Equity Analyst

Gervin Gayan

Analyst at LightStream Research covering Asian equities, along with thematic research.

Reinitiating Coverage of Mitsubishi Heavy Industries With a Higher FVE of JPY 504; 1Q Results Mixed

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Mitsubishi Heavy Industries / Equity Bottom-Up

1QFY19 Results Were Better, Mostly Due to the Turnaround in the Power System Segment 
Despite MHI posting flat YoY revenue of JPY906bn in 1QFY18, its OP improved to JPY31.4bn  (from JPY6.4bn in 1QFY17). However, MHI’s operating loss widened to JPY12.1bn in the Aircraft, Defence &amp; Space segment (from a JPY6.8bn loss in 1QFY17), while in the Power System segment OP improved to JPY26.8bn (the same period last year witnessed a small loss).
<table class="table table-striped">
<tbody>
<tr>
<td rowspan="2">
                 In JPYbn
</td>
<td colspan="2" style="text-align: center;">
Order Received
</td>
<td colspan="2" style="text-align: center;">
Net Sales
</td>
<td colspan="2" style="text-align: center;">
OP
</td>
</tr>
<tr>
<td style="text-align: center;">
1QFY18
</td>
<td style="text-align: center;">
1QFY19
</td>
<td style="text-align: center;">
1QFY18
</td>
<td style="text-align: center;">
1QFY19
</td>
<td style="text-align: center;">
1QFY18
</td>
<td style="text-align: center;">
1QFY19
</td>
</tr>
<tr>
<td>
Power Systems
</td>
<td style="text-align: center;">
226.8
</td>
<td style="text-align: center;">
194.4
</td>
<td style="text-align: center;">
295.1
</td>
<td style="text-align: center;">
316.6
</td>
<td style="text-align: center;">
-1.7
</td>
<td style="text-align: center;">
25.1
</td>
</tr>
<tr>
<td>
Industry &amp; Infrastructure
</td>
<td style="text-align: center;">
384.6
</td>
<td style="text-align: center;">
434
</td>
<td style="text-align: center;">
437.9
</td>
<td style="text-align: center;">
445.2
</td>
<td style="text-align: center;">
12.0
</td>
<td style="text-align: center;">
14.8
</td>
</tr>
<tr>
<td>
Aircraft, Defense &amp; Space
</td>
<td style="text-align: center;">
90.1
</td>
<td style="text-align: center;">
85.1
</td>
<td style="text-align: center;">
170.6
</td>
<td style="text-align: center;">
150.6
</td>
<td style="text-align: center;">
-6.8
</td>
<td style="text-align: center;">
-12.1
</td>
</tr>
<tr>
<td>
Others
</td>
<td style="text-align: center;">
31.9
</td>
<td style="text-align: center;">
18.6
</td>
<td style="text-align: center;">
31.6
</td>
<td style="text-align: center;">
17.8
</td>
<td style="text-align: center;">
2.0
</td>
<td style="text-align: center;">
2.7
</td>
</tr>
<tr>
<td>
Eliminations or Corporate
</td>
<td style="text-align: center;">
-31.7
</td>
<td style="text-align: center;">
-25.1
</td>
<td style="text-align: center;">
-32.2
</td>
<td style="text-align: center;">
-24.3
</td>
<td style="text-align: center;">
1.0
</td>
<td style="text-align: center;">
0.7
</td>
</tr>
<tr>
<td>
Total
</td>
<td style="text-align: center;">
701.9
</td>
<td style="text-align: center;">
707.1
</td>
<td style="text-align: center;">
903.2
</td>
<td style="text-align: center;">
906.1
</td>
<td style="text-align: center;">
6.4
</td>
<td style="text-align: center;">
31.4
</td>
</tr>
</tbody>
</table>
<div class="content-remarks">
Source: Company Disclosures
</div>

1QFY19 Results Were Better, Mostly Due to the Turnaround in the Power System Segment 
Despite MHI posting flat YoY revenue of JPY906bn in 1QFY18, its OP improved to JPY31.4bn  (from JPY6.4bn in 1QFY17). However, MHI’s operating loss widened to JPY12.1bn in the Aircraft, Defence &amp; Space segment (from a JPY6.8bn loss in 1QFY17), while in the Power System segment OP improved to JPY26.8bn (the same period last year witnessed a small loss).




                 In JPYbn


Order Received


Net Sales


OP




1QFY18


1QFY19


1QFY18


1QFY19


1QFY18


1QFY19




Power Systems


226.8


194.4


295.1


316.6


-1.7


25.1




Industry &amp; Infrastructure


384.6


434


437.9


445.2


12.0


14.8




Aircraft, Defense &amp; Space


90.1


85.1


170.6


150.6


-6.8


-12.1




Others


31.9


18.6


31.6


17.8


2.0


2.7




Eliminations or Corporate


-31.7


-25.1


-32.2


-24.3


1.0


0.7




Total


701.9


707.1


903.2


906.1


6.4


31.4





Source: Company Disclosures


MHI (JP 7011): Declining Orders and Widening Aircraft Loss Could Miss Guidance