ORIX's Q2 2026 Earnings Call: Contradictions in ROE Strategy, U.S. Investment Delays, and Capital Recycling Plans

Guidance:

• Full-year pretax profit raised to JPY 640 billion and net income to JPY 440 billion (full-year EPS forecast JPY 394).
• Full-year ROE forecast 10.3%; medium-term target reiterated: 11% ROE and JPY 100 trillion AUM by March 2028.
• DPS raised to JPY 153.67 and share buyback expanded to JPY 150 billion (JPY 78 billion repurchased by end‑October).
• Forecasted realizations/new investments for FY26 of JPY 600–800 billion; ORIX USA outlook to be conservatively reviewed.

Business Commentary:

• Revenue and Profit Growth:
• ORIX Corporation reported a record high net income of JPY 271.1 billion for Q2, marking a 48% increase compared to the same period last year.

• The growth was driven by gains from major exit deals, including Greenko Energy, and strong performance in segments like PE investments and Offshore and Maritime.

• Portfolio Optimization and Shareholder Returns:

• The company increased its full-year dividend forecast from JPY 132.13 to JPY 153.67 per share, reflecting the adjustment to a JPY 440 billion full-year net profit forecast.
• ORIX also expanded its share buyback program from JPY 100 billion to JPY 150 billion, with JPY 78 billion already repurchased by the end of October.

• These changes resulted from strong financial performance and capital recycling efforts.

• Investment and Asset Management:

• ORIX's total group AUM reached JPY 88 trillion, bringing it closer to its medium-term target of JPY 100 trillion.
• The company established a PE fund together with Qatar Investment Authority, aiming for an AUM of JPY 100 trillion by March 2028.

• This strategy is part of ORIX's plan to strengthen its asset management function and expand alternative investments.

• Segment Performance and Capital Recycling:

• The Environment and Energy segment experienced a significant 117% increase in profit to JPY 119.7 billion, bolstered by gains from Greenko Energy and domestic electricity retail business performance.
• All three segments - Finance, Operation, and Investment - achieved profit growth year-on-year, contributing to a total segment profit increase of 42%.
• Capital recycling was evident in sales of major assets like Greenko Energy and Hotel Universal Port VITA, and the purchase of new assets, like Hilco Global.

Sentiment Analysis:

Overall Tone: Positive

• Management raised full‑year net income from JPY 380bn to JPY 440bn and expanded buybacks to JPY 150bn; COO said portfolio optimization and capital recycling are progressing and AUM reached JPY 88tn. Offsetting this, ORIX USA reported a JPY 1.8bn loss and management said they are conservatively reviewing its forecast, indicating caution in parts of the portfolio.

Q&A:

• Question from Masao Muraki (SMBC Nikko Securities Inc.): What led you to establish the joint PE with QIA, will you run off existing PE on balance sheet, and will the 60% commitment bloat your balance sheet or change ROE?
  Response: ORIX will commit 60% to a USD 2.5bn PE fund with QIA to access larger JPY30bn+ deals, apply fund accounting (less on‑balance‑sheet bloat), maintain roughly JPY1tn of balance‑sheet PE exposure and use third‑party capital to capture larger, higher‑quality opportunities.

• Question from Koki Sato (JPMorgan Chase & Co): Given the JPY ~200bn insurance-related net asset increase from higher discount rates, what initiatives will you take to make ROE sustainable and mitigate macro risks?
  Response: Management acknowledged ~JPY200bn net‑asset uplift from discount‑rate effects, expects rates to stabilize, and will pursue measures (capital recycling, profitability initiatives and monitoring) to grow underlying earnings and support the ROE path.

• Question from Kazuki Watanabe (Daiwa Securities Co. Ltd.): With reduced provisions in bank/US business and recent strong FY26 results, what is your outlook for next year — challenging or steady?
  Response: Management expects H2 and FY27 to rely more on base profit growth while recognizing sale gains are lumpy; ORIX USA issues are being addressed and detailed next‑year plans will be prepared early next year without revising the medium‑term targets downward.

