ORIX Corporation (IX) Earnings

Management highlights

• **Organizational & Management Transition** - FY26 was the first year toward Oryx's long-term vision and an important year of management transition, with steady progress made toward strategic goals. - Organizational reform implemented in January 2026, with a new management structure effective April 2026, including hiring an external CFO/CSO. Investment and financing authority was delegated to business divisions to enable faster, accountable decision-making. - The new structure organizes the firm into 5 business units and 5 corporate units under a CXO system, with clear accountability for growth, risk management, and financial discipline. • **Key Strategic Initiatives (FY26 Progress)** - **Portfolio Optimization**: Completed multiple divestments including the sale of a Green coal stake and Oryx asset management/loan services, announced the upcoming sale of Oryx Bank, and made new targeted investments such as AM Green comparable bonds. No business areas are considered "sacred" and all are evaluated for alignment with capital efficiency and growth goals. - **Sophisticated Risk Management**: Integrated and visualized cross-cutting risk information to enable quantitative risk assessment and agile decision-making. Integrated deal screening and portfolio management departments to establish end-to-end risk management. - **New Business Creation**: Osaka IR project construction progressed smoothly; entered the U.S. professional asset valuation advisory business via the acquisition of Helga Global, with plans to build an asset-backed financing platform; made strategic investments in INET and converted Nozoe industry into a subsidiary to build out new strategic growth areas. • **New 2027 Initiative: Business Model Transformation** - Added this new initiative under the updated management structure, evolving Oryx's two core business models: alternative investment and operations, and business solutions. - For alternative investments: Continue holding high-value real assets on balance sheet while accelerating the shift to an asset manager model for suitable assets to drive medium-to-long term AUM growth. - For business solutions: Expand customer-centric services to grow fee income and AUM by leveraging existing client touchpoints.

Guidance

• For the fiscal year ending March 2027 (FY27), Oryx guides net income of ~530 billion yen, an increase of 82.7 billion yen (18.5%) YoY, with a target ROE of 11.7%. Pre-tax profit is guided to 760 billion yen, a 10% YoY increase. • Segment-specific FY27 guidance: - **Finance**: Guides segment profit of 308.3 billion yen, up 63% YoY, driven by a ~124.2 billion yen pre-tax gain from the planned sale of Oryx Bank to Dynex Bank, plus contributions from improved OXUSA profitability. This is expected to be a record high profit for the finance segment. - **Operation**: Guides segment profit of 240.7 billion yen, up 2% YoY. Moderate growth is expected despite lower inbound profit from Japan-China geopolitical tensions, offset by solid growth from aircraft leasing and Helga Global in the U.S. - **Investment**: Guides segment profit of 290 billion yen. Profit contributions are expected from the already announced sale of domestic PE investment Sugiko, ongoing exits from multiple U.S. PE deals, and strong performance from Toshiba. Even after excluding FY26's 95 billion yen one-time gain, the segment is still expected to post YoY profit growth. • Shareholder return guidance: Maintain a 39% dividend payout ratio, with a projected full-year dividend per share of 187.36 yen based on the 530 billion yen net income target. A new 250 billion yen share buyback program was approved (up 100 billion yen YoY), bringing the projected total return ratio to 85.9%. • Long-term guidance for 15% ROE by FY35 March remains unchanged, and management reports it is on track to approach the target through steady incremental execution.

Segment performance

For the full fiscal year ended March 2026 (FY26), Oryx Corporation achieved net income of 447.3 billion yen, up 27% year-over-year (YoY), and marked the third consecutive year of record profit, beating the upward revised full-year forecast of 440 billion yen. ROE reached 10.4%, up 1.6 percentage points YoY. Q4 net income was 57.6 billion yen, dragged down by a 97.2 billion yen goodwill impairment primarily at OXUSA related to the phased withdrawal from private equity (PE) business at OCP (OX Capital Partners). Pre-tax profit for FY26 was 691.4 billion yen, up 44% YoY, split across three core segments: 1. **Finance**: Segment profit increased 7% YoY to 189.2 billion yen, contributing 27.4% of total FY26 segment profit. Allocated capital was 1.7 trillion yen, with ROE holding steady at 8.2% YoY. Investment income and corporate financial services grew strongly to drive the result. 2. **Operation**: Segment profit increased 18% YoY to 237.1 billion yen, contributing 34.3% of total FY26 segment profit. Allocated capital was 1.4 trillion yen, with ROE rising from 13.5% to 13.9% YoY. Strong performance from inbound-related businesses (hotels, airport concessions) and auto/ship leasing, plus gains from the sale of stakes in Canara Robico and Zclyde drove growth, partially offset by headwinds from geopolitical risks in some businesses. 3. **Investment**: Segment profit increased 82% YoY to 265.1 billion yen, contributing 38.3% of total FY26 segment profit. Allocated capital was 1.6 trillion yen, with ROE jumping from 7.4% to 13.6% YoY. Gains from the sale and valuation of Greenco, large real estate sale gains, and earnings from PE investments including Ososhiba drove the result. Even after excluding 95 billion yen in one-time technical sale and valuation gains, the segment still posted profit growth.

