Mitsubishi HC Capital Inc. Q2 FY2026 earnings call

Core Financial Results

• Net profit for the second quarter reached 88.7 billion yen, an increase of 27.0 billion yen YoY, representing a 55.5% progress rate against the full-year forecast (including pre-incorporated gain from consolidated subsidiary fiscal year changes), in line with initial projections.
• Interim dividend maintained at 22 yen per share, a 2 yen increase YoY matching the initial forecast.

Long-Term Corporate Value Strategy

• Prioritize ROE improvement, delivered via two core pillars: (1) ROA improvement through portfolio transformation, and (2) appropriate financial leverage that balances maintaining financial health, securing capital for active investment strategy, and shareholder returns.
• Target PER improvement via enhanced disclosure and capital market dialogue to increase growth expectations and reduce cost of equity.

Portfolio Management

• Continues portfolio rebalancing: selling low-ROA domestic lease/finance businesses (average 1.0% ROA for sold assets) and investing in high-specialization, high-return businesses (average 1.8% ROA for new investments) including CAI International (sea containers), European Energy (renewable energy), and large organic investments in new aircraft and aircraft engines.
• This rebalancing will continue beyond the current 2025 Mid-Term Management Plan. While the Overseas Customer segment underperformed initial expectations over the past three years due to higher-than-expected credit costs in the Americas, the five specialized business segments covered the shortfall and delivered steady group-wide profit growth and ROA improvement. The 2028 Mid-Term Management Plan will prioritize early recovery and renewed growth for the Overseas Customer segment to accelerate group-wide growth.

Stakeholder Understanding Initiatives

• Number of individual shareholders has grown 6x in 4.5 years to 580,000, creating a balanced ownership structure between domestic institutional investors, overseas institutional investors, and individual investors.
• Implemented expanded disclosure and business-specific briefing sessions to improve transparency for the diversified portfolio, and plans to hold a briefing session for the European business of the Overseas Customer segment this fiscal year. Outreach to individual investors includes investor event participation and management media appearances to improve accessibility of business explanations. PBR exceeded 1.0x for the first time in September 2025, but has not stabilized above 1.0x yet, which remains an ongoing target rather than an end goal.

• Customer Solutions: +2.3 billion yen YoY increase in segment profit, overcoming the loss of a gain from the sale of Sekisui Lease from the prior year, driven by accumulation of high-yield assets and the removal of large prior-period credit costs.
• Overseas Customer: -1.1 billion yen YoY decrease in segment profit. Lower credit costs in the Americas segment offset by lower income gain due to asset reduction in China.
• Environment & Energy: 5.2 billion yen improvement in segment profit YoY (still operating at a loss) after removal of large prior-period credit losses and impairment charges. Temporary impairment losses from dilution of the company's stake in an overseas equity method investee and goodwill amortization at European Energy impacted results. No asset sale gains recorded in H1, with material gains expected in H2.
• Aviation: +1.9 billion yen YoY increase in segment profit, driven by higher lease income from new deal accumulation and sustained high utilization for aircraft engine leasing, partially offset by higher impairment losses. Excluding fiscal year change impacts, the segment remains fundamentally strong with rising income gains.
• Logistics: +7.7 billion yen YoY increase in segment profit, driven by higher lease income from accumulated sea container assets and higher gains from railway freight car asset sales, plus fiscal year change impacts. Sea container utilization is slightly lower than last year's elevated level but remains strong.
• Real Estate: +7.4 billion yen YoY increase in segment profit. The removal of the large prior-year gain from the sale of Miyuki Building was offset by multiple large new asset sale gains recorded this period, with continued steady accumulation of new assets via new contracts.
• Mobility: +0.2 billion yen YoY increase in segment profit, driven by higher sale gains from expired auto lease vehicles.

