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.
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
Terminology
Key takeaway
Description
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 Act
Credit 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 method
Outside the scope of the Installment Sales Act
Credit 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 statement
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
FY03/21
FY03/22
FY03/23
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.(After retroactive adjustments)
Cons.
Cons. (Est.)
Operating revenue
210,636
207,546
206,398
211,804
213,693
224,398
233,369
243,135
230,596
229,793
229,806
233,000
YoY
-1.4%
-1.5%
-0.6%
2.6%
0.9%
5.0%
4.0%
4.2%
-5.2%
-
0.0%
1.4%
Operating expenses
206,578
180,799
185,660
182,317
180,178
194,310
211,405
218,695
209,787
207,240
200,811
YoY
-1.8%
-12.5%
2.7%
-1.8%
-1.2%
7.8%
8.8%
3.4%
-4.1%
-
-3.1%
Operating expense ratio
98.1%
87.1%
90.0%
86.1%
84.3%
86.6%
90.6%
89.9%
91.0%
90.2%
87.4%
Operating profit
4,058
26,747
20,737
29,486
33,515
30,088
21,964
24,439
20,809
22,553
28,994
25,000
YoY
21.2%
559.1%
-22.5%
42.2%
13.7%
-10.2%
-27.0%
11.3%
-14.9%
-
28.6%
-13.8%
Operating profit margin
1.9%
12.9%
10.0%
13.9%
15.7%
13.4%
9.4%
10.1%
9.0%
9.8%
12.6%
10.7%
Recurring profit
4,058
26,747
20,737
29,486
33,515
30,088
21,964
24,439
20,809
22,553
28,994
25,000
YoY
21.2%
559.1%
-22.5%
42.2%
13.7%
-10.2%
-27.0%
11.3%
-14.9%
-
28.6%
-13.8%
Recurring profit margin
1.9%
12.9%
10.0%
13.9%
15.7%
13.4%
9.4%
10.1%
9.0%
9.8%
12.6%
10.7%
Net income
3,022
22,696
18,478
24,582
28,690
28,024
28,886
20,662
17,686
19,713
19,549
YoY
60.8%
651.0%
-18.6%
33.0%
16.7%
-2.3%
3.1%
-28.5%
-14.4%
-4.6%
-0.8%
Net margin
1.4%
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 parent
3,021
22,699
18,481
24,577
28,690
28,021
28,877
20,654
17,668
19,695
19,476
21,000
YoY
51.0%
651.4%
-18.6%
33.0%
16.7%
-2.3%
3.1%
-28.5%
-14.5%
-
-1.1%
7.8%
Net margin
1.4%
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)
996,049
1,059,119
1,082,433
1,857,951
1,858,163
1,788,346
1,768,383
1,753,495
1,738,728
1,738,728
1,718,747
Common shares (year-end; '000)
711,049
789,099
816,193
1,717,951
1,718,163
1,718,346
1,718,383
1,718,495
1,718,728
1,718,728
1,718,747
Treasury shares ('000)
53
30
21
22
21
1,493
1,469
1,405
2,448
2,448
2,304
EPS
4.4
29.4
23.0
17.5
15.4
13.3
15.2
10.9
9.4
10.5
10.6
12.2
EPS (fully diluted)
1.8
13.2
10.8
14.3
15.4
13.3
15.2
10.9
9.4
10.5
10.6
Dividend per share (common stock)
-
-
-
-
2.0
2.0
2.0
3.0
3.0
3.0
3.0
4.0
Book value per share
-117.1
-56.2
-20.1
78.0
95.3
109.3
119.3
125.4
139.6
119.9
125.0
Preferred shares (year-end; '000)
285,000
270,020
266,240
140,000
140,000
70,000
50,000
35,000
20,000
20,000
0
First series class I preferred stock
140,000
140,000
140,000
140,000
140,000
70,000
50,000
35,000
20,000
20,000
0
First series class J preferred stock
145,000
130,020
126,240
0
0
0
0
0
0
0
0
Balance sheet (JPYmn)
Cash and deposits
150,638
107,927
101,986
178,792
198,498
194,241
323,415
210,280
315,176
315,176
218,189
Total current assets
4,283,189
4,573,393
4,718,067
4,925,861
5,076,687
5,167,528
5,222,582
5,280,966
5,246,106
3,500,003
3,458,851
Tangible fixed assets
106,743
106,970
105,088
105,064
104,057
103,556
101,133
94,705
94,216
94,216
88,179
Intangible assets
63,579
70,323
80,160
96,261
117,360
143,063
141,334
133,372
123,744
123,774
110,335
Investments and other assets
26,854
25,312
25,243
25,328
30,323
60,391
77,185
75,060
84,394
95,203
93,890
Total assets
4,480,366
4,776,000
4,928,726
5,152,900
5,329,058
5,475,341
5,542,940
5,584,777
5,549,220
3,813,957
3,752,049
Short-term debt
321,296
290,147
318,219
315,251
269,266
275,573
346,693
345,831
375,539
375,836
433,845
Total current liabilities
