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Orient Corporation 8585

オリエントコーポレーション
Recent Updates
2022-05-09
Announcement of a new medium-term management plan
2022-05-09
Full-year FY03/22 flash update
2022-03-31
Announcement of issuer rating upgrade
Get in touch
5-2-1, Kojimachi, Chiyoda-ku, Tokyo
https://www.orico.co.jp/company/
03-5877-1111
Summary
Orient Corporation (Orico) is a major consumer credit company in Japan. Consumer credit is credit extended to individuals to finance the purchase of goods and services.
Diversified Financial ServicesConsumer Finance
Key dates
2021-09-06
Coverage initiation
Full Report
2022-05-09
Full-year FY03/22 flash update
2022-05-09
Q3 FY03/22 flash update
2022-01-31
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Executive summary

Business overview

Orient Corporation (Orico) is a major consumer credit company in Japan. Consumer credit is credit extended to individuals to finance the purchase of goods and services, and is broadly classified into two categories: closed-end credit (installment credit issued for a specific purchase for a set period of time) and open-end credit (revolving credit that can be used for any purchase, i.e., credit card). Orico offers both types of services. In FY03/21, the company had a 21.5% market share in closed-end credit, with its transaction volume reaching JPY1.97tn. In open-end credit, its market share was 3.3%, at a transaction volume of JPY2.44tn.

Japanese consumer credit industry: The Japanese consumer credit industry divides into credit sales (JPY31.9tn on an outstanding-balance-basis) and consumer loans (JPY25.2tn). The former falls under the jurisdiction of the Ministry of Economy, Trade and Industry (METI) and is governed by the Installment Sales Act. As of April 2021, there were 252 credit card companies and 146 consumer credit companies registered with METI. The total transaction volume in the Japanese credit sales market was JPY83.6tn in 2020.

Orico’s operations divide into the Credit Cards and Cash Loans business (generated 33.1% of total business revenue and 38.8% of total segment profits [before deducting company-wide expenses, etc.] in FY03/21), Settlement and Guarantee business (8.8%, 5.5%), Installment Credit business (37.0%, 40.1%), Bank Loan Guarantee business (17.4%, 13.7%), and Other businesses (3.7%, 1.9%). The company is an equity-method affiliate of Mizuho Financial Group (TSE 1: 8411; owns a 49.0% stake in the company) and Itochu Corporation (TSE1: 8001; 16.5%).

Founded in 1954, Orico is a pioneer in the Japanese consumer credit industry. In the 1980s, however, the company shifted focus to corporate lending, and with the collapse of the bubble economy in the early 1990s, it accumulated bad debts and business conditions quickly deteriorated. Since 2002, Orico issued preferred stock for a total of JPY640.0bn, receiving support from Mizuho Bank and others. After forging alliance with Mizuho Financial Group in 2004, the company concluded a business and capital alliance with Itochu Corporation in 2005. Orico’s book value per share (BVPS), after deducting preferred stock, remained negative from FY03/03 to FY03/15. In 2010, Mizuho Financial Group made the company an equity-method affiliate by converting Orico’s preferred stock into common stock, and in 2015, it raised the stake to 49% from 22%. By FY03/16, Orico’s BVPS turned positive, and in FY03/17, the company revived dividends payment. By end-FY03/21, the outstanding balance of preferred stock decreased to JPY20.0bn, owing to Orico’s ongoing redemption efforts. The company plans to complete redemption in FY03/22.

Orico provides credit to the mass retail market. Its value chain includes credit check, credit provision (granting credit and concluding contracts with speed), and receivables management (managing receivables, collecting payments, and processing calculations and other administrative tasks). The company says it outshines the competition in credit expertise for auto loans and collection track record at its subsidiary Japan Collection Service (JCS; Japan’s first special servicer). Orico’s credit transactions are typically based on a three-party contract involving the company, a member merchant, and a consumer. For the member merchant, the company adds value by providing the means to encourage big-ticket purchases that cannot be easily paid in cash. For the consumer, it offers the means to pay in installments and reduce the monthly financial burden.

Installment Credit business: In this business, Orico handles auto loans and shopping credit (loans for other purposes such as those to cover education or home improvement costs). For each transaction, the company conducts a credit check of the purchaser (consumer) and concludes a separate credit contract. The company’s mainstay auto loans are used by some 1.57 million customers annually. With a transaction volume of JPY0.86tn, the company ranked first in this business in FY03/21, followed by competitor JACCS (TSE 1: 8584). Auto loans are provided to consumers purchasing new and used cars. The company pays the car dealers upfront on behalf of the purchasers, who then repay in installments. The sources of revenue are commissions from member merchants and installment payment commissions from individuals; the latter makes up the lion’s share of shopping credit revenue. Installment payment commissions can be calculated as “price of purchased item × commission per JPY100 (annual percentage rate [APR] of 9.5–12.2%)÷ JPY100.” The sum of the price of purchased item and the commissions payable is the full amount the customer is obliged to pay, and this full amount divided by the number of payments is the monthly payment billed. Payments are generally made in three to 36 installments.

Credit Cards and Cash Loans business: In this business, Orico offers consumers the “buy now, pay later” option through the use of credit cards. Unlike installment credit, credit card transactions (open-end credit) allow consumers to make purchases repeatedly up to a preapproved credit limit and until the card expires. Orico also provides cash advances and cash loans (via loan cards) in this business. In FY03/21, the volume of open-end-credit transactions handled by the company totaled JPY2.44tn, and the number of active card members came to 11,063,000. The company says its mainstay card, Orico Card THE POINT, is known for the high return rate of its reward point program. The main sources of revenue in this business are fees and commissions charged to the card members. These include annual membership fees, shopping commissions, installment payment commissions (APR of 12.2–15.0%), and revolving payment/cash advance commissions (APR of 15.0–18.0% for cash advances made). Orico also receives commissions from member merchants (1.8–5.0% of the amount charged on credit).

Settlement and Guarantee business: In this business, Orico provides payment guarantees for rent, trade receivables, and small leasing transactions. It also offers a stand-alone payment collection service. In the rent guarantee business, the company collects monthly rent from apartment tenants, whom it credit-checks and approves in advance. The collected rent is paid to property management companies, to which Orico also guarantees payment. The company operates the business together with consolidated subsidiary Orico Forrent Insure, with a view to expanding mutual customer referrals. In the trade receivables guarantee business, Orico collects payment on receivables from B2B transactions between its member merchants and businesses, which are also credit-checked and preapproved by the company. Collections are made on behalf of the member merchants, and in the event the obligors default, the company pays the merchants a predetermined guarantee. Revenue in this business can be derived by multiplying the guaranteed principal by the fee rate.

Bank Loan Guarantee business: In this business, Orico guarantees the personal loans extended by its partner financial institutions, upon their request. The borrowers are prescreened and approved by the company. By offering its knowledge on credit checks and guarantees, the company aims to support the retail finance business of partner financial institutions. As of end-March 2021, Orico had 570 partner financial institutions and the outstanding balance of its bank loan guarantees stood at JPY1.16tn. Revenue in this business can also be derived by multiplying the guaranteed principal by the fee rate (2.0–7.0%).

The company’s operating expenses, which accounted for 91.0% of operating revenue in FY03/21, comprise general expenses such as systems operation and personnel expenses (65.1% of operating revenue), bad-debt-related expenses (21.5%), and financial expenses (4.2%). In the current medium-term management policy, the company aims to reduce the ratio of general expenses to operating revenue to less than 60%. The ratio of bad-debt-related expenses to operating assets was 0.9% in FY03/21, lower than the 1.2% average over the past 10 years. The delinquency rate and the charge-off rate have remained stable at low levels. The company says it has no major concerns over refunds on overpaid interests (those exceeding the 20% ceiling under the Interest Rate Restriction Act), as the expenditure on refunds based on claims has been trending downward.

In FY03/21, the company procured a total of JPY3.1tn from financing activities, which increased the ratio of funds raised to trade receivables (including securitized receivables) to 57.4%, versus the 41.8% average over the past 10 years. The net D/E ratio was 5.8x, up from the 4.5x average over the past 10 years. 41.1% of the funds raised were borrowed from financial institutions (ratio of long- to short-term borrowings was nine to one). 58.9% was procured directly from various markets, of which 41.7% was through the securitization market. Because of the nature of the business, consumer credit companies need cash for upfront payments on a daily basis. The company says securitization is an effective way to raise funds and generate cash flows.

Orico’s free cash flow turned positive in FY03/21 for the first time in six years. In FY03/22, the company plans to complete redemption of the remaining JPY20.0bn in class I preferred stock held by Mizuho Bank. Shared Research understands that once the preferred stock is fully redeemed, the company will have greater flexibility in raising capital. By reducing long-term borrowings (the company’s reliance on interest-bearing debt increased from 20.6% [FY03/14–FY03/16 average] to 31.5% [FY03/19–FY03/21 average]), it will be able to improve the interest coverage ratio (2.16x in FY03/21). If consumer spending remains weak due to the prolonged effect of COVID-19, Orico’s growth in the installment credit and credit card businesses will be modest. As a basic policy, the company will thus work to expand the guarantee business, which does not use the balance sheet, develop the overseas auto loan markets, and improve profitability.

Earnings trends

For FY03/22, operating revenue was JPY229.8bn (+0.01% YoY), operating expenses were JPY200.8bn (-3.1% YoY), recurring profit was JPY29.0bn (+28.6% YoY), and net income attributable to owners of the parent was JPY19.5bn (-1.1% YoY). Operating revenue was on par with FY03/21, primarily due to growth in credit card shopping and the Settlement and Guarantee business. On the other hand, cost reductions achieved through process innovation resulted in a YoY increase in recurring profit.

For FY03/23, the company forecasts operating revenue of JPY233.0bn (+1.4% YoY), operating profit of JPY25.0bn (-13.8% YoY), recurring profit of JPY25.0 (-13.8% YoY), and net income of JPY21.0bn (+7.8% YoY). Operating revenues are expected to increase, mainly due to growth in the Settlement and Guarantee business and overseas business, which are key markets. Operating expenses are seen rising due to an increase in general and other expenses resulting from upfront investments in the cultivation of human resources for DX and the launch of a new collection system for demand collection operations.

On May 6, 2022, the company disclosed its medium-term management plan (FY03/23-FY03/25). As management targets, the company aims to achieve consolidated recurring profit of JPY40.0bn or more, ROE of 10% or more, and a ratio of general expenses to operating revenue of less than 60% for FY03/25.

Strengths and weaknesses

Strengths:
1) Wide-reaching auto loan sales platform underpinned by an exclusive partnership with Japan Used Car Dealers Association that provides access to the largest domestic distribution network for used cars
2) Unique customer screening capability grounded on an in-house-developed credit scoring model
3) Depth of collection expertise accumulated through subsidiary Japan Collection Service Co., Ltd., Japan’s first servicer 
Weaknesses:
1) Slow to develop recurring-revenue businesses in Credit Cards and Cash Loans compared to some fast-growing rivals
2) Greater exposure to interest rate hikes versus rivals, as the revenue generation capability falls behind the increase in interest-bearing debt
3) Late start in expanding into the growth markets overseas as a result of having to spend time on rebuilding the capital base
(See the “Strengths and weaknesses” section for details.) 