• Question from Naruhiko Sakamaki (Mizuho Securities Co., Ltd.): Page 10 shows capital recycling guidance ~JPY200bn—how should we interpret this relative to segment profit in H2?
  Response: Normalized capital gains are about JPY100bn; Greenko inflated H1 to ~JPY200bn, real‑estate and PE markets remain solid and ORIX will flexibly recycle capital, so H2 gains may be lower given H1 realizations.

• Question from Futoshi Sasaki (Nomura Securities Co. Ltd.): H1 pretax was strong; H2 looks weaker—are you forecasting impairments or volatility and what about achieving higher ROE?
  Response: H1 included one‑off equity‑related gains (e.g., Toshiba/Kioxia); H2 is set to a normal 'cruising' base profit with possible opportunistic gains; achieving 11% ROE requires sustained base‑profit growth plus disciplined capital recycling.

• Question from Natsumu Tsujino (BofA Securities): Environment & Energy segment: excluding Greenko and Ormat gains, the segment appears in the red—are there impairments and what is the risk going forward?
  Response: Excluding Greenko/Ormat, the segment is roughly breakeven with small deficits (e.g., Elawan marginally negative, some recycling businesses temporarily weak); management does not see major impairment risks at present.

• Question from Atsuro Takemura (Morgan Stanley): Why were some lending/profit items revised and how does ORIX USA's revised performance affect the overall segment?
  Response: Finance saw strong asset‑management income but also booked conservative losses (bond sales) to improve portfolio quality; ORIX USA suffered credit costs/impairments from legacy real‑estate assets, prompting a more conservative outlook and closer portfolio reviews.

Contradiction Point 1

ROE Enhancement and Capital Allocation Strategy

It directly impacts the company's strategy for enhancing return on equity (ROE) and its approach to capital allocation, which are critical for investor expectations and strategic direction.

Is this part of your ROE enhancement effort? - Masao Muraki(SMBC Nikko Securities)

2026Q2: Yes, this initiative aims to enhance ROE. The fund will change the way profit is incorporated, impact credit ratings, and ease goodwill and intangible asset recognition. By leveraging third-party funds, we aim to capture larger, better quality deals to boost long-term growth. - Hidetake Takahashi(President, ORIX)

Why is the dividend being announced now? - Unidentified Analyst(SMBC Nikko Securities)

2026Q1: This year, we have increased our dividend to a 39% payout ratio, and we also have a buyback in place, considering sustainable growth as well as balance and stability of profitability. - Kazuki Yamamoto(Head of Corporate Planning & Investor Relations)

Contradiction Point 2

Investment Strategy in U.S. and Capital Recycling

It involves changes in the company's investment strategy in the U.S. and its approach to capital recycling, which are crucial for financial management and risk mitigation.

Why are you delaying certain investments, and how does the ORIX USA segment affect overall performance? - Atsuro Takemura(Morgan Stanley)

2026Q2: The delay is due to uncertainty in U.S. asset values and a conservative outlook for ORIX USA, which is posting losses. Investment and business conditions are challenging in the U.S., and we are enacting countermeasures. - Kazuki Yamamoto(Head of Corporate Planning & Investor Relations)

How do you view risks from tariffs and changes in renewable energy incentives for U.S. businesses? How do you assess U.S. market exposure? - Koki Sato(JPMorgan Chase & Co)

2026Q1: Capital recycling is being considered. Profits are near breakeven, and the situation remains opaque. The credit business is solid, and they aim to minimize risk. Hilco Global is seen as countercyclical and will continue to be invested in. - Kazuki Yamamoto(Operating Officer in charge of Corporate Planning and IR)

Contradiction Point 3

Capital Recycling and ROE Enhancement

It involves the company's strategy for capital recycling and its impact on ROE, which is a key focus for the company's growth and investor expectations.

What prompted the joint PE with QIA? Will the fund replace existing balance sheet investments and impact the total balance sheet? - Masao Muraki (SMBC Nikko Securities)

2026Q2: The fund will be in addition, not replacement. It aims to leverage third-party capital for better quality deals, enhancing long-term growth and impacting the balance sheet minimally. - Hidetake Takahashi(President, ORIX)

How does the JPY 100 billion buyback program fit into the overall shareholder return strategy? - Kazuki Watanabe (Daiwa Securities)

2025Q4: Share buybacks will be done if there is excess cash from investments. - Unidentified Company Representative