8593.T

• Overall Financial Performance

  • Net profit for the third quarter reached 134.9 billion yen, an increase of 47.9 billion yen year-over-year. Growth was driven by strong performance from the Real Estate and Aviation segments, a large reduction in credit-related costs in the Americas business of the Overseas Customer segment, and a positive profit impact from fiscal year end changes at consolidated subsidiaries.
  • Pre-tax credit-related costs in the Americas business decreased by 12 billion yen year-over-year, which is declining faster than initially expected at the start of the fiscal year.
  • Income gain increased by 41.8 billion yen year-over-year, led by the strong Aviation segment. Income gain still grew even excluding the profit impact from subsidiary fiscal year end changes, and the Customer Solution segment also delivered steady income gain growth from improved profitability.
  • Asset-related gains decreased year-over-year only due to the absence of the 3.7 billion yen one-time gain from the sale of the Miyuki Building that was recorded in the prior year period. Excluding this one-time factor, asset-related gains increased year-over-year on the back of multiple large sale gains in the Real Estate segment.
  • Since the business integration in April 2021, income gain (the core profit base) has grown steadily at an annual rate of 7.5%, despite some quarterly fluctuation. ROA calculated using income gain has also improved year over year, and asset-related gains have grown steadily annually, supporting the growth of the company's asset turnover business model.

• Operational Strategy Progress

  • The Customer Solution segment is progressing on three strategic pillars: (1) Expansion of base revenue via accumulation and rotation of high-yield real estate assets, and accumulation/sale of semiconductor lease assets to improve profitability; (2) Development of high value-added business including refurbished used semiconductor manufacturing equipment, PC lifecycle management subscription services, and profit accumulation in high-yield sectors such as healthcare; (3) Development of new services in partnership with startups and other partners, including subscription-based robotics services, IoT-enabled services, and IoT-based forklift services. Base revenue expansion is progressing well, contributing over half of the segment's current profit growth, while high value-added business and new services are progressing slower than planned and require more time to deliver full profit contribution.
  • In the Americas business of the Overseas Customer segment, credit cost improvements have been driven by stricter credit management, improved scoring models, a strengthened asset sale capability via a joint venture with a US truck dealer, write-offs of high-delinquency assets from FY2021 and FY2022, and a reduction in the share of truck assets in the portfolio from 47% to 35% via portfolio rebalancing.
  • For the Logistics segment, while sea container lease utilization has recently seen a slight decline after staying at high levels due to prolonged Middle East tensions and front-loaded cargo demand from US tariff policy, the company will maintain high utilization and pursue stable growth via targeted investment leveraging its existing market intelligence and sales capabilities.

• Full-year FY2026 (ending March 2026) earnings guidance is maintained unchanged, even though cumulative progress through the third quarter reached 84.4% of the full-year forecast (driven by the included impact of subsidiary fiscal year end changes). This is because the company expects increased expenses including business structural reform costs in the Overseas Customer segment in the fourth quarter.
  • For the Customer Solution segment, full-year segment profit is expected to come in slightly below the planned 43.7 billion yen. While growth is steady, new services will take more time to generate revenue, so ROA improvement will not reach the originally planned 1.3% target this fiscal year. Initiatives such as asset accumulation in growth areas including healthcare and semiconductors, and fee revenue expansion, are progressing steadily.
  • For the Overseas Customer segment, cumulative profit through the third quarter already exceeds the full-year planned 9.8 billion yen, but full-year profit will only see a small upside beat due to expected planned business structural reform costs to be booked in the fourth quarter.
  • For the next fiscal year, the company expects solid profit growth driven by the Customer Solution segment (with improving profitability), the Overseas Customer segment (expected to see further credit cost improvements and lower structural reform costs), and the high-profit large-asset segments of Aviation and Logistics (which performed well this fiscal year).
  • For asset-related gains: The company expects to maintain or exceed current levels of sale gains in the Real Estate segment (which is steadily balancing asset sales and new asset accumulation), and continues to expect strong asset-related gains in the Aviation segment (supported by tight aircraft supply-demand from ongoing supply chain disruptions and sustained high air travel demand). The Environment & Energy segment is expected to see slightly lower asset sale gains than in previous periods.
  • The new medium-term management plan is currently being finalized and will be disclosed this spring. The core target of achieving 10% ROE (which exceeds the company's cost of capital) remains unchanged, and the company is confident this target is achievable.
  • The company expects further credit cost improvements in the US business next fiscal year, which will be a positive profit driver for next year.