3,809,534
4,056,266
4,192,026
4,284,316
4,226,052
4,243,304
4,290,586
4,277,990
4,238,888
2,537,433
2,533,789
Long-term debt
625,145
693,967
667,702
783,897
984,370
1,223,194
1,326,556
1,403,498
1,455,054
1,454,776
1,387,773
Total fixed liabilities
473,031
493,929
486,726
594,559
799,097
972,631
995,885
1,055,217
1,048,225
1,048,059
1,001,422
Total liabilities
4,282,565
4,550,195
4,678,752
4,878,876
5,025,149
5,215,936
5,286,471
5,333,207
5,287,114
3,585,492
3,535,211
Shareholders' equity
197,678
225,702
249,861
273,904
303,790
259,152
256,208
251,311
260,086
226,350
214,519
Total net assets
197,801
225,804
249,973
274,023
303,908
259,405
256,468
251,569
262,105
228,464
216,837
Total interest-bearing debt
946,441
984,114
985,921
1,099,148
1,253,636
1,498,767
1,673,249
1,749,329
1,830,593
1,830,612
1,821,618
Cash flow statement(JPYmn)
Cash flows from operating activities
42,626
-34,756
8,288
-42,279
-104,697
-77,634
-41,723
-66,772
54,578
54,580
81,757
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
-25,301
36,474
1,125
111,787
152,420
160,011
148,318
55,830
44,174
44,174
-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%
ROE
1.55%
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 ratio
4.79
4.36
3.95
4.01
4.13
5.78
6.53
6.96
7.04
8.09
8.49
Net debt-to-equity ratio
4.03
3.88
3.54
3.36
3.47
5.03
5.27
6.12
5.83
6.70
7.47
Dependence on interest-bearing debt
21.1%
20.6%
20.0%
21.3%
23.5%
27.4%
30.2%
31.3%
33.0%
48.0%
48.5%
Equity ratio
4.41%
4.73%
5.07%
5.32%
5.70%
4.73%
4.62%
4.50%
4.69%
5.93%
5.72%
Net equity ratio
4.57%
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.
FY03/12
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
Transaction volume by business
Credit Cards and Cash Loans business
1,559,731
1,592,434
1,662,828
1,663,147
1,712,882
1,818,975
1,982,323
2,314,987
2,560,388
2,530,831
YoY
1.3%
2.1%
4.4%
0.0%
3.0%
6.2%
9.0%
16.8%
10.6%
-1.2%
Settlement and Guarantee business
-
-
-
-
-
576,930
791,149
1,051,474
1,197,034
1,293,542
YoY
-
-
-
-
-
-
37.1%
32.9%
13.8%
8.1%
Installment Credit business
1,173,633
1,296,351
1,428,904
1,474,162
1,224,342
1,219,645
1,214,620
1,280,905
1,314,300
1,260,987
YoY
3.0%
10.5%
10.2%
3.2%
-16.9%
-0.4%
-0.4%
5.5%
2.6%
-4.1%
Bank Loan Guarantee business
439,575
515,896
591,869
627,818
665,634
695,827
666,561
542,315
497,200
425,007
YoY
-1.3%
17.4%
14.7%
6.1%
6.0%
4.5%
-4.2%
-18.6%
-8.3%
-14.5%
Other
126,400
125,500
191,200
40,400
52,100
1,100
1,300
3,400
5,000
3,700
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 customers
75,935
73,612
73,530
71,907
73,423
73,897
73,495
77,506
79,944
71,929
Internal transactions
-
-
1
1
2
1
1
1
1
1
Operating revenue
75,935
73,613
73,531
71,908
73,425
73,899
73,496
77,508
79,946
71,931
% of total operating revenue
34.1%
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
-
-
-
-
-
6,810
10,872
15,876
16,881
19,041
Internal transactions
-
-
-
-
-
-
-
-
-
-
Operating revenue
-
-
-
-
-
6,811
10,873
15,876
16,881
19,041
% 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 customers
83,167
86,339
82,348
83,392
84,460
76,458
77,512
77,589
80,886
80,273
Internal transactions
-
-
-
-
-
-
-
-
-
-
Operating revenue
83,167
86,339
82,348
83,392
84,460
76,458
77,512
77,589
80,886
80,273
% of total operating revenue
37.3%
39.2%
38.3%
38.9%
38.4%
34.4%
33.2%
31.9%
32.3%
33.8%
YoY
0.8%
3.8%
-4.6%
1.3%
1.3%
-9.5%
1.4%
0.1%
4.2%
-0.8%
Bank Loan Guarantee
Revenue from external customers
31,908
31,072
30,627
32,070
35,020
39,333
43,488
43,816
42,292
37,782
Internal transactions
-
-
-
-
-
-
-
-
-
-
Operating revenue
31,908
31,072
30,627
32,070
35,020
39,333
43,488
43,816
42,292
37,782
% of total operating revenue
14.3%
14.1%
14.3%
15.0%
15.9%
17.7%
18.6%
18.0%
16.9%
15.9%
YoY
2.7%
-2.6%