Glossary


TerminologyKey takeawayDescription
Consumer credit・ Secured by individual's creditworthiness・Agreement to provide financial service solely based on the creditworthiness of the consumer, thus not demanding collateral (neither guarantor nor assets)
・ Divides into credit sales and consumer loans・Credit sales refer to the sale of goods and services in which the amount owed will be paid at a later date ("buy now, pay later" plan); consumer finance refers to the extension of direct cash loans
Credit sales・Buy now, pay later・Sale of goods and services in which the amount owed will be paid at a later date, based on the consumer's credit (e.g., ability and intention to pay, assets owned)
・Credit sales divide into installment method and non-installment method
・Installment method breaks down to installment sale, intermediation of credit purchases, and tie-up loan sale
・Intermediation of credit purchases include the "individual contract" and "card issuance" methods
Installment method・Based on Installment Sales ActCredit transactions where the purchases are paid in installments (includes revolving payments)
Installment sale・Two-party transaction (Contract between seller [merchant] and consumer)・Consumer purchases goods from the seller (sale/purchase agreement)
・Consumer concludes installment payment (installment sale) agreement with the seller
・Consumer pays in installments
・Sellers are mostly entities with enough financial power to shoulder installment-related expenses on their own (e.g., manufacturer-affiliated credit companies, volume retailers, department stores)
・In the individual contract method, credit is checked and contract is concluded for each individual purchase; in the card issuance method. credit is checked to issue the credit card, which is then used for purchases
Intermediation of credit purchases・Three-party transaction (Typically involves a seller [merchant], credit company, and a consumer)・Credit company and the seller conclude a member merchant agreement
・Consumer purchases goods from the seller
・Consumer applies to the credit company for third-party payment (receivables purchase); application is via the seller
・Consumer and the credit company conclude a third-party payment agreement
・Credit company pays the seller for the purchase
・Consumer repays the purchase amount to the credit company in installments, with commissions
Intermediation of individual credit purchases (closed-end credit; individual contract method)・Three-party transaction (Typically involves a seller [merchant], credit company, and a consumer)・Same as above
Intermediation of credit purchases—tie-up loan transaction・Four-party transaction (Typically involves a consumer, seller [merchant], credit company, and a financial institution)・Credit company and seller conclude a member merchant agreement
・Consumer purchases goods from the seller (sale/purchase agreement)
・Consumer applies to the credit company for installment sale; application is via the seller
・Consumer concludes a loan agreement with the financial institution (via the credit company) and a guarantee service agreement with the credit company
・Financial institution pays the seller for the purchase, via the credit company
・Consumer repays the purchase amount to the credit company in installments, with commissions; the credit company pays the amount to the financial institution
・Used for relatively expensive purchases, repaid over a long period (i.e., home renovation loans, auto loans)
Intermediation of comprehensive credit purchases (open-end credit; card issuance method)・Three-party transaction・Consumer and the credit company (credit card company, etc.) concludes a card membership agreement and a third-party payment agreement
・Consumer applies to the credit company for credit card issuance
・Credit company runs a credit check of the consumer and issues a card if the consumer passes the check
・Consumer and the seller conclude a sale/purchase agreement
・Can be used repeatedly within the credit limit of the credit card・Consumer presents a credit card to the seller to make the purchase
・Seller hands over the goods to the consumer
・Credit company pays the seller for the purchase in lumpsum based on a previously concluded member merchant contract between the two parties
・Consumer can use the credit card to purchase goods and services repeatedly up to the credit limit and as long as the card has not expired
Loan-backed sale・Three-party transaction・Consumer purchases goods from the seller (sale/purchase agreement)
・Consumer applies to the credit company (financial institution) for third-party payment agreement, via the seller
・Simultaneously, the seller guarantees the third-party payment agreement (loan agreement) between the consumer and the credit company
・Credit company pays the seller for the purchase
・Consumer repays the purchase amount to the credit company in installments, with commissions. In the case of delinquency or default, seller pays the remaining sum to the credit company in lumpsum
・Seller works to recoup the unpaid sum from the consumer. Often used by auto dealers and manufacturer (home electronics manufacturer)-affiliated credit companies
Non-installment methodOutside the scope of the Installment Sales ActCredit transactions not involving installment payment (i.e., lumpsum payment)
Consumer loans・Two-party transaction (Involves a consumer and a lender [consumer finance company, credit company, bank, insurer])・Consumer concluded a loan agreement with a consumer finance company
・Consumer borrows cash
・Consumer repays borrowed cash with interest, in installments
・An unsecured loan that does not require collateral from the consumer
・Breaks down to loan on deeds (requires paper-based application and credit check each time the consumer borrows) and card loan (once the consumer applies for a card and passes the credit check, the individual can use the loan card to dispense funds from ATMs repeatedly, up to the credit limit). Same as cash advances on credit cards.
Source: Shared Research based on materials released by Japan Consumer Credit Association, National Consumer Affairs Center of Japan, and other sources