1. Customer Solution: Segment profit increased 5.3 billion yen year-over-year, driven by steady progress shifting to higher-yield assets, growth in income gain, and low credit loss expenses. Revenue contribution is not specified.
2. Overseas Customer: Segment profit increased 7.4 billion yen year-over-year. The improvement comes from a large reduction in credit-related costs in the Americas business (which was at very high levels last fiscal year) and steady growth in the European business. Revenue contribution is not specified.
3. Environment & Energy: Segment profit improved by 2.8 billion yen year-over-year due to the removal of large credit-related costs and impairment losses booked in the prior year period. However, the segment recorded a net loss for the quarter, driven by a one-time valuation loss at an overseas equity-method investee and equity-method losses (including goodwill amortization) from investment in European Energy. European Energy's standalone performance has improved from a cumulative deficit last year to a cumulative surplus this fiscal year. No asset sale gains were recorded in the first three quarters. Revenue contribution is not specified.
4. Aviation: Segment profit increased 8.4 billion yen year-over-year. A 2.9 billion yen increase came from a fiscal year end change at a subsidiary, and the segment still saw large profit growth even excluding this effect. Growth is driven by new deal accumulation and increased lease income from high utilization of aircraft engines. Revenue contribution is not specified.
5. Logistics: Segment profit increased 7.7 billion yen year-over-year. A 6.2 billion yen increase came from a fiscal year end change at a subsidiary, and the segment still saw profit growth even excluding this effect. Growth is driven by increased lease income from accumulated sea container assets and increased asset sale gains from railway freight cars. Revenue contribution is not specified.
6. Real Estate: Even after the removal of the 3.7 billion yen gain from the sale of the Miyuki Building that was booked in the prior year period, segment profit increased 12.8 billion yen year-over-year, supported by gains from multiple large asset sales this period. The segment continues to steadily accumulate new assets that outpace the value of assets sold. Revenue contribution is not specified.
7. Mobility: Segment profit was roughly flat year-over-year. A slight decline in equity-method investment income in the domestic business was offset by increased lease income and increased sale gains from end-of-lease vehicles in the overseas business. Revenue contribution is not specified.

• For the Customer Solution segment, high value-added businesses such as semiconductor equipment refurbishing have seen lower-than-planned orders due to rising interest rates and reduced capital expenditure across the semiconductor industry, leading to performance below plan.
  • Development of new services in partnership with external startups is progressing slower than planned, due to the inherent difficulty of launching entirely new business models to the market, even though appropriate partner relationships have already been established.
  • Sea container lease utilization has recently entered a slight declining trend after prolonged high levels, driven by shifting freight demand patterns tied to Middle East tensions and US trade policy.
  • A potential increase in Japanese interest rates could impact the asset turnover business model, by affecting asset sale profitability. Management notes that this impact has not materialized at current levels, and can be mitigated by accumulating more high-yield assets to offset any headwinds.
  • The positive profit impact from subsidiary fiscal year end changes this fiscal year will not repeat next year, and the company is currently discussing how to offset this impact via other profit and cost improvement initiatives.

Q: What are the factors behind the large decline in US credit costs, will the decline continue, and can this be a large profit growth driver for next fiscal year?

A: The large decline in US credit costs comes from multiple successful initiatives: stricter credit management, improved scoring models, strengthened asset sale capabilities from a joint venture with a local truck dealer, write-offs of high-delinquency assets from FY2021 and FY2022, and portfolio rebalancing that reduced the share of high-risk truck assets from 47% to 35%. Credit costs have already improved more than the original plan (which targeted a 50% reduction from last year's level), and further improvements are expected next fiscal year, so this will be a key profit growth driver for next year.

Q: What is the current status of discussions for the new medium-term management plan, and what is the potential for profit growth and capital efficiency?

A: Discussions are complete and the plan is currently being finalized for disclosure this spring. The key priority is achieving 10% ROE, which exceeds the company's 10% cost of capital, a requirement to sustainably maintain PBR above 1x. The company is working on strategies to simultaneously improve ROE and PER, reducing information asymmetry via business briefing sessions to help investors recognize the company's growth potential, lowering the cost of equity, improving PBR, and driving share price growth.

Q: What key points should be noted regarding the impact of current interest rate and inflation levels, especially for the period starting from next fiscal year?

