Mitsubishi Heavy Industries Gets Sole Ownership of Mitsubishi Hitachi Power Systems, FVE Unchanged

Mitsubishi Heavy Industries, or MHI, and Hitachi have settled their dispute. This will lead to MHI attaining the 35% of global thermal power contractor Mitsubishi Hitachi Power Systems, or MHPS, that it does not own, along with JPY 200 billion cash. We view this settlement to be positive for MHI, as it gives it sole management of MHPS, since power systems are a core activity for MHI, and also removes uncertainty over the monetary claims that MHI was making on Hitachi. Pending details over the accounting of the settlement coupled with possible revisions on regional jet spending, we leave our fair value estimate unchanged. Our fiscal 2019 (financial year ending March 2020) profit is raised to JPY 115 billion from JPY 99 billion for a one-off property sale gain unrelated to this settlement. We think MHI remains attractive at this point.