Key financial data

Income statementFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/21FY03/22FY03/23
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.(After retroactive adjustments) Cons.Cons. (Est.)
Operating revenue210,636207,546206,398211,804213,693224,398233,369243,135230,596229,793229,806233,000
YoY-1.4%-1.5%-0.6%2.6%0.9%5.0%4.0%4.2%-5.2%-0.0%1.4%
Operating expenses206,578180,799185,660182,317180,178194,310211,405218,695209,787207,240200,811
YoY-1.8%-12.5%2.7%-1.8%-1.2%7.8%8.8%3.4%-4.1%--3.1%
Operating expense ratio98.1%87.1%90.0%86.1%84.3%86.6%90.6%89.9%91.0%90.2%87.4%
Operating profit4,05826,74720,73729,48633,51530,08821,96424,43920,80922,55328,99425,000
YoY21.2%559.1%-22.5%42.2%13.7%-10.2%-27.0%11.3%-14.9%-28.6%-13.8%
Operating profit margin1.9%12.9%10.0%13.9%15.7%13.4%9.4%10.1%9.0%9.8%12.6%10.7%
Recurring profit4,05826,74720,73729,48633,51530,08821,96424,43920,80922,55328,99425,000
YoY21.2%559.1%-22.5%42.2%13.7%-10.2%-27.0%11.3%-14.9%-28.6%-13.8%
Recurring profit margin1.9%12.9%10.0%13.9%15.7%13.4%9.4%10.1%9.0%9.8%12.6%10.7%
Net income3,02222,69618,47824,58228,69028,02428,88620,66217,68619,71319,549
YoY60.8%651.0%-18.6%33.0%16.7%-2.3%3.1%-28.5%-14.4%-4.6%-0.8%
Net margin1.4%10.9%9.0%11.6%13.4%12.5%12.4%8.5%7.7%8.6%8.5%
Net income attributable to owners of the parent3,02122,69918,48124,57728,69028,02128,87720,65417,66819,69519,47621,000
YoY51.0%651.4%-18.6%33.0%16.7%-2.3%3.1%-28.5%-14.5%--1.1%7.8%
Net margin1.4%10.9%9.0%11.6%13.4%12.5%12.4%8.5%7.7%8.6%8.5%9.0%
Per-share data (JPY)
Shares issued (year-end; '000)996,0491,059,1191,082,4331,857,9511,858,1631,788,3461,768,3831,753,4951,738,7281,738,7281,718,747
Common shares (year-end; '000)711,049789,099816,1931,717,9511,718,1631,718,3461,718,3831,718,4951,718,7281,718,7281,718,747
Treasury shares ('000)53302122211,4931,4691,4052,4482,4482,304
EPS4.429.423.017.515.413.315.210.99.410.510.612.2
EPS (fully diluted)1.813.210.814.315.413.315.210.99.410.510.6
Dividend per share (common stock)----2.02.02.03.03.03.03.04.0
Book value per share-117.1-56.2-20.178.095.3109.3119.3125.4139.6119.9125.0
Preferred shares (year-end; '000)285,000270,020266,240140,000140,00070,00050,00035,00020,00020,0000
First series class I preferred stock140,000140,000140,000140,000140,00070,00050,00035,00020,00020,0000
First series class J preferred stock145,000130,020126,24000000000
Balance sheet (JPYmn)
Cash and deposits150,638107,927101,986178,792198,498194,241323,415210,280315,176315,176218,189
Total current assets4,283,1894,573,3934,718,0674,925,8615,076,6875,167,5285,222,5825,280,9665,246,1063,500,0033,458,851
Tangible fixed assets106,743106,970105,088105,064104,057103,556101,13394,70594,21694,21688,179
Intangible assets63,57970,32380,16096,261117,360143,063141,334133,372123,744123,774110,335
Investments and other assets26,85425,31225,24325,32830,32360,39177,18575,06084,39495,20393,890
Total assets4,480,3664,776,0004,928,7265,152,9005,329,0585,475,3415,542,9405,584,7775,549,2203,813,9573,752,049
Short-term debt321,296290,147318,219315,251269,266275,573346,693345,831375,539375,836433,845
Total current liabilities3,809,5344,056,2664,192,0264,284,3164,226,0524,243,3044,290,5864,277,9904,238,8882,537,4332,533,789
Long-term debt625,145693,967667,702783,897984,3701,223,1941,326,5561,403,4981,455,0541,454,7761,387,773
Total fixed liabilities473,031493,929486,726594,559799,097972,631995,8851,055,2171,048,2251,048,0591,001,422
Total liabilities4,282,5654,550,1954,678,7524,878,8765,025,1495,215,9365,286,4715,333,2075,287,1143,585,4923,535,211
Shareholders' equity197,678225,702249,861273,904303,790259,152256,208251,311260,086226,350214,519
Total net assets197,801225,804249,973274,023303,908259,405256,468251,569262,105228,464216,837
Total interest-bearing debt946,441984,114985,9211,099,1481,253,6361,498,7671,673,2491,749,3291,830,5931,830,6121,821,618
Cash flow statement(JPYmn)
Cash flows from operating activities42,626-34,7568,288-42,279-104,697-77,634-41,723-66,77254,57854,58081,757
Cash flows from investing activities-10,684-30,417-648-22,434-27,962-36,614-27,452-12,236-13,999-14,002-19,013
Cash flows from financing activities-25,30136,4741,125111,787152,420160,011148,31855,83044,17444,174-40,150
Financial ratios
ROA (RP-based)(ROA) 0.09%0.58%0.43%0.58%0.64%0.56%0.40%0.44%0.37%0.48%0.77%
ROE1.55%10.72%7.77%9.39%9.93%9.96%11.21%8.14%6.92%8.11%8.87%
Payout ratio----12.95%15.06%13.17%27.65%32.05%28.46%28.44%
Dividend on equity----1.31%1.55%1.53%2.29%2.29%2.46%2.67%
Debt-to-equity ratio4.794.363.954.014.135.786.536.967.048.098.49
Net debt-to-equity ratio4.033.883.543.363.475.035.276.125.836.707.47
Dependence on interest-bearing debt21.1%20.6%20.0%21.3%23.5%27.4%30.2%31.3%33.0%48.0%48.5%
Equity ratio4.41%4.73%5.07%5.32%5.70%4.73%4.62%4.50%4.69%5.93%5.72%
Net equity ratio4.57%4.84%5.18%5.51%5.92%4.91%4.91%4.68%4.97%6.47%6.07%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company adopted the new Accounting Standard for Revenue Recognition starting FY03/22. The YoY percentage change for FY03/22 (Est.) was calculated using FY03/21 figures retroactively adjusted to reflect the new standard.
FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
Transaction volume by business
Credit Cards and Cash Loans business1,559,7311,592,4341,662,8281,663,1471,712,8821,818,9751,982,3232,314,9872,560,3882,530,831
YoY1.3%2.1%4.4%0.0%3.0%6.2%9.0%16.8%10.6%-1.2%
Settlement and Guarantee business-----576,930791,1491,051,4741,197,0341,293,542
YoY------37.1%32.9%13.8%8.1%
Installment Credit business1,173,6331,296,3511,428,9041,474,1621,224,3421,219,6451,214,6201,280,9051,314,3001,260,987
YoY3.0%10.5%10.2%3.2%-16.9%-0.4%-0.4%5.5%2.6%-4.1%
Bank Loan Guarantee business439,575515,896591,869627,818665,634695,827666,561542,315497,200425,007
YoY-1.3%17.4%14.7%6.1%6.0%4.5%-4.2%-18.6%-8.3%-14.5%
Other126,400125,500191,20040,40052,1001,1001,3003,4005,0003,700
YoY-3.7%-0.7%52.4%-78.9%29.0%-97.9%18.2%161.5%47.1%-26.0%
Operating revenue
Credit Cards and Cash Loans
Revenue from external customers75,93573,61273,53071,90773,42373,89773,49577,50679,94471,929
Internal transactions--11211111
Operating revenue75,93573,61373,53171,90873,42573,89973,49677,50879,94671,931
% of total operating revenue34.1%33.5%34.2%33.6%33.3%33.3%31.5%31.9%32.0%30.3%
YoY-13.7%-3.1%-0.1%-2.2%2.1%0.6%-0.5%5.5%3.1%-10.0%
Settlement and Guarantee
Revenue from external customers-----6,81010,87215,87616,88119,041
Internal transactions----------
Operating revenue-----6,81110,87315,87616,88119,041
% of total operating revenue-----3.1%4.7%6.5%6.7%8.0%
YoY------59.6%46.0%6.3%12.8%
Installment Credit
Revenue from external customers83,16786,33982,34883,39284,46076,45877,51277,58980,88680,273
Internal transactions----------
Operating revenue83,16786,33982,34883,39284,46076,45877,51277,58980,88680,273
% of total operating revenue37.3%39.2%38.3%38.9%38.4%34.4%33.2%31.9%32.3%33.8%
YoY0.8%3.8%-4.6%1.3%1.3%-9.5%1.4%0.1%4.2%-0.8%
Bank Loan Guarantee
Revenue from external customers31,90831,07230,62732,07035,02039,33343,48843,81642,29237,782
Internal transactions----------
Operating revenue31,90831,07230,62732,07035,02039,33343,48843,81642,29237,782
% of total operating revenue14.3%14.1%14.3%15.0%15.9%17.7%18.6%18.0%16.9%15.9%
YoY2.7%-2.6%-1.4%4.7%9.2%12.3%10.6%0.8%-3.5%-10.7%
Other
Revenue from external customers16,59414,00313,98212,79912,66011,04211,0319,9469,1977,967
Internal transactions9,0979,3907,2847,8818,3658,5518,9589,9837,0696,830
Operating revenue25,69223,39321,26620,68121,02519,59319,98919,93016,26714,798
% of total operating revenue11.5%10.6%9.9%9.7%9.5%8.8%8.6%8.2%6.5%6.2%
YoY6.9%-8.9%-9.1%-2.8%1.7%-6.8%2.0%-0.3%-18.4%-9.0%
Corporate revenue6,1215,6087,0576,2286,2396,1507,9988,63313,93113,602
YoY-8.4%-8.4%25.8%-11.7%0.2%-1.4%30.0%7.9%61.4%-2.4%
Elimination of inter-segment transactions-9,098-9,391-7,285-7,883-8,368-8,553-8,960-9,984-7,071-6,833
Operating revenue213,726210,636207,546206,398211,804213,693224,398233,369243,135230,596
YoY-4.5%-1.4%-1.5%-0.6%2.6%0.9%5.0%4.0%4.2%-5.2%
Segment profit
Credit Cards and Cash Loans37,83843,16950,40750,57957,77261,89060,45263,20865,16758,566
% of total segment profits30.9%31.8%36.0%35.1%37.7%39.0%21.2%41.1%41.9%38.8%
YoY-3.8%14.1%16.8%0.3%14.2%7.1%-2.3%4.6%3.1%-10.1%
Settlement and Guarantee-----6,0876,5247,3827,6968,375
% of total segment profits-----3.8%2.3%4.8%4.9%5.5%
YoY------7.2%13.2%4.3%8.8%
Installment Credit64,51669,32165,76167,13667,81461,82761,57357,67458,76660,554
% of total segment profits52.6%51.0%47.0%46.6%44.3%38.9%21.6%37.5%37.7%40.1%
YoY3.6%7.4%-5.1%2.1%1.0%-8.8%-0.4%-6.3%1.9%3.0%
Bank Loan Guarantee18,77020,57419,71020,70521,84424,10224,76021,55121,56120,763
% of total segment profits15.3%15.1%14.1%14.4%14.3%15.2%8.7%14.0%13.8%13.7%
YoY24.3%9.6%-4.2%5.0%5.5%10.3%2.7%-13.0%0.0%-3.7%
Other1,4202,8434,1845,6065,6374,9224,5234,1622,5062,811
% of total segment profits1.2%2.1%3.0%3.9%3.7%3.1%1.6%2.7%1.6%1.9%
YoY-75.7%100.2%47.2%34.0%0.6%-12.7%-8.1%-8.0%-39.8%12.2%
Corporate expenses-111,102-123,301-106,654-116,009-115,751-117,250-119,333-122,371-124,985-124,165
Other-8,096-8,548-6,660-7,280-7,831-8,064-8,412-9,643-6,271-6,098
Operating profit3,3474,05826,74720,73729,48633,515157,83421,96424,43920,809
Segment assets
Credit Cards and Cash Loans608,877567,296588,346566,707568,675590,324623,512657,622651,305604,433
% of total segment assets14.2%12.7%12.3%11.5%11.0%11.1%11.4%11.9%11.7%10.9%
YoY-10.3%-6.8%3.7%-3.7%0.3%3.8%5.6%5.5%-1.0%-7.2%
Settlement and Guarantee-----65,42298,221109,246117,051118,453
% of total segment assets-----1.2%1.8%2.0%2.1%2.1%
YoY------50.1%11.2%7.1%1.2%
Installment Credit2,058,3442,216,4972,424,8062,592,8142,803,6102,908,4333,027,2383,174,3573,329,3653,408,141
% of total segment assets48.0%49.5%50.8%52.6%54.4%54.6%55.3%57.3%59.6%61.4%
YoY3.0%7.7%9.4%6.9%8.1%3.7%4.1%4.9%4.9%2.4%
Bank Loan Guarantee919,3461,002,4651,098,8561,197,5021,275,9891,349,6511,358,2721,276,6211,213,8831,112,866
% of total segment assets21.4%22.4%23.0%24.3%24.8%25.3%24.8%23.0%21.7%20.1%
YoY2.7%9.0%9.6%9.0%6.6%5.8%0.6%-6.0%-4.9%-8.3%
Other343,458305,295282,038237,282212,822180,768153,262126,589113,027101,360
% of total segment assets8.0%6.8%5.9%4.8%4.1%3.4%2.8%2.3%2.0%1.8%
YoY-10.9%-11.1%-7.6%-15.9%-10.3%-15.1%-15.2%-17.4%-10.7%-10.3%
Corporate assets1,041,4421,110,3651,154,1891,120,2071,284,1451,412,7571,622,1941,753,3491,822,4521,877,519
Securitized installment accounts receivable-681,210-718,498-769,311-782,345-989,442-1,175,544-1,404,553-1,547,163-1,658,118-1,668,312
Other-3,544-3,055-2,924-3,441-2,901-2,755-2,807-7,683-4,191-5,242
Total assets4,286,7154,480,3664,776,0004,928,7265,152,9005,329,0585,475,3415,542,9405,584,7775,549,220
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company adopted the new Accounting Standard for Revenue Recognition starting FY03/22. The YoY percentage change for FY03/22 (Est.) was calculated using FY03/21 figures retroactively adjusted to reflect the new standard. 

Recent updates

Announcement of a new medium-term management plan

2022-05-09

On May 6, 2022, Orient Corporation announced the formulation of its new medium-term management plan.

The company disclosed its new medium-term management plan (FY03/23-FY03/25).

Under the new medium-term management plan, with the slogan Transformation Now!, Orico aims to transform itself from a traditional consumer credit sales model into a financial services group that creates value from the customer's point of view, based on 1) digital, 2) green, and 3) open innovation.

The management targets are consolidated recurring profit of JPY40.0bn or more, ROE of 10% or more, and a ratio of general expenses to operating revenue of less than 60% for FY03/25.

The company has the following four business strategies

  1. Deepening of the Settlement and Guarantee business and overseas business, which are priority domains, and search for new businesses
  2. Establishment of market-oriented sales
  3. Creation of new products and services through digital marketing and open innovation
  4. Deepening of process innovation

Announcement of issuer rating upgrade

2022-03-31

On March 31, 2022, Orient Corporation (Orico) announced that Rating and Investment Information, Inc. (R & I) has upgraded Orico's issuer rating. 

Credit ratings

BeforeAfter
Issuer ratingA-A
Rating outlookStableStable
Commercial papera-1a-1

Date of rating change: March 31, 2022

Announcement of transition to  a Company with Audit and Supervisory Committee board structure

2022-03-28

On 25 March 2022, Orient Corporation (Orico) announced that it plans to transition to a Company with Audit and Supervisory Committee board structure.

The company decided to transition from a Company with Auditors to a Company with Audit and Supervisory Committee, assuming approval by the annual shareholders meeting scheduled for June 2022. At the same time as changing to a Company with Audit and Supervisory Committee board structure, Orico aims to increase the weighting of outside directors on the board of directors to at least one third. The company also plans to establish a Conflict of Interest Committee, with outside directors making up the majority of members.

Annoucement of the transfer of shares in Ohtori Corporation.

2022-03-07

On March 4, 2022, Orient Corporation (“Orico”) announced the transfer of shares in Ohtori Corporation. 

The company decided to transfer all shares in consolidated subsidiary Ohtori Corporation to Ichinen Holdings Co., Ltd. 

The company made the decision as part of an overhaul of group businesses ahead of the release of its next medium-term management plan, currently being formulated.  

Overview of share transfer

Subsidiary to be transferred: Ohtori Corporation
Business overview: Development, management, and operation of parking facilities

Transferee: Ichinen Holdings Co., Ltd.

