ORIX Corporation (NYSE: IX), a diversified financial services group based in Japan, has reported a substantial 38% increase in net income for the first quarter, reaching JPY86.7 billion. The company's annualized return on equity (ROE) also rose to 8.7%. This growth was driven by steady earnings in the finance sector and significant profit increases in the inbound tourism segment.
ORIX is optimistic about the future, expecting full-year capital gains to surpass the previous year's figures and planning to capitalize on opportunities in various business segments, including aircraft leasing and inbound tourism.
Key Takeaways
- ORIX Corporation's Q1 net income surged by 38% year-over-year.
- The company's annualized ROE now stands at 8.7%.
- Inbound tourism and the finance category were significant contributors to the profit increase.
- Capital gains for the quarter amounted to JPY35 billion.
- ORIX anticipates full-year capital gains to outdo the previous year's results.
- The Aircraft and Avolon segments saw profit increases due to higher passenger demand.
- ORIX USA segment profits declined due to cautious risk management.
- ORIX Europe segment profits rose, driven by fee income and asset under-management growth.
- The company is focusing on inbound tourism and capital recycling to achieve its net income target.
Company Outlook
- ORIX expects growth in the aircraft leasing market.
- Positive impacts from changes in interest rates and FX are anticipated.
- Gains on sales in the real estate and private equity businesses are projected.
- Equity investment in Panasonic (OTC:PCRFY) Connect's projector business is seen as a potential growth driver.
Bearish Highlights
- Profits in the Aircraft segment decreased without investment gains.
- ORIX USA reported a profit decline due to cautious risk management.
- Profits in the Asia and Australia segment dropped owing to the absence of valuation gains.
- The impact of market fluctuations on earnings remains uncertain.
Bullish Highlights
- The Ships segment profits increased following the acquisition of Santoku Senpaku.
- ORIX Europe's profits improved due to increased fee income and asset under-management.
- The company is strategically focusing on sectors with growth potential, such as inbound tourism.
Misses
- Total non-performing loans (NPL) are just over JPY60 billion, with close monitoring of the real estate business for future risks.
Q&A Highlights
- The actual investment in Panasonic Connect's projector business differs from the mentioned JPY118.5 billion due to loans.
- Profitability of the projector business may take time to increase due to its size and number of employees.
- Return on investment is expected to be in line with traditional deals.
- Synergy with Toshiba (OTC:TOSYY) or MICE IR is not factored into the valuation of private equity investments.
- The timing and impact of potential US rate cuts are uncertain.
- Shareholder return strategies, including share buybacks, are evaluated against investment in growth and are not decided based solely on share price fluctuations.
- The company has expressed a commitment to seizing market opportunities and diligently monitoring existing and potential deals.
ORIX Corporation's first-quarter results have set a positive tone for the fiscal year, with the company actively seeking to enhance shareholder value while maintaining a prudent approach to investment and risk management. The strategic investments and focus on growth sectors suggest a forward-looking approach to capitalizing on market opportunities. However, the company remains cautious about the potential impact of market fluctuations and is closely monitoring its non-performing assets.
InvestingPro Insights
ORIX Corporation's recent financial performance demonstrates robust growth and strategic positioning within the Financial Services sector. Here are some key insights from InvestingPro that further illuminate the company's current standing and outlook:
InvestingPro Data highlights that ORIX Corporation has a market capitalization of $25.3 billion, reflecting its significant presence in the industry. The company's P/E ratio stands at 10.73, indicating a potentially undervalued stock when considering its near-term earnings growth. Moreover, the PEG ratio of 0.41 suggests that ORIX's stock price may not fully reflect its earnings growth potential.
In terms of profitability, ORIX has been successful over the last twelve months, with a gross profit margin of 41.72% showcasing efficient operations and strong pricing power. The company's revenue growth of 5.66% in the last twelve months, coupled with a quarterly revenue growth of 16.1%, points to sustained business expansion.
