Mitsubishi HC Capital Inc. Q1 FY2026 earnings call

Overall Financial Performance

• Consolidated net profit reached 57.2 billion yen, up 46.2% year-over-year, driven by higher real estate asset sale gains, strong performance from Aviation and Logistics, and a 18 billion yen positive impact from aligning three overseas subsidiaries' fiscal year to the parent company's March fiscal year end. Excluding the fiscal alignment impact, profit still increased year-over-year.
• Both core income gain and asset-related profit rose sharply year-over-year; income gain has grown at a 7.5% annual rate since the 2021 business integration, and ROA has improved steadily, supporting the company's asset-rotating growth model.
• New contract volume decreased year-over-year due to large transactions in the prior year period, while segment asset balance was nearly flat excluding foreign exchange impacts. The yen strengthened year-over-year, creating a downward impact on both P&L and balance sheet.

Fiscal Year Alignment of Subsidiaries

• Three subsidiaries (elfc for aircraft engine leasing, CAI for marine container leasing, PNW for railcar leasing) changed their fiscal year from December to March to align with parent company reporting, following the prior year alignment of aircraft lessor JSA. The Q1 2026 results include three months of additional results from January-March 2025 to eliminate period mismatch, creating the one-time positive profit impact.

Operational Updates

• In the Americas commercial truck business: market conditions remain difficult with no improvement in spot rates, but the company's tightened underwriting standards and stronger repossessed vehicle sales capabilities have started to deliver results, cutting credit costs by more than half from Q4 FY2025.
• The company added Q1 and Q3 online earnings calls starting this fiscal year, up from the prior schedule of only full-year and half-year results calls, to improve transparency with investors.

1. Customer Solutions: Net profit decreased year-over-year due to the loss of a 3 billion yen (~0.3 billion yen) stock sale gain from Sekisui Lease in the prior year period. Core income gain and asset-related profit increased, overcoming the negative impact from the Sekisui Lease sale. The full-year net profit target is 43.7 billion yen, and Q1 progress is 20.7%, below the 25% benchmark. Revenue contribution is approximately 27.3% of the full-year target. 2. Overseas Customer (renamed from Overseas Regions, no change to business scope): Excluding foreign exchange impacts, income gain increased driven by European business growth. Credit loss related expenses rose due to ASEAN business restructuring costs, while Americas region credit costs were flat year-over-year and down more than 50% from the prior quarter. Q1 progress rate to full-year target is 10.5%. 3. Environment and Energy: Recorded a 1 billion yen Q1 net loss, driven by lower off-season power sales revenue, the loss of a prior year overseas infrastructure stake sale gain, and goodwill amortization related to European Energy. Full-year segment profit is still expected to exceed the prior year, as asset sale gains typically concentrate in the second half. 4. Aviation: Segment profit increased by 2.9 billion yen due to the fiscal year change of subsidiary elfc, even after absorbing the loss of a 2 billion yen prior year aircraft stake sale gain and lower asset-related profit. Core income gain offset these headwinds, and the underlying business remains strong. elfc placed a 50-unit order for new aircraft engines, the largest ever by an independent lessor. 5. Logistics: Segment profit increased by 6.2 billion yen due to the fiscal year change of subsidiaries CAI and PNW. Excluding this impact, profit still rose from higher container lease income from prior year large investments and increased railcar asset sale gains, and the underlying business remains strong. 6. Real Estate: Segment profit increased sharply from higher asset sale gains, plus a 1.5 billion yen reserve release from a finance business transfer to a subsidiary that resulted in a lower required general allowance. No actual underlying increase in credit losses. 7. Mobility: Small net profit increase driven by higher gains from the sale of end-of-lease vehicles in ASEAN auto lease business. The 5 specialized segments (Aviation, Logistics, Real Estate, Environment and Energy, Mobility) had a Q1 progress rate of 40.2% to full-year target.