-1.4%
4.7%
9.2%
12.3%
10.6%
0.8%
-3.5%
-10.7%
Other
Revenue from external customers
16,594
14,003
13,982
12,799
12,660
11,042
11,031
9,946
9,197
7,967
Internal transactions
9,097
9,390
7,284
7,881
8,365
8,551
8,958
9,983
7,069
6,830
Operating revenue
25,692
23,393
21,266
20,681
21,025
19,593
19,989
19,930
16,267
14,798
% of total operating revenue
11.5%
10.6%
9.9%
9.7%
9.5%
8.8%
8.6%
8.2%
6.5%
6.2%
YoY
6.9%
-8.9%
-9.1%
-2.8%
1.7%
-6.8%
2.0%
-0.3%
-18.4%
-9.0%
Corporate revenue
6,121
5,608
7,057
6,228
6,239
6,150
7,998
8,633
13,931
13,602
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 revenue
213,726
210,636
207,546
206,398
211,804
213,693
224,398
233,369
243,135
230,596
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 Loans
37,838
43,169
50,407
50,579
57,772
61,890
60,452
63,208
65,167
58,566
% of total segment profits
30.9%
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
-
-
-
-
-
6,087
6,524
7,382
7,696
8,375
% of total segment profits
-
-
-
-
-
3.8%
2.3%
4.8%
4.9%
5.5%
YoY
-
-
-
-
-
-
7.2%
13.2%
4.3%
8.8%
Installment Credit
64,516
69,321
65,761
67,136
67,814
61,827
61,573
57,674
58,766
60,554
% of total segment profits
52.6%
51.0%
47.0%
46.6%
44.3%
38.9%
21.6%
37.5%
37.7%
40.1%
YoY
3.6%
7.4%
-5.1%
2.1%
1.0%
-8.8%
-0.4%
-6.3%
1.9%
3.0%
Bank Loan Guarantee
18,770
20,574
19,710
20,705
21,844
24,102
24,760
21,551
21,561
20,763
% of total segment profits
15.3%
15.1%
14.1%
14.4%
14.3%
15.2%
8.7%
14.0%
13.8%
13.7%
YoY
24.3%
9.6%
-4.2%
5.0%
5.5%
10.3%
2.7%
-13.0%
0.0%
-3.7%
Other
1,420
2,843
4,184
5,606
5,637
4,922
4,523
4,162
2,506
2,811
% of total segment profits
1.2%
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 profit
3,347
4,058
26,747
20,737
29,486
33,515
157,834
21,964
24,439
20,809
Segment assets
Credit Cards and Cash Loans
608,877
567,296
588,346
566,707
568,675
590,324
623,512
657,622
651,305
604,433
% of total segment assets
14.2%
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
-
-
-
-
-
65,422
98,221
109,246
117,051
118,453
% of total segment assets
-
-
-
-
-
1.2%
1.8%
2.0%
2.1%
2.1%
YoY
-
-
-
-
-
-
50.1%
11.2%
7.1%
1.2%
Installment Credit
2,058,344
2,216,497
2,424,806
2,592,814
2,803,610
2,908,433
3,027,238
3,174,357
3,329,365
3,408,141
% of total segment assets
48.0%
49.5%
50.8%
52.6%
54.4%
54.6%
55.3%
57.3%
59.6%
61.4%
YoY
3.0%
7.7%
9.4%
6.9%
8.1%
3.7%
4.1%
4.9%
4.9%
2.4%
Bank Loan Guarantee
919,346
1,002,465
1,098,856
1,197,502
1,275,989
1,349,651
1,358,272
1,276,621
1,213,883
1,112,866
% of total segment assets
21.4%
22.4%
23.0%
24.3%
24.8%
25.3%
24.8%
23.0%
21.7%
20.1%
YoY
2.7%
9.0%
9.6%
9.0%
6.6%
5.8%
0.6%
-6.0%
-4.9%
-8.3%
Other
343,458
305,295
282,038
237,282
212,822
180,768
153,262
126,589
113,027
101,360
% of total segment assets
8.0%
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 assets
1,041,442
1,110,365
1,154,189
1,120,207
1,284,145
1,412,757
1,622,194
1,753,349
1,822,452
1,877,519
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 assets
4,286,715
4,480,366
4,776,000
4,928,726
5,152,900
5,329,058
5,475,341
5,542,940
5,584,777
5,549,220
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
Deepening of the Settlement and Guarantee business and overseas business, which are priority domains, and search for new businesses
Establishment of market-oriented sales
Creation of new products and services through digital marketing and open innovation
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
Before
After
Issuer rating
A-
A
Rating outlook
Stable
Stable
Commercial paper
a-1
a-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)
FY03/21
FY03/21 (retroactively adjusted)
FY03/22
FY03/22
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
(JPYmn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
% of Est.
FY Est.