InvestingPro Tips reveal that despite the stock's recent downturn, with a one-week price total return of -12.06%, it may be entering oversold territory according to the RSI indicator. This could present a buying opportunity for investors looking for entry points in a fundamentally solid company. Additionally, ORIX has demonstrated a commitment to shareholder returns, maintaining dividend payments for 33 consecutive years, with a recent dividend yield of 2.79%.
For more in-depth analysis and additional InvestingPro Tips on ORIX Corporation, investors can visit https://www.investing.com/pro/IX, where 9 more tips are available, providing a comprehensive view of the company's financial health and market position.
Full transcript - Orix (NYSE:IX) Q1 2025:
Nakane: It's time to begin the meeting. Thank you for joining us for ORIX Corporation First Quarter Consolidated Financial Results for the three-month period ended June 30, 2024. I'm from the Investor Relations and the Sustainability Department. My name is Nakane. I've been seeing this program, and today's attendee is Kazuki Yamamoto, Operating Officer responsible for Investor Relations. As we begin, we have a request to the participants. In order to present feedback, if you have a mobile phone or other telecommunication devices nearby, please make sure that it is turned off or away from the telephone. Yamamoto will provide an explanation and this will be followed by Q&A. The program will last approximately 1 hour. Mr. Yamamoto, please begin.
Kazuki Yamamoto: Thank you very much for the introduction, and thank you for joining ORIX Group's earnings meeting, despite your busy schedule. My name is Yamamoto, Operating Officer in charge of Corporate Planning and Investor Relations. Without further ado, we'd like to get started. Please turn to page two for the executive summary. Some of the four highlights. The first is on the net income. Q1 net income was up 38% year-over-year to JPY86.7 billion, bringing annualized ROE to 8.7%. This represents 22% of our full-year net income target of JPY390 billion, which is given the seasonality of ORIX's earnings. We view this as a solid start to the year. Finance category, in the three categories that we newly introduced in Q4 of last fiscal year, continues to generate steady earnings. Profits grew in the insurance segment during Q1. In the operation category, airport concessions continue to post earnings growth. In the investment category achieved 20% of the full-year profit target, while profits grew significantly at 194% year-over-year thanks to domestic PE exits. The second key point to look at is in inbound tourism. Profits of three inbound related businesses in total was up 78% to JPY6.9 billion year-over-year, thanks to aircraft using and in Aircraft and Ships on an ongoing profit expansion in the airport concession business, including Kansai International Airport and hotels and in the real estate facilities operation. In aircraft leasing, both lease rates and aircraft prices remain at elevated levels, fueled by expansion in passenger markets and tight supply and demand for aircraft. ORIX has exposure in both the aircraft leasing market and sales of pre-owned aircraft on the secondary market, and therefore enjoying better earnings opportunities and foresees strong growth potential in this business. The third point is capital recycling. In addition to a domestic PE exit, ORIX depends on the sales of investment condos, leading to a total of JPY35 billion in capital gains for the quarter. We also made several key investment decisions that are likely to contribute to future growth, which I will go into some details later on. We expect full-year capital gains to outpace those of the prior year, and we will carefully proceed with each deal as we promote ongoing capital recycling. Now, please turn to the next page. As shared at the beginning of this session, Q1 net profit was up 38% year-over-year to JPY86.7 billion, and this represents ORIX's strongest first quarter since FY ‘18 margined annualized ROE was 8.7%. The right-hand graph shows quarterly net income and ROE trends for the last two years. As you can see, ORIX's net income for Q1 in the past few years was in the JPY60 billion range, so this is the reason why we feel that we made a good start to the fiscal year. In the next few pages, you will notice that we have made some changes to how segment profits and segment assets are calculated. In each case, we have retroactively adjusted data from past fiscal years to reflect the change. For details, please see our supplemental materials, which were also released today. Please turn to page four. This slide explains progress towards our fiscal year forecast in the three categories. The left-hand bar chart shows actual segment profits for FY ‘24 March end and the target for this year. The right-hand bar chart shows this data for Q1. I will focus on the quarterly data for today's discussion. First, the dark blue finance category is what I want to make use of. Now, at the very top, this dark blue finance category was