MHI Targets Robust Near-Term Growth, We Are Less Optimistic but FVE is Raised

Mitsubishi Heavy Industry's, or MHI's, strategy briefing revealed robust profit growth targets in all three divisions, led partly by cutting costs, but we are less optimistic about it. MHI is targeting an operating profit of JPY 350 billion in fiscal 2020 (year ending March 2021), a 59% year-over-year jump over fiscal 2019's JPY 220 billion. Much of the increase comes from a margin improvement. We have given MHI some benefit of the doubt but our revised fiscal 2020 operating profit forecast of JPY 269 billion is still 23% below MHI's target. Our fair value estimate is raised to JPY 5,200 from JPY 4,820 and the stock remains fairly valued. The market would still find it difficult to accept MHI's robust targets without specific details about its cost-cutting plans.