Operating revenue
58,905
115,723
172,650
230,596
59,005
115,778
172,131
229,793
56,864
114,612
171,553
229,806
97.4%
236,000
YoY
0.7%
-5.7%
-4.7%
-5.2%
-
-
-
-
-3.6%
-1.0%
-0.3%
0.0%
2.3%
Business revenue
54,532
107,504
161,569
216,993
54,633
107,559
161,050
216,191
53,960
107,700
159,517
215,120
(Gain on securitization)
19,565
37,425
54,746
77,382
19,565
37,426
54,747
77,300
19,378
39,180
55,070
78,600
% of operating revenue
92.6%
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 revenue
53,235
104,610
157,006
210,767
53,336
104,666
156,487
209,964
52,339
104,321
154,286
208,323
YoY
-2.9%
-6.3%
-5.4%
-5.0%
-
-
-
-
-1.9%
-0.3%
-1.4%
-0.8%
% of operating revenue
90.4%
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 Loans
19,073
37,386
55,620
71,929
19,025
37,300
55,599
71,900
18,176
36,186
54,821
70,900
Credit card shopping
13,100
25,900
38,600
50,100
13,100
25,900
38,600
50,100
13,400
26,700
40,200
51,800
Cash loans
5,800
11,300
16,900
21,800
5,800
11,300
16,900
21,800
4,700
9,400
14,500
19,000
Settlement and Guarantee
4,439
9,114
14,003
19,041
3,786
7,731
11,852
16,100
4,459
8,983
13,619
18,300
Installment Credit
19,224
37,678
57,324
80,273
19,992
39,128
58,871
82,200
20,664
41,408
59,461
84,000
Auto loans
11,600
24,700
34,800
51,200
11,600
24,700
34,800
50,900
11,400
24,400
36,400
51,900
Shopping
8,300
14,300
24,000
29,000
8,300
14,300
24,000
31,200
9,200
16,900
22,900
32,100
Bank Loan Guarantee
10,050
19,539
28,798
37,782
10,061
19,569
28,838
37,800
8,604
16,804
24,968
33,100
Other
447
892
1,260
1,741
470
936
1,324
1,800
434
938
1,416
1,900
Other business revenue
1,297
2,893
4,563
6,226
1,297
2,893
4,563
6,226
1,620
3,379
5,230
6,796
YoY
-29.9%
-22.2%
-17.6%
-15.8%
‐
‐
‐
‐
24.9%
16.8%
14.6%
9.2%
% of operating revenue
2.2%
2.5%
2.6%
2.7%
2.2%
2.5%
2.7%
2.7%
2.8%
2.9%
3.0%
3.0%
Financial income
644
893
1,428
2,199
644
893
1,428
2,199
649
1,137
1,769
2,738
YoY
18.8%
-9.9%
-2.0%
3.5%
-
-
-
-
0.8%
27.3%
23.9%
24.5%
% of operating revenue
1.1%
0.8%
0.8%
1.0%
1.1%
0.8%
0.8%
1.0%
1.1%
1.0%
1.0%
1.2%
Other operating revenue
3,727
7,325
9,652
11,403
3,727
7,325
9,652
11,403
2,255
5,774
10,267
11,947
YoY
195.3%
15.8%
17.3%
-3.4%
-
-
-
-
-39.5%
-21.2%
6.4%
4.8%
% of operating revenue
6.3%
6.3%
5.6%
4.9%
6.3%
6.3%
5.6%
5.0%
4.0%
5.0%
6.0%
5.2%
Operating expenses
53,855
105,251
155,491
209,787
53,274
104,055
153,628
207,240
49,369
101,004
151,436
200,811
96.5%
208,000
YoY
3.0%
-1.3%
-2.6%
-4.1%
-
-
-
-
-7.3%
-2.9%
-1.4%
-3.1%
-0.9%
SG&A expenses
51,294
100,197
147,741
199,564
50,712
99,000
145,878
197,017
46,780
95,299
141,816
188,563
YoY
3.0%
0.0%
-1.9%
-3.2%
-
-
-
-
-7.8%
-3.7%
-2.8%
-4.3%
General expenses
37,900
76,497
112,200
150,064
37,300
75,100
110,300
147,400
34,700
69,700
103,900
139,500
YoY
3.3%
3.6%
1.8%
-0.3%
-
-
-
-
-7.0%
-7.2%
-5.8%
-5.4%
% of operating revenue
64.3%
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 expenses
13,300
23,700
35,400
49,500
23,800
23,800
35,400
49,500
12,000
25,500
37,800
49,000
YoY
2.3%
-10.1%
-11.9%
-11.0%
-
-
-
-
-49.6%
7.1%
6.8%
-1.0%
Provision for credit losses
12,400
21,600
31,800
42,900