down slightly by 1% year-over-year in segment profits to JPY47.2 billion. Please note that ORIX's credit was previously in the finance category, but is now in the investment category from this year. Considering the change, finance category enjoyed a robust quarter, bolstered mostly by investment income in the life insurance business and other factors. The category progressed 24% of the previous forecast. Next, please look at the light blue bar, second from the top. This is operation category, which was up 14% year-by-year in segment profits, which is JPY53.2 billion. The earnings recovery in airport concessions, higher earnings in the European asset management business and growth in order all contributed to the expansion. The acquisition of Santoku Senpaku in Q4 last year also provided a profit boost. The operation category achieved 22% of its three-year earnings target, which we feel is a solid result given the seasonality of some of the businesses. Finally, please refer to the pink bar, third from the top for the investment category, where segment profits was at JPY36.8 billion. While this is just 20% of the three-year target, profit rose significantly by 194% year-over-year. The exit from the domestic PE industry and sales of investment convenience both contributed and ORIX was able to grow gains on sales through well-timed exits driven by the weak yen and low interest rates. Now, as a result, total segment profits were up 28% year-over-year to JPY137.3 billion. Please turn to page five. The page updates the three categories, ROA and segment asset-size data trend provided in Q4 of last year within the three categories. We still aim to improve ROA through finance category positioned as an earning space and aided by the accelerated shift to an asset management model in operation category and part of promotion capital recycling centered on investment category. Please move on to page six. This page shows the matrix table of three categories and 10 segments. The added definition for each of the categories as requested by investors. Please also note that, the three businesses in red font indicate changes from the investment category to operations category as of Q1. We retroactively -- Santoku Senpaku, as well as [Indiscernible] that is. We retroactively adjusted the segment profits on pages four to five to reflect these changes. Meanwhile, credit was categorized in finance last year, while it is now in the investment category from this quarter. Pages seven and eight give a summary of information by segment. Profits were up sharply year-on-year and if the gain on the sales of the partial stake in ORIX credit is excluded, then segment profits were also up Q-on-Q. Details for each of the 10 segments can be found in page 13 and onwards of the presentation material, but I will use pages seven and eight to go over the general trends. First is Corporate Financial Services and Maintenance Leasing segment. Segment profits were down JPY600 million or 3% year-over-year to JPY19.8 billion. Profits were lower in Corporate Financial Services on the absence of one-time gains booked in FY ‘24 March end. On the other hand, auto surpassed last year's record high Q1 performance and the last year's record high Q1 performance backed by continued strong sales of leased autos and growth in the rental car business sparred by stronger inbound tourism and rebound in domestic travel. At Rentec, profits were up on higher income from operating leases thanks to replacement demands for PCs. Real estate segment profits were up 36% year-over-year or JPY3.7 billion to JPY14 billion. The real estate investment and facilities operation business posted a surge in profits thanks to the sales of investment condos. Facilities operations that is hotels and inns, also sustained favorable earnings. Please note that, MICE IR business is now part of the real-estate segment, which has resulted in slightly higher costs year-over-year. The PE investment and concession segment profit was up 455% year-over-year to JPY 32 billion, a JPY26 billion increase year-over-year. PE investment business earnings grew sharply with the sales of Sasaeah Holdings as well as higher profit contributions fueled by earnings growth at existing industries, including DHC. The concessions unit profit was also higher on growth in international passenger numbers at Kansai International Airport, and an increase in non-aerial revenues fueled by new shopping facilities opened at the airport. On page eight, you can see that PE investment and concession assets are about 9%, which is mainly due to the sales of Sasaeah Holdings. Please go back to the Environment Energy segment. This segment reported losses of JPY500 million down -- JPY5.5 billion year-over-year. In Japan, costs rose for rebuilding of existing facilities as with first quarter FY ‘24 March, power generation made a new sale due to output caps at solar plants in some regions. Overseas renewable energy tends to be seasonally weak during Q1. In addition to this, profits were lower owing to the costs associated with past