Mitsubishi Electric Earnings: Raising Our Fair Value by 10% to Reflect Solid Infrastructure Segment

We raise our fair value estimate for narrow-moat Mitsubishi Electric by 10% to JPY 2,550, based on an upward revision to the infrastructure segment, with revenue up by 3%-5% and operating margin up by 3-4 percentage points over our forecast period. The company has proved that its infrastructure segment is not a flash in the pan, but a sustainable and profitable business. While sales from the infrastructure segment were maintained at around 20% of companywide revenue from the previous year, operating profit from the infrastructure segment rose to 23% of overall operating profit in fiscal 2024 (ending March 2025), a massive lift from 9% of overall operating profit in fiscal 2023. With the budget expansion by the Japanese Ministry of Defense in support of the enhanced Defense Buildup Program between fiscal 2023 and 2027, we affirm that the infrastructure business will be another growth driver for Mitsubishi Electric over the midterm, second to industry and mobility. We reiterate our revenue compound annual growth rate estimates for the infrastructure business at 5% between fiscal 2025 and 2029. Shares rose by 5% after the announcement of fiscal 2024 results on April 28 and by about 8% above our fair value estimate. We will wait for the reacceleration of the industry and mobility business, especially the factory automation systems business, to justify a further lift in our fair value estimate.