12,500
21,800
31,900
43,000
8,500
17,700
26,800
36,000
Provision for losses on interest refunds
800
2,100
3,600
6,600
800
2,100
3,600
6,600
3,400
7,700
11,000
13,100
Financial expenses
2,418
4,845
7,230
9,649
2,418
4,845
7,230
9,649
2,317
4,739
7,278
9,883
YoY
0.5%
0.2%
0.2%
-6.2%
-
-
-
-
-4.2%
-2.2%
0.7%
2.4%
Other operating expenses
142
209
519
573
142
209
519
573
271
965
2,340
2,364
YoY
136.7%
-86.9%
-72.0%
-75.1%
-
-
-
-
90.8%
361.7%
350.9%
312.6%
Operating profit
5,049
10,471
17,159
20,809
5,731
11,722
18,503
22,553
7,495
13,608
20,116
28,994
103.6%
28,000
YoY
-19.0%
-34.5%
-20.3%
-14.9%
-
-
-
-
30.8%
16.1%
8.7%
28.6%
24.2%
Operating profit margin
8.6%
9.0%
9.9%
9.0%
9.7%
10.1%
10.7%
9.8%
13.2%
11.9%
11.7%
12.6%
Recurring profit
5,049
10,471
17,159
20,809
5,731
11,722
18,503
22,553
7,495
13,608
20,116
28,994
103.6%
28,000
YoY
-19.0%
-34.5%
-20.3%
-14.9%
-
-
-
-
30.8%
16.1%
8.7%
28.6%
24.2%
Recurring profit margin
8.6%
9.0%
9.9%
9.0%
9.7%
10.1%
10.7%
9.8%
13.2%
11.9%
11.7%
12.6%
Extraordinary gains
7
29
31
1,125
7
29
31
1,247
396
396
543
562
Extraordinary losses
75
75
183
257
75
75
183
257
2
27
171
182
Net income attributable to owners of the parent
3,958
9,354
14,448
17,668
4,945
10,822
16,024
19,695
7,391
12,448
18,121
19,476
88.5%
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)
FY03/21
FY03/21 (retroactively adjusted)
FY03/22
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
(JPYbn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Credit Cards and Cash Loans business
582.9
1,212.2
1,885.5
2,530.8
582.9
1,212.2
1,885.5
2,530.8
654.7
1,318.7
2,061.7
2,772.3
YoY
-5.3%
-4.6%
-1.8%
-1.2%
-
-
-
-
12.3%
8.8%
9.3%
9.5%
Credit cards
574.4
1,196.5
1,862.0
2,498.8
574.4
1,196.5
1,862.0
2,498.8
646.6
1,301.9
2,036.4
2,738.7
YoY
-4.7%
-3.9%
-1.2%
-0.5%
-
-
-
-
12.6%
8.8%
9.4%
9.6%
Shopping
558.1
1,165.4
1,814.4
2,435.0
558.1
1,165.4
1,814.4
2,435.0
629.7
1,268.7
1,986.7
2,672.8
YoY
-3.6%
-2.8%
-0.1%
0.7%
-
-
-
-
12.8%
8.9%
9.5%
9.8%
Cash advances
16.2
31.0
47.5
63.8
16.2
31.0
47.5
63.8
16.9
33.2
49.6
65.9
YoY
-31.6%
-34.0%
-31.6%
-30.5%
-
-
-
-
4.3%
7.1%
4.4%
3.3%
Cash loans
8.4
15.7
23.5
31.9
8.4
15.7
23.5
31.9
8.1
16.7
25.3
33.5
YoY
-33.9%
-36.4%
-34.9%
-35.3%
-
-
-
-
-3.6%
6.4%
7.7%
5.0%
Settlement and Guarantee business
303.0
623.4
953.5
1,293.5
303.0
623.4
953.5
1,293.5
347.3
705.1
1,076.2
1,452.8
YoY
6.4%
7.4%
7.9%
8.1%
-
-
-
-
14.6%
13.1%
12.9%
12.3%
Installment Credit business
280.3
599.2
930.8
1,260.9
280.3
599.2
930.8
1,260.9
321.2
628.6
944.7
1,250.9
YoY
-13.1%
-10.1%
-5.4%
-4.1%
-
-
-
-
14.6%
4.9%
1.5%
-0.8%
Auto loans
193.9
412.0
633.7
864.6
193.9
412.0
633.7
864.6
222.4
439.1
661.6
883.7
YoY
-10.4%
-8.5%
-3.7%
-2.5%
-
-
-
-
14.7%
6.6%
4.4%
2.2%
Shopping
86.3
187.1
297.0
396.3
86.3
187.1
297.0
396.3
98.7
189.5
283.1
367.2
YoY
-18.7%
-13.6%
-8.8%
-7.2%
-
-
-
-
14.4%
1.3%
-4.7%
-7.3%
Bank Loan Guarantee business
118.3
208.5
315.5
425.0
118.3
208.5
315.5
425.0
120.0
228.0
341.8
449.7
YoY
-13.8%
-19.5%
-17.6%
-14.5%
-
-
-
-
1.4%
9.4%
8.3%
5.8%
Other
0.9
2.1
3.2
3.7
0.9
2.1
3.2
3.7
1.0
1.8
2.9
4.0
YoY
-25.0%
-16.0%
-15.8%