flood damage at an equity method affiliate. In Europe, natural gas inventory is piled up following the record warm winter which resulted in lower wholesale electricity prices. However, we expect Europe-wide LNG inventory adjustments to run their course soon. Insurance segment profits were up JPY2.5 billion or 13% year-on-year to JPY21.9 billion. Thanks to earnings gains from asset-managing portfolio diversification in life, insurance segment profits surpassed last year's robust performance. Growth in life insurance premiums also contributed. The banking and the credit segment recorded a 23% year-on-year or JPY2 billion decline in profits to JPY6.4 billion. This was mostly due to lower profit contributions from ORIX credit owing to a partial sale of our stake in the business. ORIX Bank saw high long-term fine rates applying to loans resulting in an increase in financial income. Segment assets were lower owing to the sale of our credit business. However, the lending balance rose on growth in corporate loans in key areas such as renewable energy and loan precipitations continued and trust assets were growing. We continue to prioritize improvements in profitability, while efficiently turning over assets. Please note that, with the sale of ORIX Credit, it is now an equity method affiliate instead of subsidiary, but it is still included in this segment. The aircraft and ship segment posted a JPY4.1 billion increase or 54% jump in segment profits to JPY11.8 billion. At Aircraft and Avolon, profits were up last year thanks to stronger passenger demand globally and quarter-by-quarter profits were down sharply in aircraft in the absence of investment gains, but the profit per trajectory remains positive. In Ships, profits were much higher with the addition of a Santoku Senpaku, which was acquired in the fourth quarter FY '24 March to ORIX Group. Segment assets were up by JPY135.3 billion, even excluding changes in ForEx owing to an increase in Aircraft purchases and Avolon profit contributions. From this quarter, we will disclose Aircraft and Ship segment data broken down into three business units, namely Aircraft, Ships, and Avolon. ORIX USA segment posted 3% year-on-year decline in profits to JPY11.8 billion. In light of the U.S. business climate, we continue to carefully manage risks for both new deals and existing investments. Through these risk management efforts, we have been able to control the balance of non-performing loans within expected levels. Also, as we booked larger impendence during Q4 last fiscal year, credit costs were minimum during the first quarter. On the three business lines, private credit posted stable growth in financial income, but the real-estate and PE businesses are in slump. This is the reason for lower profits. Segment assets were down excluding the impact of an exchange in FX. And the details are shown by business line on page 28 for your reference. ORIX Europe segment profits were up JPY4 billion or 56% year-on-year to JPY11.2 billion. Segment profits were up substantially on well-timed growth in fee income and the expansion in asset under-management. In the Asia and Australia segment, profits were down JPY2 billion to JPY8.9 billion. However, this is mostly due to the absence of valuation gains at an affiliate booked in the previous fiscal year. In ASEAN countries, the business climate is healthy. In South Korea, India, and Australia, new lease executions for auto are growing, while financial income and operating lease income is also expanding. Assets in this segment rose by JPY93.7 billion, but JPY91.5 billion of this was due to FX change. We remain cautious on Greater China, and the segment assets for this region are lower, excluding FX impacts. That's all about the explanation for each segment. Now, please turn to page nine, and I would like to explain the key topics. Starting with inbound tourism. We grouped the Aircraft and Ships, real estate facilities operations, and airport concession businesses into the inbound tourist-related category, as they took earnings hits following the pandemic but are seeing a strong recovery thanks to inbound tourism demand and their growth in global travel demand. Segment profit trends of these three businesses are shown on the left-hand side. Aircraft and Ships, pink, concession business, grey, have noticed a particularly strong recovery, as you can see. Q1 segment profits for these two businesses were up 78% year-on-year to JPY57.7 billion. In aircraft leasing, as I mentioned before, tight supply demand for jets has led to not only higher rates, as you can see on the upper right graph, but also rising prices for aircraft is contributing, and we see steady growth potential here for ORIX, as the secondary market is one of our areas of expertise. Please look at the lower right graph -- on the right. Visitor arrivals to Japan continue to outpace 2019 levels from all countries and regions except China. And also the number of visitors from the China Mainland is recovering. At Kansai International Airport, new shopping venues that were part