Number of shares to be transferred: 18 (100% of voting rights)

Transfer price: Not disclosed

Transfer date: March 31, 2022 (planned)

Trends and outlook

Quarterly trends and results


Earnings (cumulative)FY03/21FY03/21 (retroactively adjusted) FY03/22FY03/22
Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Operating revenue58,905115,723172,650230,59659,005115,778172,131229,79356,864114,612171,553229,80697.4%236,000
YoY0.7%-5.7%-4.7%-5.2%-----3.6%-1.0%-0.3%0.0%2.3%
Business revenue54,532107,504161,569216,99354,633107,559161,050216,19153,960107,700159,517215,120
(Gain on securitization)19,56537,42554,74677,38219,56537,42654,74777,30019,37839,18055,07078,600
% of operating revenue92.6%92.9%93.6%94.1%92.6%92.9%93.6%94.1%94.9%94.0%93.0%93.6%
YoY-3.8%-6.8%-5.8%-5.3%-----1.2%0.1%-1.0%-0.5%
Credit business revenue53,235104,610157,006210,76753,336104,666156,487209,96452,339104,321154,286208,323
YoY-2.9%-6.3%-5.4%-5.0%-----1.9%-0.3%-1.4%-0.8%
% of operating revenue90.4%90.4%90.9%91.4%90.4%90.4%90.9%91.4%92.0%91.0%89.9%90.7%
Credit Cards and Cash Loans19,07337,38655,62071,92919,02537,30055,59971,90018,17636,18654,82170,900
Credit card shopping13,10025,90038,60050,10013,10025,90038,60050,10013,40026,70040,20051,800
Cash loans5,80011,30016,90021,8005,80011,30016,90021,8004,7009,40014,50019,000
Settlement and Guarantee4,4399,11414,00319,0413,7867,73111,85216,1004,4598,98313,61918,300
Installment Credit19,22437,67857,32480,27319,99239,12858,87182,20020,66441,40859,46184,000
Auto loans11,60024,70034,80051,20011,60024,70034,80050,90011,40024,40036,40051,900
Shopping8,30014,30024,00029,0008,30014,30024,00031,2009,20016,90022,90032,100
Bank Loan Guarantee10,05019,53928,79837,78210,06119,56928,83837,8008,60416,80424,96833,100
Other4478921,2601,7414709361,3241,8004349381,4161,900
Other business revenue1,2972,8934,5636,2261,2972,8934,5636,2261,6203,3795,2306,796
YoY-29.9%-22.2%-17.6%-15.8%‐‐‐‐24.9%16.8%14.6%9.2%
% of operating revenue2.2%2.5%2.6%2.7%2.2%2.5%2.7%2.7%2.8%2.9%3.0%3.0%
Financial income6448931,4282,1996448931,4282,1996491,1371,7692,738
YoY18.8%-9.9%-2.0%3.5%----0.8%27.3%23.9%24.5%
% of operating revenue1.1%0.8%0.8%1.0%1.1%0.8%0.8%1.0%1.1%1.0%1.0%1.2%
Other operating revenue3,7277,3259,65211,4033,7277,3259,65211,4032,2555,77410,26711,947
YoY195.3%15.8%17.3%-3.4%-----39.5%-21.2%6.4%4.8%
% of operating revenue6.3%6.3%5.6%4.9%6.3%6.3%5.6%5.0%4.0%5.0%6.0%5.2%
Operating expenses53,855105,251155,491209,78753,274104,055153,628207,24049,369101,004151,436200,81196.5%208,000
YoY3.0%-1.3%-2.6%-4.1%-----7.3%-2.9%-1.4%-3.1%-0.9%
SG&A expenses51,294100,197147,741199,56450,71299,000145,878197,01746,78095,299141,816188,563
YoY3.0%0.0%-1.9%-3.2%-----7.8%-3.7%-2.8%-4.3%
General expenses37,90076,497112,200150,06437,30075,100110,300147,40034,70069,700103,900139,500
YoY3.3%3.6%1.8%-0.3%-----7.0%-7.2%-5.8%-5.4%
% of operating revenue64.3%66.1%65.0%65.1%63.2%64.9%64.1%64.2%61.0%60.5%60.1%60.7%
Bad-debt-related expenses13,30023,70035,40049,50023,80023,80035,40049,50012,00025,50037,80049,000
YoY2.3%-10.1%-11.9%-11.0%-----49.6%7.1%6.8%-1.0%
Provision for credit losses12,40021,60031,80042,90012,50021,80031,90043,0008,50017,70026,80036,000
Provision for losses on interest refunds8002,1003,6006,6008002,1003,6006,6003,4007,70011,00013,100
Financial expenses2,4184,8457,2309,6492,4184,8457,2309,6492,3174,7397,2789,883
YoY0.5%0.2%0.2%-6.2%-----4.2%-2.2%0.7%2.4%
Other operating expenses1422095195731422095195732719652,3402,364
YoY136.7%-86.9%-72.0%-75.1%----90.8%361.7%350.9%312.6%
Operating profit5,04910,47117,15920,8095,73111,72218,50322,5537,49513,60820,11628,994103.6%28,000
YoY-19.0%-34.5%-20.3%-14.9%----30.8%16.1%8.7%28.6%24.2%
Operating profit margin8.6%9.0%9.9%9.0%9.7%10.1%10.7%9.8%13.2%11.9%11.7%12.6%
Recurring profit5,04910,47117,15920,8095,73111,72218,50322,5537,49513,60820,11628,994103.6%28,000
YoY-19.0%-34.5%-20.3%-14.9%----30.8%16.1%8.7%28.6%24.2%
Recurring profit margin8.6%9.0%9.9%9.0%9.7%10.1%10.7%9.8%13.2%11.9%11.7%12.6%
Extraordinary gains729311,125729311,247396396543562
Extraordinary losses75751832577575183257227171182
Net income attributable to owners of the parent3,9589,35414,44817,6684,94510,82216,02419,6957,39112,44818,12119,47688.5%22,000
YoY-12.4%-27.6%-15.2%-14.5%----49.5%15.0%13.1%-1.1%12.4%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company adopted the new Accounting Standard for Revenue Recognition starting FY03/22. The YoY percentage change for FY03/22 (Est.) was calculated using FY03/21 figures retroactively adjusted to reflect the new standard.
Quarterly transaction volume (by business)
Transaction volume by business (cumulative)FY03/21FY03/21 (retroactively adjusted) FY03/22
Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
(JPYbn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4
Credit Cards and Cash Loans business582.91,212.21,885.52,530.8582.91,212.21,885.52,530.8654.71,318.72,061.72,772.3
YoY-5.3%-4.6%-1.8%-1.2%----12.3%8.8%9.3%9.5%
Credit cards574.41,196.51,862.02,498.8574.41,196.51,862.02,498.8646.61,301.92,036.42,738.7
YoY-4.7%-3.9%-1.2%-0.5%----12.6%8.8%9.4%9.6%
Shopping558.11,165.41,814.42,435.0558.11,165.41,814.42,435.0629.71,268.71,986.72,672.8
YoY-3.6%-2.8%-0.1%0.7%----12.8%8.9%9.5%9.8%
Cash advances16.231.047.563.816.231.047.563.816.933.249.665.9
YoY-31.6%-34.0%-31.6%-30.5%----4.3%7.1%4.4%3.3%
Cash loans8.415.723.531.98.415.723.531.98.116.725.333.5
YoY-33.9%-36.4%-34.9%-35.3%-----3.6%6.4%7.7%5.0%
Settlement and Guarantee business303.0623.4953.51,293.5303.0623.4953.51,293.5347.3705.11,076.21,452.8
YoY6.4%7.4%7.9%8.1%----14.6%13.1%12.9%12.3%
Installment Credit business280.3599.2930.81,260.9280.3599.2930.81,260.9321.2628.6944.71,250.9
YoY-13.1%-10.1%-5.4%-4.1%----14.6%4.9%1.5%-0.8%
Auto loans193.9412.0633.7864.6193.9412.0633.7864.6222.4439.1661.6883.7
YoY-10.4%-8.5%-3.7%-2.5%----14.7%6.6%4.4%2.2%
Shopping86.3187.1297.0396.386.3187.1297.0396.398.7189.5283.1367.2
YoY-18.7%-13.6%-8.8%-7.2%----14.4%1.3%-4.7%-7.3%
Bank Loan Guarantee business118.3208.5315.5425.0118.3208.5315.5425.0120.0228.0341.8449.7
YoY-13.8%-19.5%-17.6%-14.5%----1.4%9.4%8.3%5.8%
Other0.92.13.23.70.92.13.23.71.01.82.94.0
YoY-25.0%-16.0%-15.8%-26.0%----11.1%-14.3%-9.4%8.1%
Transaction volume by business (quarterly)FY03/21FY03/21 (retroactively adjusted) FY03/22
Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
(JPYbn)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
Credit Cards and Cash Loans business582.9629.3673.3645.3582.9629.3673.3645.3654.7664.0743.0710.6
YoY-5.3%-3.9%3.5%0.9%----12.3%5.5%10.4%10.1%
Credit cards574.4622.1665.5636.8574.4622.1665.5636.8646.6655.3734.5702.3
YoY-4.7%-3.2%4.1%1.7%----12.6%5.3%10.4%10.3%
Shopping558.1607.3649.0620.6558.1607.3649.0620.6629.7639.0718.0686.1
YoY-3.6%-2.0%5.2%2.8%----12.8%5.2%10.6%10.6%
Cash advances16.214.816.516.316.214.816.516.316.916.316.416.3
YoY-31.6%-36.5%-26.3%-27.2%----4.3%10.1%-0.6%0.0%
Cash loans8.47.37.88.48.47.37.88.48.18.68.68.2
YoY-33.9%-39.2%-31.6%-36.4%-----3.6%17.8%10.3%-2.4%
Settlement and Guarantee business303.0320.4330.1340.0303.0320.4330.1340.0347.3357.8371.1376.6
YoY6.4%8.3%8.8%8.6%----14.6%11.7%12.4%10.8%
Installment Credit business280.3318.9331.6330.1280.3318.9331.6330.1321.2307.4316.1306.2
YoY-13.1%-7.4%4.5%-0.1%----14.6%-3.6%-4.7%-7.2%
Auto loans193.9218.1221.7230.9193.9218.1221.7230.9222.4216.7222.5222.1
YoY-10.4%-6.7%6.6%0.8%----14.7%-0.6%0.4%-3.8%
Shopping86.3100.8109.999.386.3100.8109.999.398.790.893.684.1
YoY-18.7%-8.8%0.6%-2.0%----14.4%-9.9%-14.8%-15.3%
Bank Loan Guarantee business118.390.2107.0109.5118.390.2107.0109.5120.0108.0113.8107.9
YoY-13.8%-25.9%-13.5%-4.4%----1.4%19.7%6.4%-1.5%
Other0.91.21.10.50.91.21.10.51.00.81.11.1
YoY-25.0%-7.7%-15.4%-58.3%----11.1%-33.3%0.0%120.0%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Full-year FY03/22 results

Summary

  • Operating revenue: JPY229.8bn (+0.01% YoY) (achievement vs. full-year earnings forecast: 97.4%)
  • Operating expenses: JPY200.8bn (-3.1% YoY) (96.5%)
  • Recurring profit: JPY29.0bn (+28.6% YoY) (103.6%)
  • Net income attributable to owners of the parent: JPY19.5bn (-1.1% YoY) (88.5%) 

Key takeaways

Although the recovery of personal consumption in FY03/22 was moderate, operating revenue remained on par with the previous year, primarily due to growth in credit card shopping and the Settlement and Guarantee business. Meanwhile, cost reductions achieved through process innovation resulted in a YoY increase in recurring profit.