-26.0%
-
-
-
-
11.1%
-14.3%
-9.4%
8.1%
Transaction volume by business (quarterly)
FY03/21
FY03/21 (retroactively adjusted)
FY03/22
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
(JPYbn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Credit Cards and Cash Loans business
582.9
629.3
673.3
645.3
582.9
629.3
673.3
645.3
654.7
664.0
743.0
710.6
YoY
-5.3%
-3.9%
3.5%
0.9%
-
-
-
-
12.3%
5.5%
10.4%
10.1%
Credit cards
574.4
622.1
665.5
636.8
574.4
622.1
665.5
636.8
646.6
655.3
734.5
702.3
YoY
-4.7%
-3.2%
4.1%
1.7%
-
-
-
-
12.6%
5.3%
10.4%
10.3%
Shopping
558.1
607.3
649.0
620.6
558.1
607.3
649.0
620.6
629.7
639.0
718.0
686.1
YoY
-3.6%
-2.0%
5.2%
2.8%
-
-
-
-
12.8%
5.2%
10.6%
10.6%
Cash advances
16.2
14.8
16.5
16.3
16.2
14.8
16.5
16.3
16.9
16.3
16.4
16.3
YoY
-31.6%
-36.5%
-26.3%
-27.2%
-
-
-
-
4.3%
10.1%
-0.6%
0.0%
Cash loans
8.4
7.3
7.8
8.4
8.4
7.3
7.8
8.4
8.1
8.6
8.6
8.2
YoY
-33.9%
-39.2%
-31.6%
-36.4%
-
-
-
-
-3.6%
17.8%
10.3%
-2.4%
Settlement and Guarantee business
303.0
320.4
330.1
340.0
303.0
320.4
330.1
340.0
347.3
357.8
371.1
376.6
YoY
6.4%
8.3%
8.8%
8.6%
-
-
-
-
14.6%
11.7%
12.4%
10.8%
Installment Credit business
280.3
318.9
331.6
330.1
280.3
318.9
331.6
330.1
321.2
307.4
316.1
306.2
YoY
-13.1%
-7.4%
4.5%
-0.1%
-
-
-
-
14.6%
-3.6%
-4.7%
-7.2%
Auto loans
193.9
218.1
221.7
230.9
193.9
218.1
221.7
230.9
222.4
216.7
222.5
222.1
YoY
-10.4%
-6.7%
6.6%
0.8%
-
-
-
-
14.7%
-0.6%
0.4%
-3.8%
Shopping
86.3
100.8
109.9
99.3
86.3
100.8
109.9
99.3
98.7
90.8
93.6
84.1
YoY
-18.7%
-8.8%
0.6%
-2.0%
-
-
-
-
14.4%
-9.9%
-14.8%
-15.3%
Bank Loan Guarantee business
118.3
90.2
107.0
109.5
118.3
90.2
107.0
109.5
120.0
108.0
113.8
107.9
YoY
-13.8%
-25.9%
-13.5%
-4.4%
-
-
-
-
1.4%
19.7%
6.4%
-1.5%
Other
0.9
1.2
1.1
0.5
0.9
1.2
1.1
0.5
1.0
0.8
1.1
1.1
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.
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
FY03/20
FY03/21
FY03/22
FY03/23
(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 revenue
122,658
120,477
243,135
115,723
114,873
230,596
229,793
114,612
115,194
229,806
233,000
YoY
6.4%
2.0%
4.2%
-5.7%
-4.7%
-5.2%
-
-
-
0.0%
1.4%
Operating expenses
106,660
112,035
218,695
105,251
104,536
209,787
207,240
101,004
99,807
200,811
208,000
SG&A ratio
87.0%
93.0%
89.9%
91.0%
91.0%
91.0%
90.2%
88.1%
86.6%
87.4%
89.3%
Operating profit
15,998
8,441
24,439
10,471
10,338
20,809
22,553
13,608
15,386
28,994
25,000
YoY
40.3%
-20.1%
11.3%
-34.5%
22.5%
-14.9%
-
-
-
28.6%
-13.8%
Operating profit margin
13.0%
7.0%
10.1%
9.0%
9.0%
9.0%
9.8%
11.9%
13.4%
12.6%
10.7%
Recurring profit
15,998
8,441
24,439
10,471
10,338
20,809
22,553
13,608
15,386
28,994
25,000
YoY
40.3%
-20.1%
11.3%
-34.5%
22.5%
-14.9%
-
-
-
28.6%
-13.8%
Recurring profit margin
13.0%
7.0%
10.1%
9.0%
9.0%
9.0%
9.8%
11.9%
13.4%
12.6%
10.7%
Net income
12,927
7,727
20,654
9,354
8,314
17,668
19,695
12,448
7,028
19,476
21,000
YoY
-35.8%
-11.5%
-28.5%
-27.6%
7.6%
-14.5%
-
-
-
-1.1%
7.8%
Net margin
10.5%
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 profit
JPY35.0bn or more
JPY28.0bn
% of operating revenue
Less than 60%
61.8%
ROE
10% or more
9.8%
