asset Manager Model: ORIX aims to bolster its position as an asset manager by expanding its investment portfolio and targeting an AUM of 100 trillion JPY. This involves further diversifying its investments across various asset classes while leveraging its specialist knowledge and origination expertise to pursue higher profit margins.

Financial Highlights

• Net income for Q1 FY25.3 reached 86.7 billion JPY, up 38% YoY.
• Annualized ROE reached 8.7%.
• Segment profits across all ten segments increased by 14% YoY, with significant growth in Operations and Investments (up 194% and 194% YoY, respectively).
• Segment assets grew to 16.2 trillion JPY, primarily driven by forex changes.

• Orix reached a Price-to-Book Ratio (PBR) exceeding 1 during the last quarter of FY2023 (ending in March 2024); given recent market volatility, it remains to be seen whether that level is sustainable, although supported by a stock buyback program (see below)
• Orix’s pre-tax profit sensitivity is given as plus 2 billion yen for each 1 yen decrease in the JPY/USD exchange rate lasting for twelve months; the earnings presentation does not provide the exchange rate used for budgeting

Shareholder Returns and ESG

• FY25.3 shareholder return policy aims to distribute 39% of net income to dividends, with a full-year DPS forecast of 133.2 JPY.
• A share buyback program of 50 billion JPY has been initiated.
• ORIX is committed to its ESG goals, including achieving net-zero GHG emissions by FY2050 and a zero investment and credit balance in GHG-emitting industries by FY2040.

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