MHI Points to Near Loss and Dividend Cut but Financial Position Intact; Shares Price Reflects Worse

While fiscal 2020 (financial year ending March 2021) will be challenging for Mitsubishi Heavy Industries, or MHI, due mainly to the coronavirus disruptions to its commercial aircraft and automobile related services and supplies, we believe these negatives are already reflected in its current share price. Our fair value estimate is lowered to JPY 4,900 from JPY 5,200. MHI is currently trading below our bear-case fair value, which implies net losses in fiscal 2020-21 and a slow recovery, with five year average profit growth of 5.7%. This would not be in line with our view for this pandemic to come under control by end-2020, with activities to recover in the first half of 2021 given expedited treatment and vaccine development.