of the last shift of innovation during the pandemic have opened and the non-air revenues are increasing. EXPO 2025 is coming to Osaka next year and we anticipate even greater increases in inbound tourism as a result. Capacity additions made to the airport as part of innovation should help boost earnings. Please note that Kansai Airport's results are posted to ORIX Group earnings on a three-month lag, so the Q1 results reflect the January through March period. Let's move to the next topic, which is capital recycling. In Q1, ORIX posted JPY35 billion in capital gains. The cash inflow of JPY135 billion from these transactions have been used for investments in growth areas such as domestic real estate, overseas renewable energy projects, and aircraft purchases. Since our last earnings call in May, we are moving forward with many transactions as anticipated. The investments are shown in the blue box on the bottom right-hand side, and over the last three months, ORIX has made multiple investments that will continue to contribute to future growth. By accelerating capital recycling based on our value creation model, we expect capital gains of FY ‘25 March to exceed those in the prior year. We continue to work to achieve the best pricing and conditions for each individual deal. Please turn to the next page. This is the breakdown of our segment profits, and this is base profit versus investment gains, separated as usual. Please turn to the quarterly trend on the right-hand side. Base profit is dark blue, investment gains is in light blue. Base profits rose 6% year-on-year to JPY103.8 billion, while investment gains were up 261% year-on-year to JPY33.5 billion. Looking at past Q1 results, we feel that this represents a strong start for FY ‘25 March both base profits and investment gains by capturing market timing, and you can see that active interest rates are being taken. ORIX plans to respond flexibly to changes in the macro climate such as interest rates and FX, and our financial strategy remained unchanged from the details outlined by our CEO, Makoto Inoue, in our May earnings release. We continue to work toward providing easy-to-understand disclosure and explanations in an effort to deepen investors' understanding of ORIX, despite the quick changes in the market. Q1 results were largely in line with our expectations. For Q2 and beyond, we will endeavor to improve company-wide profitability, utilizing the stable earnings base of the financial category, and through growth opportunities and operational investments, despite some uncertainties. First, we will be focusing on achieving our JPY390 billion net income target for FY '25 March, and continue with investments that will contribute to future growth in the following years, and that's all from me. Thank you very much for your kind attention.
Operator: [Operator Instructions] So, from SMBC Nikko, Muraki-san, over to you.
Masao Muraki: Muraki, this is from SMBC Nikko. So, the market fluctuation, how does it affect your earnings, is what I want to ask you. On page 45, to the right-hand side, so there is a sensitivity to ForEx as compared to large end. So, it is, yen has depreciated or appreciated further. So, that is about the JPY16 billion of adversity I think that you're experiencing. So, if the United States is going to go into recession and the Fed and ECB is going to cut their interest rate, then what would be the impact to your earnings, whether it be to the positive or negative? Thank you.
Unidentified Company Representative: Thank you for the question. As you have said, as we stand now, after the sensitivity to ForEx, so the current investment as well as loan extension, in fact, is upper basis, and we should be indicating a plus and minus of JPY2 billion. And therefore, what Muraki-san said is true. So, if there was to be any changes in the policy, especially for U.S. dollars as well as euro, interest rate cut should, we are proud to be positive for us. It would be a tailwind for our company. Whereas, for euro, the interest rate in actuality, the decline of the interest rate so far, in fact, has been supportive to the recovery of our earnings. And with regard to aircraft-related businesses, it would work out to be positive as well. With regard to USD, it is the same. Source income the same can be said to be true. And also private equity and also real estate. As of now, we have been refraining from making new investment. We have been continuing our activities so far. But I think we will be able to be provided with some leading space. But of course, it is kind of difficult to indicate the impact in a quantified manner at this point in time. However, these monetary policy changes can be captured as a great opportunity for our earnings. So, we have to make sure that we'll be able to capture that as an opportunity, both in European market, as well as U.S. market. I don't know whether I have been able to answer to your question in a straightforward manner because the market is still kind of going through changes. But that is all for myself. Thank you.