Operating revenue and business revenue: Operating revenue increased by JPY13mn (+0.01%) YoY to JPY229.8bn and business revenue fell JPY1.1bn (-0.5%) YoY to JPY215.1bn. The JPY1.1bn decrease in business revenue was due to a JPY1.6bn decrease in credit business revenue, while Other business revenue rose JPY570mn. The YoY decline in credit business revenue resulted from a JPY1.7bn YoY increase in credit card shopping revenue, a JPY2.2bn YoY rise in Settlement and Guarantee business revenue, and a JPY1.8bn YoY increase in Installment Credit business revenue, while cash advance/loan revenue declined by JPY2.8bn YoY and Bank Loan Business revenue fell by JPY4.7bn. The increase in Installment Credit business revenue was due to a JPY1.0bn increase in auto loan revenue and an JPY800mn increase in credit card shopping. Operating revenue reached 97.4% of the company's full-year forecast.

Operating expenses: Operating expenses were down JPY6.4bn YoY. Of this, general expenses declined by JPY7.9bn YoY, and bad-debt-related expenses fell by JPY500mn YoY. The company was able to cover the expense hike associated with transaction volume growth by expanding the scope of online credit card statements, optimizing IT costs, and accelerating process innovation. In bad-debt-related expenses, provision for losses on interest refunds increased due to a rise in the amount of interest refunds. On the other hand, provision for credit losses decreased as delinquencies fell. The ratio of general expenses to operating revenue came in at 60.7%.

Disclosure of medium-term management plan (FY03/23-FY3/25): The management targets are consolidated recurring profit of JPY40.0bn or more, ROE of 10% or more, and a ratio of general expenses to operating revenue of less than 60% for FY03/25.

Company forecasts for full-year FY03/23

Quantitative targets

FY03/20FY03/21FY03/22FY03/23
(retroactively adjusted)
(JPYmn)1H Act.2H Act.FY Act.1H Act.2H Act.FY Act.FY Act.1H Act.2H Act.FY Act.FY Est.
Operating revenue122,658120,477243,135115,723114,873230,596229,793114,612115,194229,806233,000
YoY6.4%2.0%4.2%-5.7%-4.7%-5.2%---0.0%1.4%
Operating expenses106,660112,035218,695105,251104,536209,787207,240101,00499,807200,811208,000
SG&A ratio87.0%93.0%89.9%91.0%91.0%91.0%90.2%88.1%86.6%87.4%89.3%
Operating profit15,9988,44124,43910,47110,33820,80922,55313,60815,38628,99425,000
YoY40.3%-20.1%11.3%-34.5%22.5%-14.9%---28.6%-13.8%
Operating profit margin13.0%7.0%10.1%9.0%9.0%9.0%9.8%11.9%13.4%12.6%10.7%
Recurring profit15,9988,44124,43910,47110,33820,80922,55313,60815,38628,99425,000
YoY40.3%-20.1%11.3%-34.5%22.5%-14.9%---28.6%-13.8%
Recurring profit margin13.0%7.0%10.1%9.0%9.0%9.0%9.8%11.9%13.4%12.6%10.7%
Net income12,9277,72720,6549,3548,31417,66819,69512,4487,02819,47621,000
YoY-35.8%-11.5%-28.5%-27.6%7.6%-14.5%----1.1%7.8%
Net margin10.5%6.4%8.5%8.1%7.2%7.7%8.6%10.9%6.1%8.5%9.0%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
*Figures are retroactively adjusted to reflect the Accounting Standard for Revenue Recognition.

The company forecast for full-year FY03/23 calls for operating revenue of JPY233.0bn (+1.4% YoY), operating profit of JPY25.0bn (-13.8% YoY), recurring profit of JPY25.0bn (-13.8% YoY), and net income of JPY21.0bn (+7.8%). 

The company expects a rise in personal consumption as social and economic activities begin to normalize and the employment and income environment improves amid efforts to balance these activities against prevention of the spread of COVID-19. Operating revenues are seen increasing, primarily due to growth in the Settlement and Guarantee business and overseas business, which are key markets. Overall operating expenses are expected to increase due to higher general and other expenses owing to upfront investments, such as the cultivating of human resources for DX and the launch of a new collection system for demand collection operations.

Shared Research's assumptions for FY03/23 forecasts will be updated following interviews with the company.

Medium-term management plan

On May 6, 2022, the company disclosed its medium-term management plan (FY03/23-FY03/25). As management targets, the company aims to achieve consolidated recurring profit of JPY40.0bn or more, ROE of 10% or more, and a ratio of general expenses to operating revenue of less than 60% for FY03/25.

The following information is as of the beginning of FY03/22. It has been updated based on interviews with the company.

On October 30, 2018, the company unveiled its medium-term management policy spanning FY03/20 to FY03/22.

Basic policies

Orico’s vision statement

Orico aims to “support its customers in their realization of prosperous lives and dreams by winning genuine acceptance of its raison d’être from society and providing the very best financial services and products to those customers with credit and payment-related needs.”

Basic strategies

In line with the slogan “Innovation for Next Orico,” the company realigned its operations into growth businesses (segments: Credit Cards and Cash Loans, Settlement and Guarantee) and core businesses (segments: Installment Credit, Bank Loan Guarantee). The current medium-term management policy calls for the rebuilding of a firm revenue structure and the creation of a new business model to prepare the company for a new era. To realize these objectives, Orico developed the six basic strategies (outlined below) and is working to strengthen collaboration with Mizuho Financial Group.

Digital innovation

 Create a new business model through open innovation

 Collaborate and cocreate with startups by leveraging the Orico Digital Fund, etc. 

Progress: In November 2020, Orico signed a basic agreement on capital and business alliance with EC-Cube Co., Ltd., and began providing cloud-based platform, ec-cube.co, to support the e-commerce efforts of member merchants. By using ec-cube.co, merchants can operate online stores without having to set up servers manually or install and update systems on their own. Instead, they can focus on shop management and branding efforts.

Process innovation

Optimize the cost structure by introducing drastic changes to the operational processes, taking advantage of the new shared core system and cutting-edge technology

In specific terms, 1) achieve greater efficiency in operations, 2) upgrade customer relations, 3) bring credit card statements online and charge a fee for paper statements, 4) rebuild operational structure, and 5) optimize IT costs

Progress: Profit contribution of process innovation amounted to roughly JPY5.0bn in FY03/20, JPY10.1bn in FY03/21, and JPY11.2bn in Q1 FY03/22. Specific initiatives included the streamlining and efficiency enhancement at administrative centers, digitalization of mailed items, etc., and streamlining of systems maintenance costs.

Business expansion in Asia

Increase auto loan revenue in Thailand, accelerate entry into the Asian markets (e.g., Thailand, Indonesia, Philippines), roll out businesses in earnest

Progress: The company established Orico Auto Leasing (Thailand) Ltd. in Bangkok and commenced operations in 2015. At end-FY03/21, the transaction volume of auto loans and other products in Thailand stood at JPY29.6bn (+19.1% YoY), and the company had eight locations in the country. In 2019, the company established Orico Auto Finance Philippines Inc. (an auto loan company). In 2020, the company acquired the shares of auto loan business operator PT. Mizuho Balimor Finance (MBF, established in 1989) from Mizuho Bank, and made the company a consolidated subsidiary in 2021.

Expansion of synergies within the Orico group

Engage in acquisitions aimed at expanding business domains, actively advance alliances 

Strengthen functions of group companies, enhance consolidated management by making use of Orico group’s channels 

Progress: In the rent guarantee business, Orico began joint operation with Orico Forrent Insure and strengthened collaboration (cross-selling housing renovation loan proposals, etc. to property management companies). In the alliance efforts with Mizuho Bank, the company added a new dual-function (bank card + credit card) card to the product lineup. By making use of Mizuho Bank’s sales base, the company also spearheaded proposal-based marketing to those corporate customers with payment-related needs.

Enhancement of consulting-based sales

Provide multi-tiered payment and financial services by taking a market-driven approach 

Organize a team dedicated to consulting-based sales to market such services

Enhancement of sustainability initiatives

Aim to realize a sustainable society while enhancing corporate value (To do so, focus on stakeholder’s expectations/requests and select priority themes among the various social challenges, and provide financial products and services that are fitting to the company’s basic corporate vision of “acting as a company that contributes to society”) 

Quantitative targets and business strategies

In the medium-term management policy, Orico aimed for a recurring profit of JPY35.0bn or more in FY03/22. However, in light of the weak consumer spending owing to the pandemic, the company thinks it would be difficult to achieve the target.

FY03/22 business targets (out May 9, 2019)Company forecasts for FY03/22
Recurring profitJPY35.0bn or moreJPY28.0bn
% of operating revenueLess than 60%61.8%
ROE10% or more9.8%

Other targets and initiatives outlined in the medium-term management policy were: 1) achieve transaction volume of JPY3tn in credit card shopping, 2) advance cashless payment (use of prepaid cards, debit cards, etc.), 3) achieve transaction volume of JPY70bn in overseas auto loans, 4) promote use of auto leasing service, 5) achieve full automation of credit checks, and 6) promote use of corporate credit cards and the receivables guarantee service.

Redemption of preferred stock

The redemption of preferred stock is also an important agenda for Orico. There was JPY70.0bn in class I preferred stock outstanding at end-March 2018. Since then, the company made progress with the redemption, and the outstanding balance was reduced to JPY20.0bn by end-March 2021. While maintaining an appropriate level of equity, the company aims to fully redeem the outstanding preferred stock by end-FY03/22.

Shareholder returns

At the time of disclosing the medium-term management policy (October 30, 2018), the company stated it would initially focus on steady redemption of preferred stock while ensuring appropriate level of equity, and also conduct stable and sustainable dividend payment. It added that it plans to reevaluate the company’s shareholder returns policy once the full redemption of preferred stock is in sight. On May 9, 2019, Orico disclosed its management targets, including ordinary dividend payments at a consolidated payout ratio of 20% during the span of the current medium-term management policy (starting FY03/20).

Business

Business overview

Company profile

Market leader in consumer credit with strengths in auto loans and bank loan guarantees

Orico is a consumer credit company, which provides credit to individuals who make big-ticket purchases, such as cars, from its member merchants. The company mediates transactions by paying the merchants for the purchases upfront, then collecting payment from the individuals later. Orico leads in the Japanese consumer credit industry that includes rivals JACCS (TSE 1: 8584), SMBC Finance Service, Aplus Financial, and consumer credit firms affiliated with manufacturers. It is an equity-method affiliate of Mizuho Financial Group (49% stake in the company) and Itochu Corporation (16.5%).