A: Foreign currency interest rates are currently on a downward trend, and yen interest rates are expected to continue rising gradually. The company already passes higher funding costs through to customers via lease rate contracts, so there is no material overall impact, but the company is focused on increasing closer communication with customers in the current higher interest rate environment. Inflation and rising interest rates could potentially impact the asset turnover business model, but no material impact has been seen yet, and the company can offset any impact by continuing to accumulate high-yield assets, so building out more high-profit business remains the core priority.

Q: Can you elaborate on the FY2026 earnings outlook for the Customer Solution segment, which is expected to come in slightly below plan? What is the progress of initiatives to monetize new services, and what does the slower progress mean for ROA improvement?

A: The Customer Solution segment is pursuing three strategic pillars this fiscal year: base revenue expansion, high value-added business development, and new service development in partnership with external firms. Base revenue expansion is progressing very well, contributing over half of the segment's current profit growth. High value-added business is slightly behind plan, and new partnered services are facing more execution challenges and will require more time to scale – while early pipeline opportunities are emerging, full acceleration is still ahead. While base revenue growth has already delivered some improvement in profitability, a large jump in ROA this fiscal year is not expected.

Q: What is the background behind the slower progress of high value-added business and new services? Is it due to low market penetration, lack of partners, or overambitious initial targets? Was the ambitious target published partly for internal alignment purposes?

A: It is true that initial targets were intentionally challenging. For high value-added business like semiconductor equipment refurbishing, while the overall semiconductor industry is growing, rising interest rates and lower industry capital expenditure have reduced order volumes compared to initial forecasts, leading to performance below plan. For new partnered services, the target was always known to be challenging and represented more of an upside opportunity, and the inherent difficulty of launching new business models is now clear. The company already has partner relationships and is actively collaborating with invested startups, but launching new offerings to market is taking longer than expected. Yes, the ambitious target was indeed for both external communication and internal alignment: the Customer Solution segment is the company's core foundation and an incubator for new business, so driving transformation in this segment will lead transformation for the entire company, so it was important to set a clear high-profile priority internally and externally.

Q: Based on the third quarter results, what is your outlook for next year's performance, and what is the directional outlook for each of the seven segments?

A: Since the new medium-term management plan is still being finalized for spring disclosure, I cannot share full detailed segment outlooks. The company expects solid next-year profit growth led by four segments: Customer Solution (continuing to improve profitability), Overseas Customer (further credit cost improvements and lower structural reform expenses), Aviation, and Logistics (both continued strong performance). The positive one-time profit impact from fiscal year end changes this year will not repeat next year, and the company is currently discussing how to offset this impact via other cost and profit improvements, which will not be easy to fully recover in a short timeframe, but work is ongoing. The core target of achieving returns that cover the 10% cost of capital remains unchanged for the new medium-term plan, and the company is currently finalizing strategies to deliver both profit growth and improved profitability, which will be shared in the spring.

Q: What is your outlook for asset-related gains from this fiscal year to next, including for domestic real estate and overseas renewable energy asset sales?

A: For the Real Estate segment, the company is steadily balancing asset sales and new asset accumulation, so we expect to deliver asset sale gains in line with or exceeding historical levels. For the Aviation segment, sustained high air travel demand and ongoing supply chain disruptions that keep aircraft supply tight mean that aircraft and parts sale gains will continue to perform well. For the Environment & Energy segment, the company is still accumulating new assets but expects asset sale gains to be slightly lower than previous levels.

Q: Why did aviation base profit increase so much from 19 billion yen in Q2 to 28.4 billion yen in Q3, even after excluding interest swap termination gains? What is the split of contributions between aircraft and engine businesses, and is this growth sustainable?

A: The large quarter-over-quarter increase comes from continued strong performance of both the JSA aircraft leasing business and the elfc engine leasing business, plus the recognition of interest swap termination gains in Q3. Excluding the swap gains, the contribution to the profit increase from aircraft and engines is roughly split 50/50. Growth is supported by steady accumulation of aviation assets (which drives incremental profit growth) and significantly improved utilization for engine leasing, both of which are sustainable trends.

Q: What is the directional outlook for the new medium-term management plan? Is achieving 10% ROE still a realistic target, and will large changes to strategy or asset allocation be required compared to the current plan?

A: Achieving 10% ROE is achievable and remains the core target we are working toward. To hit this target, we will continue improving profitability across all segment businesses, and continue asset rotation: we will sell non-core, low-profitability, or low-synergy businesses, while acquiring high-profitability, high-synergy opportunities to hit the ROE target.