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)
FY03/12
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
Recurring profit (1)
3,347
4,058
26,747
20,737
29,486
33,515
30,088
21,964
24,439
20,809
Retained earnings (2)
47,688
50,703
73,398
93,938
118,516
147,206
96,573
99,065
98,826
94,310
Balance of class I preferred stock (3)
140,000
140,000
140,000
140,000
140,000
140,000
70,000
50,000
35,000
20,000
Book value per share (JPY) (4)
-135.7
-117.1
-56.2
-20.1
78.0
95.3
109.3
119.3
125.4
139.6
Amount required for redemption of preferred stock (5) = (2) - (3)
-92,312
-89,297
-66,602
-46,062
-21,484
7,206
26,573
49,065
63,826
74,310
Total dividends on common stock (6)
0
0
0
0
0
3,436
3,436
3,436
5,155
5,156
Total dividends on preferred stock (7)
0
0
0
0
0
1,589
1,589
1,438
1,006
576
Actual recurring profit (8) = (1) - (7)
3,347
4,058
26,747
20,737
29,486
31,926
28,499
20,526
23,433
20,233
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 volume
FY03/12
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Transaction volume by business
Credit Cards and Cash Loans business
1,559,731
1,592,434
1,662,828
1,663,147
1,712,882
1,818,975
1,982,323
2,314,987
2,560,388
2,530,831
YoY
1.3%
2.1%
4.4%
0.0%
3.0%
6.2%
9.0%
16.8%
10.6%
-1.2%
% of total transaction volume
49.2%
46.8%
44.4%
43.7%
42.4%
43.4%
43.8%
44.6%
45.9%
45.9%
Credit cards
1,517,400
1,548,200
1,614,400
1,615,500
1,664,700
1,765,300
1,930,600
2,263,300
2,511,000
2,498,800
YoY
2.1%
2.0%
4.3%
0.1%
3.0%
6.0%
9.4%
17.2%
10.9%
-0.5%
% of total transaction volume
47.8%
45.5%
43.1%
42.5%
41.2%
42.2%
42.6%
43.6%
45.0%
45.3%
Shopping
1,390,261
1,416,999
1,485,178
1,492,342
1,548,366
1,657,058
1,826,301
2,163,500
2,419,200
2,435,000
YoY
6.2%
1.9%
4.8%
0.5%
3.8%
7.0%
10.2%
18.5%
11.8%
0.7%
% of total transaction volume
43.8%
41.6%
39.6%
39.2%
38.3%
39.6%
40.3%
41.7%
43.4%
44.2%
Cash advances
127,100
131,200
129,200
123,100
116,400
108,200
104,300
99,700
91,800
63,800
YoY
-28.2%
3.2%
-1.5%
-4.7%
-5.4%
-7.0%
-3.6%
-4.4%
-7.9%
-30.5%
% of total transaction volume
4.0%
3.9%
3.4%
3.2%
2.9%
2.6%
2.3%
1.9%
1.6%
1.2%
Cash loans
42,300
44,100
48,300
47,600
48,000
53,600
51,600
51,600
49,300
31,900
YoY
-22.5%
4.3%
9.5%
-1.4%
0.8%
11.7%
-3.7%
0.0%
-4.5%
-35.3%
% of total transaction volume
1.3%
1.3%
1.3%
1.3%
1.2%
1.3%
1.1%
1.0%
0.9%
0.6%
Settlement and Guarantee business
-
-
-
-
-
576,930
791,149
1,051,474
1,197,034
1,293,542
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 business
1,173,633
1,296,351
1,428,904
1,474,162
1,224,342
1,219,645
1,214,620
1,280,905
1,314,300
1,260,987
YoY
3.0%
10.5%
10.2%
3.2%
-16.9%
-0.4%
-0.4%
5.5%
2.6%
-4.1%
% of total transaction volume
37.0%
38.1%
38.1%
38.8%
30.3%
29.1%
26.8%
24.7%
23.6%
22.9%
Bank Loan Guarantee business
439,575
515,896
591,869
627,818
665,634
695,827
666,561
542,315
497,200
425,007
YoY
-1.3%
17.4%
14.7%
6.1%
6.0%
4.5%
-4.2%
-18.6%
-8.3%
-14.5%
% of total transaction volume
13.9%
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
Financing
FY03/12
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
(JPYmn)
Non-cons.
Non-cons.
Non-cons.
Non-cons.