There are two types of credit: closed-end credit (based on individual contracts) and open-end credit (based on card issuance). Orico handles both. In a closed-end credit arrangement where a member merchant sells goods or services to a consumer, the company runs a credit check of the consumer, pays the merchant for the purchase upfront, and collects payment from the consumer later. In this scenario, a credit contract is concluded for each purchase. Provision of closed-end credit is Orico’s core business, and auto loans—a credit instrument in which the asset being purchased is a car—are its mainstay product. In addition to the auto loans where Orico uses its own funds to finance the payment, the company also offers credit guarantees to loans executed by its partner financial institutions.

In an open-end credit arrangement, a member merchant sells goods or services to a holder of a credit card issued by Orico. The company pays for the purchases upfront and collects payment later. The credit card holder (i.e., a consumer who has passed the company’s credit screening) can make purchases repeatedly up to a preapproved credit limit and until the card expires. In contrast, closed-end credit do not allow debts to be taken out repeatedly. Credit cards issued by Orico include own-brand cards as well as co-branded cards issued under business partnerships with major companies.

At end-FY03/21, Orico’s operating assets stood at JPY5.43tn (-1.6% YoY). Operating revenue in the same fiscal year was JPY230.6bn (-5.2% YoY [of which business revenue was JPY217.0bn, -5.3% YoY]) and recurring profit was JPY20.8bn (-14.9% YoY). Total transaction volume amounted to JPY5.33tn, including JPY1.97tn in closed-end credit transactions and JPY2.44tn in open-end credit transactions. The outstanding balance of bank loan guarantees was JPY1.16tn. The company had a 21.5% market share in closed-end credit. The market share was 3.3% in open-end credit, ranking the company 11th among the credit card and consumer credit companies in Japan.

The company’s operations break down into the Credit Cards and Cash Loans business (generated 33.1% of total business revenue in FY03/21, 38.8% of total segment profits; accounted for 11.8% of total operating assets*), Settlement and Guarantee business (8.8%, 5.5%; 2.1%), Installment Credit business (37.0%, 40.1%; 63.5%), Bank Loan Guarantee business (17.4%, 13.7%; 21.3%), and Other businesses (3.7%, 1.9%; 1.3%). The servicer business operated by consolidated subsidiary Japan Collection Service, and the real estate business fall under Other businesses.

*Note: Total operating assets include securitized receivables. 

Business growth, slowdown, and revival

Founded in 1954, Orico is a pioneer in the Japanese consumer credit market. Against the backdrop of rising competition to obtain member merchants in the 1980s, the company shifted its focus to corporate lending (loans to member merchants, group companies, and non-affiliated companies) from 1985 to 1993. However, with the collapse of the bubble economy in the early 1990s, the company accumulated bad debts and its business conditions quickly deteriorated; net losses continued from FY03/00 to FY03/03. In FY03/01, Orico conducted a JPY43.3bn capital increase through private placement to the former Dai-ichi Kangyo Bank (DKB, currently Mizuho Financial Group) and another close business partner. In FY03/02, it requested DKB to subscribe to JPY200.0bn of its preferred stock. In FY03/03, it requested the former Mizuho Corporate Bank (currently Mizuho Financial Group) to subscribe to another JPY150.0bn of its preferred stock. In 2004, the company concluded a comprehensive business alliance agreement with Mizuho Financial Group in the retail market, and in 2005, it concluded a capital and business alliance agreement with Itochu Corporation, which included Itochu’s capital contribution via private placement. These agreements served to mitigate the dilution risks associated with the company’s issuance of preferred stock.

While Orico succeeded in bolstering capital, the JPY350.0bn it raised in preferred stock was essentially a debt. Consequently, the company’s book value per share (BVPS), calculated by deducting preferred stock, was negative from FY03/03 to FY03/15. In 2010, Mizuho Financial Group made the company an equity-method affiliate by converting the preferred stock it held into common stock, thereby raising its stake in Orico to 22%; in 2015, the stake was raised to 49%. In FY03/16, the company’s BVPS turned positive. In FY03/17, Orico revived dividends payment as its retained earnings surpassed the remaining balance of preferred stock (JPY140.0bn). Since then, the company continued to redeem its preferred stock. With just JPY20.0bn in class I preferred stock outstanding as of end-FY03/21, the company aims to complete redemption in FY03/22, which it says, will improve Orico’s capital structure from the standpoint of its common stock investors.

Preferred stock and real profit
(JPYmn)FY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
Recurring profit (1)3,3474,05826,74720,73729,48633,51530,08821,96424,43920,809
Retained earnings (2)47,68850,70373,39893,938118,516147,20696,57399,06598,82694,310
Balance of class I preferred stock (3)140,000140,000140,000140,000140,000140,00070,00050,00035,00020,000
Book value per share (JPY) (4)-135.7-117.1-56.2-20.178.095.3109.3119.3125.4139.6
Amount required for redemption of preferred stock (5) = (2) - (3)-92,312-89,297-66,602-46,062-21,4847,20626,57349,06563,82674,310
Total dividends on common stock (6)000003,4363,4363,4365,1555,156
Total dividends on preferred stock (7)000001,5891,5891,4381,006576
Actual recurring profit (8) = (1) - (7)3,3474,05826,74720,73729,48631,92628,49920,52623,43320,233
Source: Shared Research based on company data
  

Business model

Value chain

Consumer credit and credit card companies, such as Orico, provide unsecured credit to consumers. When a consumer wishes to make a purchase but defer the payment, these companies go through the following processes: 1) Run a credit check to determine the individual’s creditworthiness; 2) approve deferred payment or provide loans once the individual passes the screening; and 3) invoice/collect installment payments from the individual. The value chain of a consumer credit company thus includes credit check (credit screening and credit data building), credit provision (granting credit and concluding a contract), and receivables management (managing receivables, collecting payments, and processing calculations and other administrative tasks).

Credit check

With credit check, the company determines whether a customer has the intention and the ability to make payments. Credit data building—the accumulation of data on customer’s credit history, payment status, etc.—complements the credit check operation. The accumulated data is properly organized so that it can be used effectively every time there is a transaction. Credit provision involves giving the customer an approval to pay in installments based on the result of the credit check. In broad terms, it also includes guaranteeing customer’s creditworthiness to a financial institution.

In-house credit scoring model

The Credit Risk Management Department at Orico uses a proprietary credit scoring model. Since the company operates in a wide range of businesses, it runs a separate scoring model depending on the business and product involved as well as the route through which the customer applies. In this way, it is able to carefully determine the credit to be granted. According to Orico, an in-house-built credit scoring model can be adjusted flexibly, allowing the company to promptly address changes like a sudden hike in delinquencies. Meanwhile, once the development is outsourced, the flexibility wanes since it would take more time and money to make adjustments and updates.

Credit scoring model: A statistical analysis model used to determine the creditworthiness of an applicant. Credit history on the application forms and information provided by the Credit Information Center (CIC) and other credit bureaus are used to judge whether loan applicants can perform their obligations. Numerical scores are given to indicate the degree of applicant’s creditworthiness.

Credit provision

Orico grants credit to customers based on a screening process centered on credit scoring. The company can automatically determine whether or not credit should be granted, using a program that checks the customer’s credit score (reflecting delinquency trends in the credit history) against the company’s screening standards based on statistics. Thanks to this system, swift credit checks have become a feature that sets Orico apart from the competition, according to the company. For example, its new online product only takes 10 seconds to screen an application. In the medium-term, the company aims to fully automate its screening processes.

Receivables management

The management of receivables involves demanding payment from delinquent customers and writing off the bad debt when the receivables become uncollectible. In addition to the collection capability of the Credit Collection division at the parent, Orico’s track record and knowledge in this area are maintained at its consolidated subsidiary Japan Collection Service (JCS). For instance, in the alliances with regional financial institutions, Orico provides guarantees while JCS is simultaneously tasked with the collection. LINE Credit (a joint venture of LINE Financial, Mizuho Bank, and Orico established in 2018) also outsources collection to JCS.

Japan Collection Service Co., Ltd. (JCS): Orico’s wholly owned subsidiary. In April 1999, JCS received approval from the Ministry of Justice to operate as Japan’s first special servicer. JCS mainly handles mortgage receivables, secured and unsecured business loan receivables, and consumer credit card receivables. Its businesses include receivables purchasing, contracted management and collection of receivables, call center operations, support service for business rehabilitation, and backup servicer operations.

Products

Orico’s products broadly divide into credit, cash loans, and guarantees. Credits further break down to closed-end credit (based on individual contracts) and open-end credit (based on card issuance), but both offer consumers the means to buy now and pay later. Cash loans include credit card cash advances and personal loans. For guarantees, the company provides guarantees to partner financial institutions for the unsecured personal loans they execute.

In FY03/21, open-end credit accounted for 45.7% of the company’s total transaction volume, closed-end credit 36.9%, credit guarantees 15.6%, and cash loans 1.8%. By business, Credit Cards and Cash Loans accounted for 47.5% of the total transaction volume, Settlement and Guarantee 24.3%, Installment Credit 23.6%, and Bank Loan Guarantee 8.0%. Auto loans made up 68.6% or JPY864.6bn of the JPY1.26tn transaction volume in the core Installment Credit business. The company positions the Credit Cards and Cash Loans business and the Settlement and Guarantee business as its growth drivers.

Transaction volume by business
Transaction volumeFY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
Transaction volume by business
Credit Cards and Cash Loans business1,559,7311,592,4341,662,8281,663,1471,712,8821,818,9751,982,3232,314,9872,560,3882,530,831
YoY1.3%2.1%4.4%0.0%3.0%6.2%9.0%16.8%10.6%-1.2%
% of total transaction volume49.2%46.8%44.4%43.7%42.4%43.4%43.8%44.6%45.9%45.9%
Credit cards1,517,4001,548,2001,614,4001,615,5001,664,7001,765,3001,930,6002,263,3002,511,0002,498,800
YoY2.1%2.0%4.3%0.1%3.0%6.0%9.4%17.2%10.9%-0.5%
% of total transaction volume47.8%45.5%43.1%42.5%41.2%42.2%42.6%43.6%45.0%45.3%
Shopping1,390,2611,416,9991,485,1781,492,3421,548,3661,657,0581,826,3012,163,5002,419,2002,435,000
YoY6.2%1.9%4.8%0.5%3.8%7.0%10.2%18.5%11.8%0.7%
% of total transaction volume43.8%41.6%39.6%39.2%38.3%39.6%40.3%41.7%43.4%44.2%
Cash advances127,100131,200129,200123,100116,400108,200104,30099,70091,80063,800
YoY-28.2%3.2%-1.5%-4.7%-5.4%-7.0%-3.6%-4.4%-7.9%-30.5%
% of total transaction volume4.0%3.9%3.4%3.2%2.9%2.6%2.3%1.9%1.6%1.2%
Cash loans42,30044,10048,30047,60048,00053,60051,60051,60049,30031,900
YoY-22.5%4.3%9.5%-1.4%0.8%11.7%-3.7%0.0%-4.5%-35.3%
% of total transaction volume1.3%1.3%1.3%1.3%1.2%1.3%1.1%1.0%0.9%0.6%
Settlement and Guarantee business-----576,930791,1491,051,4741,197,0341,293,542
YoY------37.1%32.9%13.8%8.1%
% of total transaction volume-----13.8%17.5%20.2%21.5%23.5%
Installment Credit business1,173,6331,296,3511,428,9041,474,1621,224,3421,219,6451,214,6201,280,9051,314,3001,260,987
YoY3.0%10.5%10.2%3.2%-16.9%-0.4%-0.4%5.5%2.6%-4.1%
% of total transaction volume37.0%38.1%38.1%38.8%30.3%29.1%26.8%24.7%23.6%22.9%
Bank Loan Guarantee business439,575515,896591,869627,818665,634695,827666,561542,315497,200425,007
YoY-1.3%17.4%14.7%6.1%6.0%4.5%-4.2%-18.6%-8.3%-14.5%
% of total transaction volume13.9%15.1%15.8%16.5%16.5%16.6%14.7%10.4%8.9%7.7%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. 