Masao Muraki: Well, thank you for your answer. So, here in Japan, investment to private equity and also exit in real estate. With regard to that, it is not co-related to NSA 225. But in what kind of condition would you find it difficult to generate gains on sales, do you think?
Unidentified Company Representative: Well, that is something you have said or asked. Essentially, with regard to real estate businesses, there are certain, of course, funds that we would have to continue to manage. So, we would have to perhaps increase the amount of wage and fees. So, such as investment condos this year, we were able to enjoy a kind of sales which had exceeded or outpaced our initial expectations. And that is the depreciation of yen and also lower interest rate was supportive of these initiatives on our part. However, the adjustment up until now about 2x as compared to the time when it was JPY 110 and JPY 120, in terms of the further space of growth, I think we still have some more space that we can enjoy growth because the expectations of investors would continue to remain to be unchanged. So, therefore, the pipeline deals that we can proceed with can be continued at a similar pace for now. But especially, the investment in PEs, especially FMEs, we would have to be affected by the higher interest rate. However, because of the positive turnaround of the economy, we can expect them to generate more profit. And that is true in the fees as well. They are beginning to show some signs of recovery in their earnings. So, therefore, we'll be able to not just receive any negative impact from the higher interest rate. I don't think the magnitude of impact could be that large. That is all.
Masao Muraki: Okay, thank you very much. That was very helpful.
Operator: Thank you. Daiwa Securities, Watanabe -san, please ask your question.
Kazuki Watanabe: Yes, this is Watanabe, Daiwa Securities. Panasonic Connect projector business, you have obtained this equity investment and profit contribution size. What kind of synergy do you expect? Can you please outline this, please?
Unidentified Company Representative: Thank you for your question. As you have mentioned, from Panasonic Connect, 80% of the projector business is transferred to us. And with regard to this project, we have mentioned several times in the past, we are positioning this as a carve-out investment from a large company. The PE expertise can be leveraged, and some aspects will be new to us as well. As you can see in the report, the transfer price, enterprise value, JPY118.5 billion is mentioned. But this actually includes loans. So, our actual investment is different from this number. And we are not disclosing this number yet, because it will take some more time before the deal can be closed. I hope you understand the situation. As for profitability, because this is a carve-out project, because of that nature, this means that compared to the conventional investment project, it may take time for this time to be profitable, to increase in profitability. Because the size of the business and the number of employees and other aspects of this project are larger than traditional. So, it may take time before this can contribute to profitability. But expected ROI in the end will not differ materially from the traditional deals. We believe that there is a good future potential for the return, and we will continue to focus on this. And together with the sellers, we will continue to proceed with the process up until the close of this deal. Thank you.
Kazuki Watanabe: What about synergy? What do you expect? What about synergy with Toshiba or synergy in terms of MICE IR? Do you have any comments?
Unidentified Company Representative: Thank you for your question. When we do PE investments, synergy with existing business is not necessarily included in a valuation. And therefore, we believe that this is going to be a potential upside. Specific events, specific planning, well, it will be impacted by the future trend. So, we should not rely on just one factor that would lead us to the wrong decision. And therefore, together with the seller, we are basically assuming this is going to be a standalone business. And rather than synergy, we can have areas of cooperation. So, we have PE know-how from the past, which means that we have experience of hands-on investments in the past. And ORIX has its own unique financial perspective, which can be reflected in this project, and that should contribute to future growth. I know that this doesn't directly answer your question, but this is how we assess, evaluate our investments.
Kazuki Watanabe: That's very clear. Thank you very much.
Unidentified Company Representative: Thank you for the question.
Operator: The next person is from Mizuho Securities, Sakamaki -san, over to you.
Naruhiko Sakamaki: This is Sakamaki from Mizuho Securities. Thank you for the opportunity. So, first, regarding your U.S. businesses, the risk as well as opportunity, if the rate cut is going to start in the United States, you may be able to start enjoying a growth potential. Is there any kind of timeline that you have in your mind, because we don't know how much of the cuts will be conducted, and also whether there will be a recession in the U.S. or not? And also, in terms of the frequency of the rate cuts, at what timing, if you have any ideas of the timeline, and what kind of impacts can be thought about as a result of such timeline?
