Company Reports

Mitsubishi Heavy Industries, or MHI, reported 15% year-over-year sales growth to JPY 1.19 trillion and business profit of JPY 159.6 billion in the June quarter. It raised order guidance to JPY 7 trillion while retaining sales and business profit guidance. Shares trade 5% above the pre-result level.

Mitsubishi Heavy Industries is a diversified industrial group with leading positions in gas turbines, defense systems, aerospace, and infrastructure. Historically, returns on invested capital and margins lagged peers such as GE Vernova and Siemens Energy, reflecting weak thermal power demand in the 2010s and poor capital allocation, including losses from regional jet and other noncore projects. We think these headwinds have largely abated as management has exited loss-making programs and refocused on higher-return businesses.

Mitsubishi Heavy Industries, or MHI, posted fiscal 2025 (ended March 2026) sales of JPY 4.97 trillion, up 14% year on year excluding Mitsubishi Logisnext. Aircraft, defense & space, or ADS, sales rose 35% to JPY 1.4 trillion, while GTCC sales neared JPY 1 trillion, up 25% year on year.

Mitsubishi Heavy Industries is a diversified industrial group with leading positions in gas turbines, defense systems, aerospace, and infrastructure. Historically, returns on invested capital and margins lagged peers such as GE Vernova and Siemens Energy, reflecting weak thermal power demand in the 2010s and poor capital allocation, including losses from regional jet and other noncore projects. We think these headwinds have largely abated as management has exited loss-making programs and refocused on higher-return businesses.

Mitsubishi Heavy Industries is a diversified industrial group with leading positions in gas turbines, defense systems, aerospace, and infrastructure. Historically, returns on invested capital and margins lagged peers such as GE Vernova and Siemens Energy, reflecting weak thermal power demand in the 2010s and poor capital allocation, including losses from regional jet and other noncore projects. We think these headwinds have largely abated as management has exited loss-making programs and refocused on higher-return businesses.

We initiate coverage of Mitsubishi Heavy Industries, a diversified industrial group that holds leading positions in gas turbines, defense systems, aerospace, and infrastructure solutions across global energy and industrial markets.

We are dropping coverage of Mitsubishi Heavy Industries. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We cut our fair value estimate on Mitsubishi Heavy Industries to JPY 4,300 from JPY 4,900 given prolonged COVID-19 disruption risks to the aerospace industry. Although MHI's management retained its full-year guidance following first-quarter fiscal 2021 results, it noted that there will be risks of further goodwill impairments on its recent purchase of Bombardier's commercial regional jet, or CRJ, business. The acquisition was particularly ill-timed, given the pandemic. We also lowered our midcycle profit margin assumption for its power turbine business, with Japan looking to phase out coal-fired power plants. While we don't think this will affect growth noticeably, it is likely to affect margins more as contracted servicing will decline. Although we think much of the bad news is reflected, with MHI trading below our bear-case fair value, the share price is likely to continue to lag the market, given a sluggish growth outlook in the next few years. We think the company will need to prove that it can lower costs and improve efficiency and also see clarity in its regional jet business, which will probably only materialize after 2022.

Mitsubishi Heavy Industries, or MHI, is one of the world’s leading industrial engineering groups, with expertise that spans from power turbines to submarines and particle accelerators, but its return on invested capital and operating margin lag those of peers such as General Electric and Siemens. Part of this is due to relatively high costs of production at home in Japan, a lack of scale for its defense products, and some projects--namely its regional jets and cruise ships--losing money. MHI’s management is focusing on consolidation and select investment to boost profitability.

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.

Mitsubishi Heavy Industries, or MHI, is one of the world’s leading industrial engineering groups, with expertise that spans from power turbines to submarines and particle accelerators, but its return on invested capital and operating margin lag those of peers such as General Electric and Siemens. Part of this is due to relatively high costs of production at home in Japan, a lack of scale for its defense products, and some projects--namely its regional jets and cruise ships--losing money. MHI’s management is focusing on consolidation and select investment to boost profitability.