Credit transactions

In a closed-end credit transaction, Orico’s member merchant sells goods or services to a consumer, and the company is charged with running a credit check of the consumer, paying upfront on behalf of that individual, and collecting payment later. In an open-end credit transaction, Orico’s member merchant sells goods or services to the holder of a credit card issued by the company (a card member). The company pays for the purchase upfront, and collects payment from the card member later. Orico’s credit cards consist of own-brand cards and co-branded cards that are issued under business partnerships with other companies.

Correlation of parties in installment credit and credit card transactions
Source: Shared Research based on materials from the “fifth study group meeting to promote further dissemination and facilitation of cashless payment among small- and mid-sized stores” held by the Ministry of Economy, Trade and Industry (METI).
Interchange fee is a fee the acquirer pays to the issuer when a credit card payment occurs. In an on-us transaction where the acquirer and the issuer are the same company, an interchange fee is not incurred. Global brands receive a brand fee (scheme fee) from the issuer and the acquirer, but do not receive an interchange fee. For the issuer, the interchange fee is a major revenue component. Various costs associated with managing card membership are deducted from the interchange fee revenue.

Customers

Consumers

Mass retail market

Since auto loans are the mainstay product in the company’s Installment Credit business, the customer base is primarily centered on the mass retail market. Looking at the retail finance industry, the majority of consumer finance customers are those with annual income of JPY3mn or less, whereas for consumer credit and credit card companies, customers with income between JPY3–5mn make up a large proportion. Compared with consumer credit and credit card companies, banks tend to have a higher proportion of customers who earn JPY5mn or more per year.

Male customers in their 40s make up the largest customer segment

Typical customers are those who take out auto loans and home renovation loans, as well as holders of co-branded cards affiliated with home electronics mass retailers. The ratio of male customers is high, and of those who take out loans, male customers in their 40s make up the largest customer segment. The number of credit cards issued by Orico totaled 11,063,000 in FY03/21, with co-branded cards accounting for roughly 80% and own-brand cards (Orico Cards) 20%. The customer base differs from the female-dominant customer portfolio of the retail-network credit cards.

The company is working to make its credit card the primary card being used by the younger generation. For instance, when recent graduates starting their careers open a bank account at the Mizuho Bank, the company recommends them to apply for the dual-function Mizuho Mileage Club Card (MMC Card), a bank card with an added credit card function. In such a way, the company focuses on creating touchpoints to draw in the younger generation.

Member merchants

As of end-March 2021, the number of member merchants stood at 840,000. Since auto loans are the company’s mainstay product, car dealers, car repair shops, and automotive parts stores are highly represented. Other member merchants include retailers such as department stores, super markets, and home electronic mass retailers. The company offers roughly 1,500 types of co-branded credit cards, collaborating with the same number of partner companies.

Delivered value

Value delivered to consumers

The company’s credit services allow consumers to make purchases without having to pay upfront. Customers gain the benefit of time, since they only need to pay by the deadline predetermined in the credit contract. Cashless payment is another feature. Consumers can shop safely as they do not need to carry around cash, and the use of credit provides more opportunities to shop since purchases can be made without cash in hand. Further, installment payment enables consumers to make big-ticket purchases without having to place a heavy one-off burden on household spending. Both installment credit and revolving credit facilitate purchases since they provide consumers the option to pay in small portions over time.

Value delivered to member merchants

From the standpoint of member merchants, credit increases sales opportunities since consumers can be encouraged to make purchases without cash in hand. By encouraging expensive purchases, merchants can expect to raise per-customer spend. They can also concentrate on their business operations, without having to worry about collection and the risks of unpaid receivables.

Sales channel

Customer touchpoints centered on member merchants

As of end-March 2021, Orico operated at 111 locations; these include branch offices (69), credit centers (10), loan guarantee branches/centers (10), and administrative and service centers (15). That being said, the company mainly gains access to potential credit card members and loan borrowers through its member merchants, which serve as customer touchpoints. While peer comparison is difficult since many consumer credit and credit card companies do not disclose their member merchant counts, the number of Orico’s member merchants reached 840,000 as of end-March 2021.

Strong partnership with Japan Used Car Dealers Association

According to Orico, its close relationship with Japan Used Car Dealers Association (JU) has a key role in facilitating the company’s auto loan sales. Founded in 1975, JU is the only general incorporated association of used car dealers in Japan. With membership spanning across the nation, it has established the largest domestic distribution network for used cars. The association had 10,802 member car dealers at end-March 2020. JU-certified dealers totaled 1,329 (FY03/21), and 29,346 companies were registered as non-member participants of JU-affiliated auctions. Over one million used cars are traded in Japan annually. Sales from the JU credit business, a joint initiative of JU and Orico, reached JPY274.1bn, and over 30% of the company’s auto loan transaction volume (JPY864.6bn in FY03/21) resulted from the partnership with JU.

Japan Used Car Dealers Association (JU) and Orico: In June 1984, JU and Orico forged a partnership based on the concept of “co-existence and co-prosperity.” Prior to 1984, JU had collaborated with five consumer credit companies, but some of these companies withdrew from the auto loan business and dissolved their partnership. Credit transactions fell sharply as a result, and JU was pressed to quickly improve its financial condition. JU drafted a revitalization plan based on which it approached the consumer credit companies for their support, but Orico was the only company that came on board. The exclusive partnership of the two organizations continue to this day.

Other partners in the auto loan business include car repair shop association Lotus Club (1,600 members), Aucnet Inc., Yanase & Co., Ltd., Auto Communications Co., Ltd., and Autobacs Seven Co., Ltd.

Collaboration with Mizuho Bank

Orico concluded a comprehensive alliance agreement with Mizuho Financial Group in 2004. When Mizuho Bank (the megabank under the Mizuho Financial Group umbrella) extends unsecured loans to its retail customers, Orico provides guarantees. At end-March 2021, the outstanding balance of bank loan guarantees provided by Orico stood at JPY1.16tn, of which JPY461.2bn was from the collaboration with Mizuho Bank. In 2019, Mizuho Financial Group, Orico, and UC Card (credit card subsidiary of Mizuho Bank) began a partnership to jointly bolster the credit card business. Their initiative centers on expanding sales of the Mizuho Mileage Club Card (MMC Card [dual function-type, and credit card only-type]). The company also aims to consolidate the member merchant-related operations with UC Card, including the processing business.

Collaboration with Itochu Corporation

Orico receives customer referrals from Itochu Corporation mainly in the Installment Credit business and the Settlement and Guarantee business, taking advantage of the trading company’s group network.

New core system

Since financial services companies rely heavily on processing equipment, having a high-performance core system becomes a competitive advantage. In August 2018, Orico released a new shared core system, developed jointly with UC Card and Credit Saison Co., Ltd (TSE 1: 8253). In 2007, Mizuho Bank, UC Card, and Credit Saison signed a basic agreement to consolidate and restructure their credit card businesses (Note: Credit Saison pulled out of the comprehensive alliance in 2019). The new shared core system is a product of the joint development effort under this partnership, which Orico also took part in. The company invested a total of JPY138.7bn in the system; annual depreciation comes to JPY13.7bn.

Orico has pursued economies of scale by building a shared core system that enables mass-volume and high-speed processing in a safe and reliable manner. Main system enhancements included: 1) linkage of all online systems to the new core system (improves coordination function); 2) extension of automated online application to all products; 3) improved data analysis system (allows higher-level automation of the credit provision process); 4) data structure revamp (improves responses to customers and member merchants); and 5) high-speed processing regardless of data volume.

According to the company, the systems Orico and UC Card use are not completely the same. They share certain components, but also use other units customized for their individual operations. By releasing the new shared core system, the company aims to achieve cost reduction through improved business processing (e.g., expanding automated online application for all products).

Financing structure

Orico procures capital for its credit transactions and cash loans via bank borrowings and financing activities in the capital and money markets (issuance of corporate bonds and commercial papers). Unlike banks that use deposits to execute loans, nonbanks’ operations hinge on their ability to secure financing smoothly. When analyzing a nonbank such as Orico, the company’s relations with financial institutions and the impact of interest rate changes on its earnings warrant attention. In FY03/21, Orico’s profit margin before interest payments (pre-tax profit/interest-bearing debt) was 1.49%. This means that profit would be lost if the interest rates on the company’s debts increased by 2–3% on average.

Financing structure 
FinancingFY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Non-cons.Non-cons.Non-cons.Non-cons.Non-cons.Cons.Cons.Cons.Cons.Cons.
Indirect finance804,700803,000823,600786,200820,200921,8001,058,5001,177,0001,239,4001,282,100
Short-term loans payable131,20070,40086,10056,30038,40047,70050,90061,10067,10092,700
YoY42.3%-46.3%22.3%-34.6%-31.8%24.2%6.7%20.0%9.8%38.2%
% of total9.7%5.2%6.0%3.7%2.1%2.3%2.0%2.1%2.2%3.0%
Long-term loans payable673,400732,600737,500729,900781,800874,0001,007,6001,115,8001,172,3001,189,400
YoY-12.0%8.8%0.7%-1.0%7.1%11.8%15.3%10.7%5.1%1.5%
% of total49.7%54.2%51.1%48.1%43.7%41.5%40.0%39.0%39.0%38.1%
Direct finance550,300548,200619,900731,900969,7001,184,5001,463,1001,680,4001,768,8001,837,700
Securitized receivables402,900418,500470,700542,300703,100858,1001,033,6001,198,7001,273,4001,302,000
YoY3.1%3.9%12.5%15.2%29.7%22.0%20.5%16.0%6.2%2.2%
% of total29.7%31.0%32.6%35.7%39.3%40.7%41.0%42.0%42.3%41.7%
Commercial papers147,400129,700149,200159,600186,600176,400219,500266,700280,400295,700
YoY30.7%-12.0%15.0%7.0%16.9%-5.5%24.4%21.5%5.1%5.5%
% of total10.9%9.6%10.3%10.5%10.4%8.4%8.7%9.3%9.3%9.5%
Bonds30,00080,000150,000210,000215,000215,000240,000
YoY166.7%87.5%40.0%2.4%0.0%11.6%
% of total4.5%7.1%8.3%7.5%7.1%7.7%
Total amount raised1,355,0001,351,3001,443,5001,518,2001,789,9002,106,3002,521,6002,857,4003,008,2003,119,900
YoY-0.4%-0.3%6.8%5.2%17.9%17.7%19.7%13.3%5.3%3.7%
% of indirect finance59.4%59.4%57.1%51.8%45.8%43.8%42.0%41.2%41.2%41.1%
% of long-term borrowings83.7%91.2%89.5%92.8%95.3%94.8%95.2%94.8%94.6%92.8%
% of direct finance40.6%40.6%42.9%48.2%54.2%56.2%58.0%58.8%58.8%58.9%
% of securitized receivables29.7%31.0%32.6%35.7%39.3%40.7%41.0%42.0%42.3%41.7%
Interest-bearing debt971,482946,441984,114985,9211,099,1481,253,6361,498,7671,673,2491,749,3291,830,593
Dependence on interest-bearing debt22.7%21.1%20.6%20.0%21.3%23.5%27.4%30.2%31.3%33.0%
Cost of funds1.61%1.62%1.40%1.23%0.85%0.60%0.49%0.49%0.49%0.47%
Pre-tax profit / interest bearing debt1.91%2.03%3.77%3.16%3.23%2.97%2.43%2.30%1.77%1.49%
Interest coverage ratio0.200.251.861.642.703.923.562.302.382.16
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. 