Unidentified Company Representative: So, well, then, in that case, if I could refer to page 28, you can see the breakdown of the businesses. Please allow me to refer to this page. And as of now, this is just maybe limited to the impression, but let me answer to your question. So, the credit market in the United States, to a certain extent, we can start to see the signs of recovery. And therefore, our investment as well as our own extension businesses can enjoy expansion of the spread. And moreover, as has been shown, NXT Capital, as well as Signal Peak, in fact, we can make use of the funds that have been provided by our investors. And that would perhaps accelerate the willingness to invest on the part of those investors as well. And also, if there was to be an interest rate cut in the United States, and that may translate into the recovery of the market, and that may contribute to the earnings recovery, and maybe in the second half of next year or so. And as to the real estate businesses, in actual fact, we cannot, of course, foresee how much of a decline can be expected for the long-term interest rate. So, it is very much to do with the policy rate. And how does it affect the development of deals? So, that is what we cannot foresee as to the magnitude of the impact. And so, we would have to foresee how the policy is going to trend, especially in light of the presidential election in the United States. So, but as we look back at the past years, at the moment, as well as Boston Financial Investment, the mortgage investment levels that we used to enjoy in the past, maybe we would have to watch over the development in the next one to two years. On the other hand, as to PE, targeted equity, especially the middle market in the United States, in the general businesses or service businesses, their earnings recovery, and also an M&A business recovery related to such recovery of the market, it may take a little while. So, therefore, we would have to continue to be on the defensive side for now. So, the industries -- the impact to the earnings of the industries is one thing. But on the other hand, the private equity investment, the interest on the part of the investors, we have to see the terms and conditions becoming a little more clear and transparent because it remains to be uncertain still. So, credit-related businesses, we think that the pickup is going to be a little earlier, whereas mortgage, as well as PE, may take a little while until we can see a short recovery in the market. That is all.
Operator: Thank you very much for fetailed anpnanation JPMorgan Securities, Sato-san, please ask your question.
Koki Sato: Thank you. Yes, just one question about the non-performing assets or asset quality. What is the concentration and the future risks? What is your view on the future risks? In the appendix, page 27, I can see the non-performing. And for the individual loans, the non-performing is increasing. The ratio increases 2.8%. Compared to pre-COVID, I believe that this ratio is probably the highest that you have had for a while. So, where do you see the non-performing assets in each asset type? And how would you account for these losses? Is there a risk that this will hit your PL in the future?
Unidentified Company Representative: Thank you for your question. In terms of amount, total NPL is just over JPY60 billion. And then you have the traditional -- so, this is actually higher than the traditional number, JPY30 billion to JPY40 billion. There are different factors behind this. U.S. real estate business. In terms of classification, we have to include some of the items here. And this is why the disclosed amount of NPL is higher than before. So, real-estate related financing deals. This is what I'm talking about. And some of them will be recovered according to the disclosure assumption. So, we have no big concerns for those items. And also, the unknown value is recognized here by us. So, the real estate, which is part of the mortgage, we will continue to pay close attention to this. So that we can deal with the potential of losses in the future. So, we have not really accounted for this in a large way, in a big way at this point in time. But as I mentioned before, interest rate trends and also including mortgage, the business environment surrounding real estate may take time to recover, which means that at the moment, unbalanced or securitized assets, management status will have to be enforced. And we have already started this effort by reviewing the insurance. And also, we are doing this in a more granular manner right now. So, in terms of recognized assets by us, the quality of the assets, I would say, is now shared and managed at a higher level than what it used to be. In other words, in that sense, the transparency is improving. I hope you understand this point and that's my answer. Thank you.
Koki Sato: Thank you very much.
Operator: Suzuki, thank you for the question. The next is Suzuki-san from Nomura Securities, over to you.