Mitsubishi Heavy Industries, or MHI’s, third-quarter performance was marred by significant losses at its SpaceJet commercial aircraft unit and weak demand for industrial equipment. As a result, the company lowered its fiscal 2019 (ending March 2020) operating profit forecast to zero from JPY 220 billion, but net profit is down just 10% to JPY 100 billion due to tax benefits. MHI management says visibility is low on the outlook presently but expects minimal Wuhan coronavirus related supply chain disruptions. However, demand for some industrial equipment, especially turbochargers, is weak presently and guidance on the Industry and Infrastructure, or I&I, segment operating profit has been cut to JPY 60 billion from JPY 110 billion. As we expect the Wuhan coronavirus outbreak to peak in the calendar second quarter and global demand to rebound thereafter, we see limited impact to our cash flow forecast for MHI. Our fair value estimate is unchanged at JPY 5,200.

Mitsubishi Heavy Industries is one of the world’s leading industrial engineering groups, with expertise that spans from power turbines to submarines and particle accelerators, but its return on invested capital and operating margin lag those of peers such as General Electric and Siemens. Part of this is due to relatively high costs of production at home in Japan, a lack of scale for its defense products, and some projects--namely its regional jets and cruise ships--losing money. MHI’s management is focusing on consolidation and select investment to boost profitability.

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.

We maintain our earnings forecasts unchanged and fair value estimate at JPY 5,200 for Mitsubishi Heavy Industries, or MHI. We continue to believe MHI is undervalued on our assumption that earnings growth will resume in fiscal 2020 (year ending March 2021), due to reduced Mitsubishi Regional Jet, or MRJ, losses, and with cost efficiencies coming through. MHI’s second-quarter net profit improved 23% year over year to JPY 12.9 billion but the rebound mainly reflects reduced MRJ, losses while revenue and operating performance was generally flat. The second quarter has tended to be seasonally weak for the company so we remain comfortable that MHI can meet our full-year net profit estimate of JPY 99 billion, which is below Capital IQ consensus at JPY 112 billion and MHI’s unchanged guidance of JPY 110 billion. Our relatively subdued projection reflects our view that global trade issues will persist and the global slowdown will hit MHI’s industry and infrastructure segment profit. We also continue to forecast losses for MRJ through fiscal 2022, and news of the canceled Trans States Holdings' sales contract would support our view that losses could continue beyond MHI’s guidance.

Mitsubishi Heavy Industries' first-quarter net profit of JPY 16.4 billion and revenue of JPY 919.3 billion reflect largely flattish growth, in line with our full-year projection. There were some bright spots, however, with power systems sales showing stronger revenue growth at over 8% and new order book pace in terms of units. This is within MHI's full-year guidance. Losses at the regional jet business, MRJ, were lower at JPY 5.1 billion due to timing factors, which helped lift contributions from the aircraft, defense, and space unit. We think the greater uncertainty comes from the industry and infrastructure division, which we believe will be more sensitive to the global slowdown as the U.S.-China trade war escalates. Our JPY 5,200 fair value estimate is unchanged; it prices MHI at an average 13.5 times price/earnings over our five-year projected period. MHI presently appears undervalued on our assumption that earnings growth will resume in fiscal 2020 (ending March 2021) on reduced MRJ losses and a pickup in power system (turbine and power plant and related services) sales.

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.

Mitsubishi Heavy Industries is one of the world’s leading industrial engineering groups, with expertise that spans from power turbines to submarines and particle accelerators, but its return on invested capital and operating margin lag those of peers such as General Electric and Siemens. Part of this is due to relatively high costs of production at home in Japan, a lack of scale for its defense products, and some projects--namely its regional jets and cruise ships--losing money. MHI’s management is focusing on consolidation and select investment to boost profitability.

Mitsubishi Heavy Industry's, or MHI's, confirmed acquisition of Bombardier's commercial regional jet, or CRJ, business for USD 750 million affirms our prior expectation that the deal would have a relatively minor impact on MHI. CRJ is a mature business and we see little growth, adding only around JPY 3 billion operating profit to our midcycle forecast. The purchase, we think could, however, help add expertise and a distribution and support network to boost MHI's own regional jet program. As a result, we move forward our assumption for the recently rebranded SpaceJet sales to breakeven by one year to MHI's financial year ending March 2023 (fiscal 2022). This lifts our fair value estimate by 2% to JPY 4,820 and we continue to see MHI as being fully valued.

Mitsubishi Heavy Industries is one of the world’s leading industrial engineering groups, with expertise that spans from power turbines to submarines and particle accelerators, but its return on invested capital and operating margin lag those of peers such as General Electric and Siemens. Part of this is due to relatively high costs of production at home in Japan, a lack of scale for its defense products, and some projects--namely its regional jets and cruise ships--losing money. MHI’s management is focusing on consolidation and select investment to boost profitability.