Risks & headwinds

• **Geopolitical Risks**: Sustained Japan-China political tensions have reduced flight volumes at Kansai airports (where 30% of flights originated in China), with larger negative impacts on inbound-related revenue (airports and hotels) expected in FY27, even with offsetting growth from other regional markets (South Korea, Taiwan, Southeast Asia). Oryx is controlling overall China exposure and actively rotating out of longer-dated minority investments to reduce risk, with no plans to increase total China exposure. - The ongoing Middle East conflict creates indirect risk: potential jet fuel shortages could lead to reduced flight volumes and worsening airline credit quality, negatively impacting Oryx's aircraft leasing business. Prolonged conflict could also hurt Southeast Asian macroeconomic conditions and credit quality, though Oryx's direct exposure to the region via its two leasing affiliates is only ~15 billion yen, so direct impact is limited. • **Macroeconomic & Interest Rate Risks**: While gradual interest rate hikes are expected to have a net positive impact on Oryx's business, sudden, rapid rate hikes could create negative impacts via time lags in adjusting pricing to higher funding costs. High market valuations for target assets (real estate, aircraft, PE) have made new investments more challenging, though Oryx continues to pursue unique, high-value opportunities. • **U.S. Business Risks**: While downside protection measures have already been implemented at OXUSA, a slow recovery in the U.S. private debt and PE market is delaying the timing of asset recycling for non-core OXUSA assets. SaaS-related private credit exposure totals ~7% of Oryx's portfolio, well below the industry average of 20%, so overall impact is limited. Full profitability recovery at OXUSA is expected to take a few more years. • **Portfolio Risk**: Oryx's record of high one-time capital gains from divestments in recent years cannot be sustained annually, so profit volatility is possible depending on market conditions and divestment timing.

Analyst Q&A

• Q: What is the rationale for selling Oryx Bank, and how will Oryx deploy the cash proceeds from the sale? /

  A: Oryx Bank has weak deposit stickiness, and competing for deposits requires offering higher rates that compress margins, making sustainable growth difficult. Dynex Bank has strong deposit collection capabilities but lacks lending investment opportunities, so the combination creates far more growth value for the business under Dynex ownership. Oryx Bank also had lower ROA relative to other Oryx business segments, with limited room for improvement under current regulatory constraints, so the sale aligns with Oryx's capital efficiency-focused portfolio strategy. Proceeds will be allocated to Oryx's core competitive areas, primarily inflation-resistant real assets (real estate, aircraft) in Japan, where Oryx's operational and turnaround capabilities can generate strong returns.

• Q: What are the main risk areas Oryx is monitoring, how do interest rate changes impact the business, and what is Oryx's core shareholder return policy? /

  A: Key monitored risks include reduced inbound traffic from Japan-China tensions (with measurable expected impact on Kansai airports and hotels), limited but monitored SaaS private credit exposure in the U.S., and controlled overall China exposure with active portfolio monitoring. Gradual interest rate hikes have a net positive impact on Oryx, with limited sensitivity (around 1% net impact per 1% rate change), but rapid sudden hikes could create negative lags. The core return policy balances three priorities: funding future growth, maintaining financial soundness, and returning capital to shareholders. Oryx targets sustained DPS growth, balancing temporary gains from divestments with long-term payout sustainability.

• Q: How does Oryx position its insurance business within its current portfolio framework focused on ROE improvement? /

  A: While insurance is balance sheet heavy, regulated, and has a lower ROE of around 7%, it provides unique strategic value to Oryx. Insurance generates long-term liabilities that can fund other alternative assets across the Oryx group via reinsurance synergies. There are also distribution synergies: Oryx's strong corporate financial services distribution network can sell targeted insurance products to wealthy individuals. The business also generates stable pre-tax profit of over 100 billion yen annually, so Oryx has no plans to divest it, unlike Oryx Bank, and will retain it to support the group's overall funding and diversification strategy.

• Q: What is Oryx's outlook for U.S. business profitability recovery, and what is the strategic path for the business going forward? /

  A: Oryx has already implemented all necessary downside protection measures for OXUSA, with large credit cost reserves taken in FY26, so the main remaining factor is timing of non-core asset sales. Current stress in the U.S. private equity and private debt market has slowed asset recycling, so full profitability recovery is expected to take 2-3 more years, with the business size shrinking slightly as non-core assets are exited. Strategic growth going forward will focus on three areas: building out alternative asset management via Helga Global's asset valuation and asset-based financing capabilities, expanding U.S. real estate investments (including multi-family residential financing beyond existing agency mortgage business), and growing direct lending via the NXT platform, which has already had a successful first fund close.

• Q: How does Oryx approach portfolio optimization, and are there any off-limits businesses? /

  A: Oryx has no sacred, off-limits businesses, and evaluates every business logically based on multiple criteria. Key factors include: current capital efficiency (ROE/ROA), future growth potential, impact on Oryx's overall credit rating, and synergies with the rest of the Oryx group portfolio. All assets are evaluated regularly, and divestment is pursued when an asset no longer aligns with these criteria, regardless of its historical status. This approach will continue going forward as Oryx works toward its long-term ROE target.