• Full-year FY2026 March term earnings guidance is maintained, with no changes from the initial forecast, as overall performance remains broadly on track.
• Customer Solutions is slightly behind schedule on realizing revenue from new services, but the company still targets full-year achievement via accelerated fee revenue growth, asset accumulation in growth areas including real estate and healthcare, and asset sale gains. The segment is expected to reach the initial full-year target.
• Overseas Customer has a low H1 progress rate, but the company expects to recover in H2 via growth in European business and continued performance improvement in the Americas, and still targets meeting the initial full-year forecast.
• For the 2028 Mid-Term Management Plan, the minimum target is to achieve the previously set 1.5% ROA and 10% ROE targets that were not met in the current plan, with further improvements targeted beyond that. The plan will be announced in spring next year.
• After the current period's one-time gain from fiscal year change adjustments drops off next fiscal year, the expected reduction in credit costs in the Americas is expected to offset this impact, with additional growth from other segments to be finalized in the 2028 plan.

• The commercial truck market in the Americas remains challenging, though credit costs have decreased significantly following overhauls to underwriting standards, repossessed vehicle sales, and portfolio restructuring. The company continues to monitor this segment closely.
• Exposure to factoring and private credit businesses connected to the recent bankruptcy of a major U.S. auto parts manufacturer is very small, with limited expected impact on earnings, though the company will continue monitoring U.S. macroeconomic and financial market impacts.
• The Environment & Energy segment has recorded temporary losses from stake dilution in an overseas equity method investee and goodwill amortization at European Energy, but these losses are not driven by project deterioration, unlike recent large loss announcements from peers in overseas renewable energy.
• European consumer finance, the core of the European business, is seeing gradual credit cost increases as the European economy slows, but this is expected to remain within a stable range, with costs expected to fall if economic conditions improve.
• ASEAN credit costs are temporarily elevated due to restructuring-related charges, and are expected to return to normal levels once restructuring is complete.
• China's asset base is shrinking, and no material increase in future credit costs is expected.
• Rapid balance sheet expansion would increase volatility during economic shocks, so the company no longer prioritizes rapid asset growth, focusing instead on capital recycling of low-return assets into higher-return opportunities.

Q: Can Customer Solutions and Overseas Customer still hit their full-year targets despite lower H1 progress, or will upside from other segments offset any shortfall for group net profit? / A: Customer Solutions started the year from a 2.3 billion yen lower base after a prior year subsidiary sale, and targets 9.0 billion yen in full-year profit growth; 50% of this growth has been achieved in H1, and the company expects to reach the full-year target despite the slight delay. For Overseas Customer, European business is weighted to H2, and credit costs in the Americas are falling faster than expected. Management still expects both segments to hit their initial full-year targets, with no need for offsetting upside from other segments for the group target.

Q: What is the outlook for credit costs across the Overseas Customer segment, especially ahead of the 2028 Mid-Term Management Plan's focus on ROE improvement for the segment? / A: In the Americas, credit costs have already fallen by half compared to last year, and are expected to decline further in H2. New risk-mitigation frameworks are in place to prevent a recurrence of past high credit costs. In Europe, slow economic growth has pushed credit costs slightly higher for the dispersed consumer finance business, but this is cyclical and costs will stabilize as the economy recovers. China's shrinking asset base means no expected future credit cost increases, and ASEAN's temporary elevated costs will return to normal after restructuring completes. No large increase in overall credit costs is expected for the 2028 plan period.

Q: Which business segments do you expect to outperform growth expectations next year, and what is your strategic focus for scale expansion moving forward, especially amid recent aviation lease industry consolidation? / A: Aviation and Logistics, which are performing very well this year, are expected to remain strong next year, supported by recent large investments in new aircraft, aircraft engines, and sea containers. The company's balance sheet is already large (11 trillion yen in operating assets, 9 trillion yen in liabilities), so it no longer prioritizes rapid overall asset growth which would increase volatility. Going forward the company will intensify capital recycling, selling low-return or non-core businesses to invest in higher-return priority areas. The company also will avoid excessive overexposure to overseas assets (which already account for 60%+ of assets and profit), maintaining a balanced domestic-overseas mix. Details will be shared in the 2028 Mid-Term Management Plan to be announced next spring.

Q: Has the company taken any proactive write-downs on underperforming low-yield assets to strengthen the base for future profit growth, and are there any areas of concern? / A: The company constantly reviews asset yield and value, and records impairment when necessary as a standard ongoing process, with no special additional actions taken this period. Large investments like European Energy and large assets like aircraft are monitored closely, and no material issues have been identified at present, with monitoring continuing.