Kiyoaki Suzuki: This is Suzuki from Nomura Securities. Thank you for the opportunity. Allow me to refer to slide number 10. So, there's one question to ask about this slide. So, referring to the bullet point, for the full year earnings, so capital gain is to be targeted which is to surpass that of '24 March end. So, I think you have changed the wording here. Can I take it that the likelihood has increased? This is something that I want to you to confirm. And it is not just dependent on the gain on sales, but also the new investment? Because of the market fluctuation, the volatility, how does it affect you in making or executing those decisions? Because the valuation may perhaps decline, that may allow you to make further investment. And also, yen has started to appreciate. So, some of the hesitancy that you used to have may go away. So, would you mind giving us some flavor to your idea because of the changes in the market?
Unidentified Company Representative: So, while we were targeting, we can expect, we have said, and that is at the time of the earnings result, we have made such expression that we targeted with what we have said last time. But this time, we have said that, we can expect or we expect. And that is based on the first quarter result. But there is not much of a change except for the fact that we have now concluded the first quarter. So, the market continues to be volatile. But as to the deals that we foresee executing, of course, we will continue to watch over the development by carrying through the negotiation. As to the likelihood, it is only one quarter of the purpose that we were able to meet in the first quarter. But as to the new investment, as you have asked the question, the valuation may have gone down. But the yen appreciation, especially in the first one or two years, if you were to compare to our actual investment. So, as a result of yen depreciation as well as low interest rate, we have been focusing very much on investment here in the domestic market. So, with the current rate against the U.S. dollar, the yen at JPY144, would that be perceived as attractive enough, it's yet to be determined. But as to the negotiation that we have been carrying out, it is true that we will be able to enjoy a little more tailwind, thanks to this depreciation of yen. But we may turn a little stronger in allowing the growth to take place, not just on shore, but also abroad as well.
Kiyoaki Suzuki: Thank you very much.
Operator: Thank you. The floor is open for questions. [Operator Instructions] Citi Group Securities, Niwa-san. Please ask your question.
Koichi Niwa: Yes, this is Niwa from Citi. I would like to ask you about the shareholder return. I believe that the variation is now lower, maybe partly due to the external environment. Investment into growth versus return for the shareholders, how do you evaluate this? And also, share buyback, do you think maybe there is room for you to be more agile, mobile about this? So in terms of share price support, is there anything that you can announce to us today? Thank you.
Unidentified Company Representative: Rationality of share buyback, well, we have to compare that against the expectation for the investment into growth, and this is something that is discussed by board meeting as well. So today at BOD, we met early in the morning. So we were actually not really talking about how the market would perform during the afternoon, but BOD, including our internal and external directors, the discussion included the reasonableness of the share price. This has always been discussed. Share buyback to support a share price, whether we can do this in an agile manner, well, we have not really discussed this extensively. I'm not really talking about specific thresholds, after which we would move very quickly, but we would like to receive this question and try to learn a little bit more about this going forward. I know that, I'm not really answering your question, but we are only talking about the return to shareholder as a comparison against the investment for growth. And in terms of the share buyback, we may decide it quickly, but we will not be doing that just because the share price fluctuated. That's all. Thank you.
Koichi Niwa: Thank you very much for your very dynamic explanation. That's very informative.
Unidentified Company Representative: Thank you for the question.
Operator: We are still waiting for your question. If you have any, please come forward. There seems to be no further questions, so we would like to conclude the Q&A session for now. I would like to call upon Yamamoto, who will be providing the closing remarks.
Unidentified Company Representative: Thank you all very much for joining us in this briefing, despite the very busy schedule. So that was the trend for the first quarter, and thank you very much for many questions. So, we would like to, of course, capture whatever the changes that will take place in the market to be a great opportunity that will make a positive contribution to the earnings. So, we will continue to watch over the development of the deals that are existing as well as in the pipeline, and thank you very much for your time again.
Operator: So, we would like to conclude the 2025 March-end first quarter results earnings briefing. Thank you all very much for taking part in this session.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.