• Full-year net profit guidance is maintained at 160 billion yen, despite the Q1 progress rate reaching 35.8% (driven by the one-time fiscal alignment impact), which is roughly in line with management expectations.
• elfc outperformed the initial plan by ~6 billion yen in Q1 due to higher utilization, but this upside was offset by slower progress in Customer Solutions and early credit cost recognition in Overseas Customer, so overall performance is in line with the full-year plan.
• Management maintains the expectation that Environment and Energy will deliver full-year profit above the prior year, even with a Q1 loss.

• U.S. tariff policy creates indirect downside risk via potential broader economic slowdown, reduced corporate capital expenditure, and lower global logistics volumes. No material impact has been observed through Q1, but the company will continue monitoring developments.
• Persistently weak market conditions in the U.S. commercial truck sector could lead to higher-than-expected credit losses in the Americas segment.
• High macroeconomic uncertainty means current Q1 upside may not continue through the full year, so management does not expect large full-year upside to existing guidance.
• European economic weakness, particularly in the UK, could pressure growth in the European business segment.

Q: How is Mitsubishi HC Capital progressing toward Customer Solutions' full-year profit target, given the low Q1 progress rate, and what strategies is it using to hit the goal? / A: The full-year 7 billion yen profit growth target is split 60% to core base lease business growth focused on higher-yield assets, 20% to high-value added businesses like semiconductor equipment refurbishing, healthcare solutions, and PC lifecycle management, and 20% to new partner-led services. Core base business is already on track to deliver its target, with income gain up 1.6 billion yen year-over-year. High-value added businesses are seeing mixed but progressing early results, while new partner services are still in proof-of-concept (e.g., robotics subscriptions, connected forklift services) with no Q1 profit generation, and are expected to contribute over time. New services are a key focus for this year and future mid-term plans.

Q: What is management's assessment of European income gain growth for the Overseas Customer segment, particularly in the UK vs. Continental Europe? / A: Even with very weak UK and broader European economic conditions, European income gain rose to 19.5 billion yen in Q1 from 18.1 billion yen in the prior year quarter. The UK's MHCUK platform has delivered this growth through high-quality customer service including faster credit underwriting and strong after-sales support, avoiding pure margin competition, so performance is considered solid. Continental European business is mostly automotive-related and makes up a small share of total European profit, and the small scale means rapid expansion is not feasible in the near term; expansion into continental Europe will be considered for the next mid-term plan.

Q: What key improvement priorities is management focusing on heading into the next mid-term management plan? / A: The top priority is normalizing credit costs in the Americas segment of Overseas Customer, bringing costs fully down to normal levels as soon as possible. Second, the company needs to continue growing Customer Solutions profit, including scaling up new businesses like robotics to strengthen this core segment. Third, the company plans to improve profitability at the Environment and Energy segment, particularly at European Energy, where acquired goodwill amortization has weighed on results and incremental profit gains need to be unlocked.

Q: How does management assess the aviation business's JSA (aircraft leasing) and elfc (engine leasing) subsidiaries, and their future growth paths? / A: The overall aviation market is strong, with passenger traffic back to pre-pandemic levels, but aircraft and engine supply remains constrained, pushing up lease rates and residual values, benefiting both businesses. JSA will continue slow, steady fleet growth with a focus on improving profitability rather than rapid expansion. elfc is already the top independent aircraft engine lessor (excluding manufacturer-owned lessors), and the recent 50-engine order will further strengthen its position, with significant room for future growth. More detailed strategic plans for both will be shared when the next mid-term plan is released next spring.

Q: How do you assess CAI (container leasing) and PNW (railcar leasing) in the Logistics segment, particularly PNW's current profit contribution? / A: The container market is growing steadily, with limited expected impact from U.S. tariffs, and CAI has built a sizeable profitable business focused on combining steady lease income with sale gains at lease end, with no plans for rapid large-scale expansion. PNW is a smaller player in the concentrated railcar leasing industry, and it has recently started its asset rotation strategy: enough railcars have now reached lower book values that it can generate consistent capital gains from sales in favorable market conditions. PNW has started delivering meaningful profit contribution from Q1 onward, and its long-term strategic role will be determined in the next mid-term planning process.