What Orix Corp Ads (IX) Said on Its Q2 Earnings Call

Key Points

• Record first-half net income reached 856.2 billion yen, nearly triple the year-earlier result, boosted by KIOXIA-related gains and asset sales. ORIX maintained its full-year forecast of 530 billion yen despite the strong first half.
• KIOXIA share-price volatility poses a major earnings risk: ORIX estimated about 190 billion yen in third-quarter sale and valuation losses using September-end prices, with the subsequent decline implying roughly 120 billion yen in additional after-tax losses.
• ORIX reported 930 billion yen in first-half investment recoveries and plans to invest more than 800 billion yen for the full year. It also raised its interim dividend to 113.56 yen per share and had repurchased 175.5 billion yen of shares by October’s end.

Orix Corp Ads NYSE: IX reported record first-half net income of 856.2 billion yen, nearly three times its result a year earlier, as gains tied to KIOXIA shares and asset sales boosted earnings. Executives cautioned that the semiconductor company’s declining share price could weigh heavily on results in the second half.

Chief Financial Officer Masataka Yamada said first-half profit included 538.7 billion yen in after-tax KIOXIA sale and valuation gains and 317.5 billion yen in adjusted profit. The company maintained its full-year net income forecast of 530 billion yen, citing uncertainty about KIOXIA’s share price and the gains or losses it might record in the fourth quarter.

President and CEO Hidetake Takahashi said the results also benefited from the sale of ORIX Bank and exits from several private equity investments. Asset management, aircraft and ships contributed to profit growth, while impairments on Greater China investments weighed on results.

KIOXIA volatility clouds outlook

Yamada said ORIX expected to record approximately 190 billion yen in KIOXIA sale and valuation losses in the third quarter based on the stock’s September-end price of 18,095 yen. He noted that KIOXIA closed at 8,511 yen on Nov. 6.

Based on Toshiba’s KIOXIA holdings at the end of September, every 1,000-yen change in KIOXIA’s share price would change ORIX’s after-tax gains by an estimated 12.8 billion yen, Yamada said. During the question-and-answer session, he indicated that the subsequent decline represented roughly 120 billion yen in additional after-tax sale and valuation losses, while emphasizing that future share-price movements were outside the company’s control.

ORIX holds its KIOXIA exposure indirectly through Toshiba. Yamada said further share sales could reduce the effect of price fluctuations. He also said ORIX hoped to update investors on its outlook after assessing the share price at the end of December, and no later than its third-quarter earnings call.

Yamada declined to characterize approximately 100 billion yen in quarterly core profit as a reliable ongoing run rate, noting that earnings tend to be weighted toward the first half and that results included one-time gains such as the ORIX Bank sale.

Asset sales and investment plans

Second-quarter adjusted profit was 158.4 billion yen, including approximately 90 billion yen in after-tax gains from the ORIX Bank sale and roughly 30 billion yen in after-tax impairments in Greater China, Yamada said. ORIX transferred all its shares in the bank to Daiwa Next Bank in August.

First-half segment profit rose to 1.15 trillion yen from 397.8 billion yen a year earlier. APAC accounted for much of the increase, driven by KIOXIA gains. Europe and Americas profit rose as ORIX USA recorded gains on private equity investments and asset management fees grew. Infrastructure profit declined because the prior-year period included large gains from asset sales.

ORIX recorded about 930 billion yen in cash inflows from investment recoveries in the first half, compared with approximately 340 billion yen in outflows for new investments. Yamada said the company’s investment pipeline remained robust and that it expected to invest more than 800 billion yen for the full year, including in domestic real estate, private equity, aircraft and Osaka IR.

The company is reviewing its portfolio in the U.S. and prioritizing risk reduction and investment recovery in Greater China. Takahashi said most of the 40 billion yen in second-quarter Greater China impairments related to China Water Affairs, an equity-method holding, following a decline in its market value relative to book value.

Aircraft and asset management expansion

ORIX completed its acquisition of aircraft aftermarket company AerFin on Nov. 2. Takahashi said AerFin procures, sells, leases and repairs engines and parts and serves 600 customers across six continents. The deal adds aircraft dismantling for parts as an exit option alongside leasing and aircraft sales, he said.

Takahashi said tight supply and demand for relatively young aircraft helped ORIX generate sales gains. He expects the aircraft market to remain favorable over the medium term and said the company is preparing funds as it shifts more of its aircraft and ships business toward asset management.

In other asset management initiatives, Yamada said ORIX began construction of two Japanese battery storage plants with three outside investors. ORIX has a 23.7% stake and will provide asset management and maintenance services. In the U.S., subsidiary NXT Capital closed new funds at its largest-ever scale, he said.

Returns and business risks

ORIX set its interim dividend at 113.56 yen per share, up 19.8 yen from a year earlier, and maintained its full-year dividend forecast of 187.36 yen. The company had repurchased 175.5 billion yen of shares by the end of October under a 250 billion-yen buyback limit announced in May.

Executives reiterated an 11% return-on-equity target for the fiscal year ending March 2028, but said KIOXIA volatility complicated the choice of performance measure. Takahashi said the company would consider which index to target and hoped to provide an answer by the third-quarter call.

Asked about unauthorized access affecting ORIX Life distributors and private equity investees DHC and White Essence, Yamada said the company did not currently recognize a material management impact. He said ORIX reviews group security standards and is working on intrusion prevention, early detection, damage control, recovery and vendor management.

About Orix Corp Ads (NYSE:IX)

ORIX Corporation is a diversified financial services and investment company headquartered in Tokyo, Japan. Founded in 1964 as Orient Leasing, it initially focused on leasing and has since expanded into a broad range of financial and operating businesses.

The company provides leasing, lending, insurance, banking, and asset management services. Its activities also include real estate development and management, private equity and investment, aircraft leasing, and environmental and renewable energy projects.

ORIX serves customers and invests in businesses across Japan and international markets, including the Americas, Europe, the Middle East, and Asia-Pacific.

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