The company raised a total of JPY3.12tn in FY03/21: direct financing from the capital/money markets accounted for 58.9% of the total, and indirect financing from financial institutions 41.1%. The ratio of long-term to short-term borrowings was nine to one. The high weighting of securitized receivables (41.7% of total) is a principal feature of the company’s financing activities. The process of securitization involves transferring Orico’s credit receivables (e.g., credit card receivables, installment credit receivables, cash advance receivables) to a trust bank; in exchange, the company receives trust beneficiary rights, which are then traded for cash.

The company’s peers also raise capital through securitization of receivables, but Orico’s reliance on this method is relatively high at 41.7% of total financing, compared with JACCS’s 19.3% (FY03/21), for example. At other credit card companies, securitization generally accounts for about 20%. The coupon rate of an asset-backed security is set by adding credit spread to an appropriate benchmark rate based on time to maturity (as of the valuation date). Orico chooses between bank borrowings and securitization depending on the ease at which it can secure the required capital, reliably and at lower cost. Orico uses the proceeds from securitization to repay its long- and short-term borrowings and to finance the regular advance payments to member merchants.

Securitization (asset financing): A process in which a company transfers its assets such as monetary claims and real estate to a special purpose company (SPC), through which they are repackaged into small-lot interests (e.g., asset-backed securities [ABS]) for sale to investors. The enactment of a law regarding asset financing via specified claims paved the way for leasing companies and credit companies to raise funds using their receivables (starting June 1993). Orico conducted its first credit receivables financing in September 1993, based on the Specified Claims Act. Initially there were three ways to conduct asset financing: via sale, setting up a partnership, or using a trust. In April 1996, the issuance of asset-back securities was approved as the fourth method. In September 1996, the company issued the first ABS in Japan. The benefits of securitization are: 1) Enables company (the creditor) to raise funds by removing assets from its balance sheet; 2) allows company to expand business without increasing assets; 3) since the financing is based on the risk associated with the assets rather than the creditworthiness of the company, the security could get a higher credit rating than the company, which translates to lower financing cost; and 4) since most are off-balance-sheet deals, neither the shareholders’ capital nor the capital cost increases. Until 1996, “asset liquidation” (a term coined in the Specified Claims Act, which fell under the jurisdiction of the Ministry of Economy, Trade and Industry) was used as a common term to differentiate from the term “securitization,” coming from “securities” under the Securities and Exchange Law (jurisdiction of the Ministry of Finance). The terms have not been differentiated since 1997, when financial instruments using leasing and credit receivables became designated as securities. 

Revenue and expense structures

Revenue structure

Installment Credit business

In FY03/21, the Installment Credit business accounted for 37.0% of the company’s total business revenue and 40.1% of all profits combined. The take rate (business revenue ÷ transaction volume) in the Installment Credit segment was 6.4% (5.9% for auto loans and 7.0% for shopping credit). Auto loans make up roughly 70% of the transaction volume in this segment. While revenue in the Installment Credit business breaks down to commissions from member merchants and installment payment commissions from individual customers, the lion’s share comes from the latter as the company receives commissions from only a small number of member merchants. With regard to credit guarantee fees on auto loans, the company charges 1.14–2.88% of the principal for a payment plan of six installments, and 10.23–26.89% for a payment plan of 60 installments (annual percentage rate [APR] of 3.9–9.8% in real terms). In shopping credit, the installment payment commissions range from 1.58% (payment plan of three installments) to 11.01% (20 installments) of the amount paid on credit, which brings the APR to 9.5–12.2% in real terms (Source: Orico’s Annual Securities Report from FY03/18).

Installment Credit business: Take rate
Installment Credit businessFY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
Auto loan transaction volume (1)634,800675,100736,500740,800819,300818,300828,300871,600887,100864,600
Auto loan business revenue (2)49,00050,50049,80049,20050,40048,30047,40048,40051,80051,200
Take rate (2) / (1)7.7%7.5%6.8%6.6%6.2%5.9%5.7%5.6%5.8%5.9%
Shopping credit transaction volume-404,700416,500402,000405,000401,200386,200409,200427,100396,300
Shopping credit business revenue-32,40029,40030,50029,50028,00030,00029,10029,00029,000
Take rate (2) / (1)-8.0%7.2%7.5%7.3%6.9%7.6%7.3%6.9%7.0%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. 
Installment payment commissions

Installment payments are repayments made in portions over a set period of time. Commissions are charged when the repayment is in three or more installments (one-time and two-time payments do not apply). Installment payment commissions can be calculated as “price of purchased item × commission per JPY100 ÷ JPY100.” The sum of the price of purchased item and the commissions payable is the full amount the customer is obliged to pay, and this full amount divided by the number of payments is the monthly payment billed. Payments are generally made in three to 36 installments.

Credit Cards and Cash Loans business

In FY03/21, the Credit Cards and Cash Loans business accounted for 33.1% of the company’s total business revenue and 38.8% of the segment profits combined; the take rate was 2.1%. Annual membership fees and commissions paid by cardholders (commissions on shopping, installment payments, revolving payments, and cash advances) along with commissions from member merchants are the sources of revenue in this business. Installment payment commissions range from 2.04% (payment plan of three installments) to 16.32% (24 installments) of the price of purchased item, an APR of 12.2–15.0% in real terms. Commissions from member merchants range from 1.8–5.0% of the amount charged on credit. Interest on cash advances ranges from 15.0–18.0% (APR) of the cash borrowed on credit card (upper limit of JPY100,000–1,000,000). Interest on cash loans taken out on loan cards ranges from 4.5–18.0% (APR) of the outstanding loan balance (upper limit JPY100,000–5,000,000).

Credit Cards and Cash Loans business: Take rate
Credit Cards and Cash Loans businessFY03/12FY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.
Credit card shopping transaction volume1,390,2611,416,9991,485,1781,492,3421,548,3661,657,0581,826,3012,163,5002,419,2002,435,000
Business revenue31,62635,23938,60740,63642,42745,21046,27550,33054,25650,118
Take rate2.3%2.5%2.7%2.7%2.8%2.8%2.7%2.5%2.4%2.1%
Balance of revolving payments77,00096,400113,400125,400136,200144,400151,500160,100167,900158,500
YoY39.0%25.2%17.6%10.6%8.6%6.0%4.9%5.7%4.9%-5.6%
Balance of cash loans and cash advances469,900393,800358,600330,100316,300312,900308,800305,500293,200247,200
Business revenue44,20038,30034,90031,20030,90028,60027,20027,10025,60021,800
ROA8.4%8.9%9.3%9.1%9.6%9.1%8.8%8.8%8.6%8.1%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods. 

According to the Survey of Selected Service Industries (conducted by METI) and the Economic Conditions Survey, revenue in the credit card industry comprised “admission and membership fees” (10.4%), “credit service fees from card members” (30.7%), “consumer finance fees from card members” (e.g., cash advances; 11.2%), and “fees from member merchants” (47.4%). In 2005, 56.0% of credit card industry revenue came from the “consumer finance fees from card members” category. However, with the introduction of the revised Money Lending Business Act, total lending limits were brought down. As a result, in addition to lower lending rates, loan balances also fell dramatically. In 2020, interest income shrunk to one fifth of the amount logged in 2005. In line with these developments, credit card companies have shifted their focus to earning installment payment commissions by promoting revolving payments. The share of “fees from revolving payments” (under the “credit service fees from card member” category) increased from 2.8% of total industry revenue in 2007 to 23.7% in 2020.

Revised Money Lending Business Act: The law underwent a major revision in December 2006, and fully took effect in June 2010 after being enforced in stages. The key amendment was the introduction of restrictions on total lending limits. To prohibit excessive lending that disregards the repayment ability of the borrower, the revised law limited the total lending to one third of the borrower’s gross annual income. The second feature was the lowering of legal ceiling on interest rates for loans. In Japan, interest rate caps had been stipulated in the Interest Rate Restriction Act (capped at 15—20%) and the Investment Deposit and Interest Rate Law (pre-revision cap of 29.2%). So long as certain conditions were met, moneylenders were permitted to extend loans at an interest rate between the highest ceilings of the two laws (the so-called “gray zone” lending rates). However, with the amendment of the Money Lending Business Act and the Investment Deposit and Interest Rate Law, the interest rate cap of the latter law was lowered to 20% from June 18, 2010, eliminating the “gray zone.” Moneylenders are now required to adhere to the ceiling range of 15—20% depending on the loan amount as per the Interest Restriction Act. Cash advances extended by consumer credit and credit card companies fall under the revised Money Lending Business Act. 

Revenue structure of the credit card industry
(JPYmn)2008200920102013201420152017201820192020
Number of credit card companies298281254226217200195190221186
Transaction volume45,370,69049,601,74347,922,30942,365,80745,910,41447,565,09751,132,37456,114,47966,035,70767,125,894
Operating revenue1,987,0061,982,1321,836,0221,302,4141,309,1841,281,1431,353,1871,519,6051,827,5411,761,544
Take rate4.4%4.0%3.8%3.1%2.9%2.7%2.6%2.7%2.8%2.6%
Revenue from credit card business1,887,3601,871,6441,746,2021,191,5161,212,4111,209,4251,288,9291,513,7601,781,6891,757,830
Admission and membership fees126,576133,490151,997127,324129,927148,023138,404148,068184,797183,526
Credit service fees from card members205,323241,471285,775289,779304,160303,634353,968474,260545,734541,165
Of which, fees from revolving payments59,13776,964101,878107,515158,284166,817206,304270,374423,673418,167
Consumer finance fees from card members1,014,817905,271726,692299,662267,020242,246228,402229,993228,427198,030
Of which, fees from revolving payments376,185320,261271,881111,276111,785102,11486,81492,989148,659160,302
Fees from member merchants540,645591,412581,739474,751511,304515,522568,155661,439822,730835,110
Revenue from installment sales business