Fuyo Lease Q1 FY2027: Record Operating Profit as Finance Surges 48%

Fuyo Lease’s consolidated first-quarter revenue reached ¥201.16 billion (+16.6% YoY), with operating profit surging 29.3% to ¥19.72 billion and ordinary profit up 11.2% to ¥20.73 billion. Net income attributable to parent shareholders climbed 5.5% to ¥14.03 billion, marking new Q1 highs across all profit lines. Operating margin improved from 8.8% to 9.8%.

Growth was driven by rising income from existing operating assets (total portfolio ¥3,208.8 billion), even as new contract execution fell 10.1% to ¥448.96 billion. Leasing and installment revenue from existing contracts rose 15.3%, while finance revenue jumped 51.6%. Equity-method investment profit dropped sharply to ¥873 million from ¥3,719 million a year earlier, partly offset by higher forex gains and dividends. The higher tax burden moderated net profit growth, but progress against the full-year plan remains solid.

Fuyo Lease’s three segments delivered the following external revenue and segment profit:

Leasing & Installment Sales saw new contract volume decline 18.0% (operating lease contracts halved), but the existing asset stock of ¥1,940.9 billion sustained revenue growth with minimal near-term profit impact due to staggered revenue recognition.

Finance overcame a 7.4% drop in new contracts, as interest and dividend income from loans and operating investment securities soared. Segment profit surged 48.1% and maintained an industry-leading 59.0% margin, buoyed by widening spreads in a rising rate environment.

Other (mainly real estate) posted modest revenue growth but an 8.9% profit decline amid a shrinking asset base, highlighting a need for margin improvement.

Total assets stood at ¥3,825.45 billion, down 0.5% from the prior fiscal year-end, mainly due to a 1.4% decline in operating assets to ¥3,208.8 billion. Cash and deposits rose to ¥96.44 billion, ensuring ample liquidity.

On the funding side, indirect financing (loans, CP) decreased 0.7% to ¥2,181.83 billion, while direct financing (bonds) increased 0.8% to ¥815.02 billion, lifting the direct funding ratio by 0.3pp to 27.2%, a sign of expanding fixed-rate, long-term funding in a rising rate cycle.

Shareholders’ equity grew 1.8% to ¥398.18 billion, and net assets rose 1.5% to ¥576.65 billion, pushing the equity ratio to 13.4% (+0.3pp). The planned annual dividend was raised by ¥14 to ¥172 per share (interim ¥86, year-end ¥86), reinforcing returns to shareholders. While cash flow statements were not disclosed, depreciation on leased assets reached ¥14.9 billion, pointing to solid operating cash generation.

Fuyo Lease maintained its FY2027 earnings forecast, which calls for substantial growth:

Q1 progress rates were approximately 28.2% for operating profit and 29.2% for net profit, putting the company on track to meet its annual targets. However, if the recent decline in new contract execution persists, second-half revenue accumulation could face headwinds, with the recovery of operating leases being a key focus.

Despite strong Q1 results, several risk factors warrant attention:

• New contract slowdown: Total contract execution fell 10.1% YoY, with operating leases plunging 47.1%, reflecting cautious corporate capex and intensifying competition.
• Rising funding costs: Interest expenses rose 43.1% to ¥1.37 billion. Further rate increases could squeeze margins.
• Equity-method profit volatility: A sharp drop to ¥873 million from ¥3,719 million signals reliance on associate performance, which may swing ordinary profit.
• Currency and geopolitical risks: The foreign currency translation adjustment grew to ¥52.11 billion, exposing results to yen appreciation; expanding overseas operations also introduce country risk.
• Asset impairment risk: With a ¥3.2 trillion operating asset base, an economic downturn could trigger impairment losses (minimal in Q1).

Managing these risks while rebuilding new contracts and expanding the high-margin finance business will be critical going forward.