ORIX -- Overlooked ADR that Among Other Things Has Stakes in JP Real Estate (IX)

I was reading a monthly mutual fund investment newsletter from USAA Investment Management Co. and was pleased to see discussion of overseas investment opportunities including Japan. I was expecting the typical picks of Sony (SNE) and Toyota ( TM ) but was shocked to read not about these household names but instead of ORIX Corporation (IX). ORIX is a diversified non-bank financial services company that offers exposure to the Japanese real estate market. When you see its one year chart you might understand why I hate myself for not following this one more closely.

First, here's what Charlie Lovejoy, Lead Portfolio Manager, of the USAA Capital Growth Fund had to say about ORIX.

One other investment worthy of mention is ORIX Corporation, Japan’s largest non-bank financial services company. It has nearly 200 subsidiaries, with operations in 24 countries and regions. Its diversified activities include leasing, investment and retail banking, corporate finance, life insurance and real estate-related financing and development. Interestingly, it also owns one of Japan’s professional baseball teams.
(As of January 31st, ORIX made up 1.04% of the USAA Capital Growth Fund.)

Scanning ORIX's most recent earnings releases I saw that it achieved record net income, up 86%, for the nine-month period ended Dec. 31st. In its interim reporting for the period of April 1 - Sept. 30, net income was up 97% y-o-y. Also, earlier last month it announced it was raising its annual dividend for the fiscal year ending March 31, 2006, from 40 yen to 90 yen.

ORIX's ordinary shares traded in Tokyo (ticker: 8591) closed yesterday at 31,050 yen. Yahoo! Japan Finance shows that its trailing P/E is 28.54 and EPS is 1,087.82 yen. Its yield with a dividend at 40 yen per share is pretty small at 0.13% but remember that has been bumped up to 90 yen per share (equal to .29% as of yesterday's close).

ORIX's ADRs (IX) have a low 3-month average volume and pretty wide bid-ask spreads. At the time of this post shares were up nearly 3% on a volume of 8,700. As for ADRs, this is the only one listed on a major exchange that I know of that will give you exposure to Japanese real estate.

The question I have is how much more upside is there? I haven't taken an in depth look at its financials, holdings, or operations but it's clear investors are bullish.

IX 1-yr chart:

Comments

[Steven Towns:]

Pat, thanks for your comment. You're right, that should be re-phrased to "have been."

2006 Mar 03 10:20 PM