ORIX (IX) Q2 FY26 earnings call: guidance and Q&A

Inquiring about the rationale for establishing a joint PE fund with QIA, given ORIX's past 100% balance sheet investments, its impact on the balance sheet, and whether it's part of ROE enhancement efforts.

Takahashi explained that the partnership with QIA, which was interested in Japanese investments, allows ORIX to leverage third-party funds for larger, higher-quality deals (JPY 30B+ market cap) while maintaining its own balance sheet for smaller investments. This shift to fund accounting (fair market value) rather than consolidated accounting is expected to benefit ROE and credit ratings by reducing asset bloating and easing goodwill recognition.

“at this timing, we wanted to leverage our third-party funds to shift to leverage third parties funds to try to capture larger, better quality deals. It would be a benefit in our long-term growth. That's our strategy.”

asked by Masao Muraki · answered by Hidetake Takahashi

Questioned how ORIX plans to achieve its 11% ROE target given the significant increase in net assets (JPY 200B from discount rate changes) and potential macro environment risks, especially since the numerator (profit) needs to grow substantially.

Yamamoto acknowledged the net asset increase from interest rate changes and discount rates, stating that initiatives are necessary to achieve the 11% ROE target. He mentioned considering various initiatives for US and Japanese accounting gaps and noted that if interest rates stabilize or decline, the denominator (net assets) could decrease, making the ROE target more achievable.

“As you pointed out correctly, for this fiscal year, the interest rate higher and the discount rate, discount and also the insurance account, the net asset increase was a little more than JPY 200 billion. And achieving the 11% ROE, of course, that the numerator will not naturally increase. So we have to take some measures or initiatives that will be necessary.”

asked by Koki Sato · answered by Kazuki Yamamoto

Asked about the outlook for ORIX Bank and ORIX USA regarding provision reductions, and the company's thoughts on next year's profit, specifically if it will be challenging or continue at the current cruising speed.

Yamamoto explained that ORIX Bank actively reshuffled its debt portfolio, recording losses to improve quality, while ORIX USA booked credit losses and impairments from pandemic-era real estate financing. He expects ORIX USA's issues to be resolved by H2 FY26 or H1 FY27. Takahashi added that while one-off gains like Greenko's sale are volatile, ORIX aims for sustainable profit growth and uses buybacks to linearly increase EPS, not necessarily targeting a specific profit amount each year.

“Going forward, what would happen is real estate for multifamily condominium performance. Interest rate hike and insurance premium increase will impact the rent. And I believe that we will need to closely monitor property management and appropriate asset monitoring, too. So those potential risk, we are quite clear at ORIX USA side. So we don't foresee this kind of situation will continue. So at least by the end of this second half or at the latest in the beginning -- within the first half of next year, we will resolve. We will conclude our countermeasures.”

asked by Kazuki Watanabe · answered by Kazuki Watanabe

Questioned the balance between the JPY 200 billion+ capital gain forecast for the full year and the relatively lower segment profit forecast for the second half (JPY 200 billion), asking for clarification on how these figures reconcile.

An executive clarified that the JPY 200 billion capital gain includes the JPY 95 billion from Greenko, which is above the normalized JPY 100 billion. The real estate and PE markets are solid, allowing for flexible capital recycling. The second half forecast for segment profit is set at a 'regular cruising speed' rather than buoyant, and some first-half gains were one-off from equity method affiliates like Toshiba, which are not expected to recur in the second half.

“As you know, usually, our capital gain is about JPY 100 billion. That's the normalized level. So Greenko part, JPY 995 billion is added. So it's JPY 200 billion. So that is on track.”

asked by Naruhiko Sakamaki · answered by Unknown Executive

Asked for a detailed breakdown of the Environment and Energy segment's JPY 117 billion profit, specifically after deducting the JPY 95 billion Greenko gain and JPY 83 billion from Ormat (equity method), noting that the remaining figure appears to be a deficit, and inquired about impairment risks.

Takahashi explained that stable profit comes from operating mega solar projects in Japan. While some units like Elawan and ORIX's resource recycling business are near breakeven or in a small deficit, there are no signs of major impairment losses. He clarified that the segment's performance, excluding the large one-off gains, is a mixed bag but not a significant deficit, stating that the analyst's calculation of a JPY 8.2 billion Q2 loss is correct but the overall picture is closer to breakeven.

“In Environment and Energy, the major one is Elawan, and Elawan concerning that, it is breakeven or just slightly in red. So a lower interest rate and also the ones that we are developing projects and also the program has started. So in terms of business, we are in the recovery phase.”

asked by Natsumu Tsujino · answered by Hidetake Takahashi