Energy & Defense Drive Profit: Overweight on MHI and IHI, Equal-weight on KHI

研报英文原文证据摘录

Energy & Defense Drive Profit: Overweight on MHI and IHI, Equal-weight on KHI

FoundationM

Heavy Industries - Industry view: Attractive

Mitsubishi Heavy Industries – OW, PT ¥5,700: In energy business, a more aggressive policy has been presented

to double gas turbine production capacity toward F3/31, with both margin improvement and profit growth in prospect.

In gas turbine business, MHI expressed confidence that expanded capacity will be filled by demand, given the large

volume of orders for baseload power generation. With a defense spending increase (potentially the next catalyst)

expected in 2H, we also have the impression that production optimization, including shortening missile lead times, is

progressing. In an analyst small meeting with CEO Eisaku Ito, we received an explanation regarding the impact and

sustainability of company-wide optimization projects.

In the fireside chat with CFO Hiroshi Nishio at our Japan Summit, we confirmed the sustainability of OP margin

improvement in the energy segment. Overall, we have the impression that the dual drivers of margin improvement

and growth have begun to turn, and expectations are rising for further efficiency gains to capture additional growth

opportunities.

IHI – OW, PT ¥3,300: We estimate 1Q OP could get a boost from asset sales of around ¥50 bn, raising progress

to our full year profit to 30% while following quarters could see better core profit progress. Other key potential

catalysts include Japan’s July policy framework, which may contain defense-related measures supportive of IHI;

Japan–US initiatives to expand nuclear power, potentially boosting demand for IHI’s core components; and

sustained 20%+ growth in aero engine spare parts, which could help alleviate concerns over aero engine servicing

demand.