Non-cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Indirect finance
804,700
803,000
823,600
786,200
820,200
921,800
1,058,500
1,177,000
1,239,400
1,282,100
Short-term loans payable
131,200
70,400
86,100
56,300
38,400
47,700
50,900
61,100
67,100
92,700
YoY
42.3%
-46.3%
22.3%
-34.6%
-31.8%
24.2%
6.7%
20.0%
9.8%
38.2%
% of total
9.7%
5.2%
6.0%
3.7%
2.1%
2.3%
2.0%
2.1%
2.2%
3.0%
Long-term loans payable
673,400
732,600
737,500
729,900
781,800
874,000
1,007,600
1,115,800
1,172,300
1,189,400
YoY
-12.0%
8.8%
0.7%
-1.0%
7.1%
11.8%
15.3%
10.7%
5.1%
1.5%
% of total
49.7%
54.2%
51.1%
48.1%
43.7%
41.5%
40.0%
39.0%
39.0%
38.1%
Direct finance
550,300
548,200
619,900
731,900
969,700
1,184,500
1,463,100
1,680,400
1,768,800
1,837,700
Securitized receivables
402,900
418,500
470,700
542,300
703,100
858,100
1,033,600
1,198,700
1,273,400
1,302,000
YoY
3.1%
3.9%
12.5%
15.2%
29.7%
22.0%
20.5%
16.0%
6.2%
2.2%
% of total
29.7%
31.0%
32.6%
35.7%
39.3%
40.7%
41.0%
42.0%
42.3%
41.7%
Commercial papers
147,400
129,700
149,200
159,600
186,600
176,400
219,500
266,700
280,400
295,700
YoY
30.7%
-12.0%
15.0%
7.0%
16.9%
-5.5%
24.4%
21.5%
5.1%
5.5%
% of total
10.9%
9.6%
10.3%
10.5%
10.4%
8.4%
8.7%
9.3%
9.3%
9.5%
Bonds
30,000
80,000
150,000
210,000
215,000
215,000
240,000
YoY
166.7%
87.5%
40.0%
2.4%
0.0%
11.6%
% of total
4.5%
7.1%
8.3%
7.5%
7.1%
7.7%
Total amount raised
1,355,000
1,351,300
1,443,500
1,518,200
1,789,900
2,106,300
2,521,600
2,857,400
3,008,200
3,119,900
YoY
-0.4%
-0.3%
6.8%
5.2%
17.9%
17.7%
19.7%
13.3%
5.3%
3.7%
% of indirect finance
59.4%
59.4%
57.1%
51.8%
45.8%
43.8%
42.0%
41.2%
41.2%
41.1%
% of long-term borrowings
83.7%
91.2%
89.5%
92.8%
95.3%
94.8%
95.2%
94.8%
94.6%
92.8%
% of direct finance
40.6%
40.6%
42.9%
48.2%
54.2%
56.2%
58.0%
58.8%
58.8%
58.9%
% of securitized receivables
29.7%
31.0%
32.6%
35.7%
39.3%
40.7%
41.0%
42.0%
42.3%
41.7%
Interest-bearing debt
971,482
946,441
984,114
985,921
1,099,148
1,253,636
1,498,767
1,673,249
1,749,329
1,830,593
Dependence on interest-bearing debt
22.7%
21.1%
20.6%
20.0%
21.3%
23.5%
27.4%
30.2%
31.3%
33.0%
Cost of funds
1.61%
1.62%
1.40%
1.23%
0.85%
0.60%
0.49%
0.49%
0.49%
0.47%
Pre-tax profit / interest bearing debt
1.91%
2.03%
3.77%
3.16%
3.23%
2.97%
2.43%
2.30%
1.77%
1.49%
Interest coverage ratio
0.20
0.25
1.86
1.64
2.70
3.92
3.56
2.30
2.38
2.16
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 business
FY03/12
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Auto loan transaction volume (1)
634,800
675,100
736,500
740,800
819,300
818,300
828,300
871,600
887,100
864,600
Auto loan business revenue (2)
49,000
50,500
49,800
49,200
50,400
48,300
47,400
48,400
51,800
51,200
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
-
404,700
416,500
402,000
405,000
401,200
386,200
409,200
427,100
396,300
Shopping credit business revenue
-
32,400
29,400
30,500
29,500
28,000
30,000
29,100
29,000
29,000
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 business
FY03/12
FY03/13
FY03/14
FY03/15
FY03/16
FY03/17
FY03/18
FY03/19
FY03/20
FY03/21
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Credit card shopping transaction volume
1,390,261
1,416,999
1,485,178
1,492,342
1,548,366
1,657,058
1,826,301
2,163,500
2,419,200
2,435,000
Business revenue
31,626
35,239
38,607
40,636
42,427
45,210
46,275
50,330
54,256
50,118
Take rate
2.3%
2.5%
2.7%
2.7%
2.8%
2.8%
2.7%
2.5%
2.4%
2.1%
Balance of revolving payments
77,000
96,400
113,400
125,400
136,200
144,400
151,500
160,100
167,900
158,500
YoY
39.0%
25.2%
17.6%
10.6%
8.6%
6.0%
4.9%
5.7%
4.9%
-5.6%
Balance of cash loans and cash advances
469,900
393,800
358,600
330,100
316,300
312,900
308,800
305,500
293,200
247,200
Business revenue
44,200
38,300
34,900
31,200
30,900
28,600
27,200
27,100
25,600
21,800
ROA
8.4%
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.
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.
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
Key financial 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.
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
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
Announcement of issuer rating upgrade
On March 31, 2022, Orient Corporation (Orico) announced that Rating and Investment Information, Inc. (R & I) has upgraded Orico's issuer rating.
Credit ratings
Date of rating change: March 31, 2022
Announcement of transition to a Company with Audit and Supervisory Committee board structure
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.
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
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.
Note: Figures may differ from company materials due to differences in rounding methods.
Full-year FY03/22 results
Summary
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
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.
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
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
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
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.
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.
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 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.
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.
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.
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.
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.
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.
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).
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).
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.