Mitsubishi reports strong start with record first quarter results by Investing.com

In a recent earnings call, Mitsubishi Heavy Industries reported a strong start to the fiscal year, with record highs in order intake, revenue and profit for the first quarter. Despite the decline in defense order intake compared to the previous year, there was significant growth in the Power Systems segment, particularly in gas turbine combined cycle (GTCC) orders.

The company’s financial indicators show a 61% increase in business profit year-on-year, and total assets increased by JPY 401.7 billion to JPY 6.658 trillion. This increase is attributable to several factors, including currency translation effects related to foreign currency-denominated assets and the depreciation of the yen. The company also noted an improvement in free cash flow of JPY 14.1 billion year-over-year, partly due to better operating cash flow from higher profits.

Key recommendations

• Record highs in order intake, revenue and profit for the first quarter.
• A 61% increase in business profit year-on-year.
• Total assets rose to 6.658 trillion JPY, a significant portion due to currency translation effects.
• Free cash flow improved by JPY 14.1 billion from the previous year.
• The company maintains a positive outlook for achieving full-year targets despite financial market volatility.

The company’s prospects

• The company expects to continue implementing various initiatives to achieve full-year targets.
• Financial results are generally in line with plan, with no major surprises in the first quarter.

Bearish highlights

• Defense order intake declined from Q1 FY 2023, although remains high compared to the prior year.
• Revenues in the HVAC segment in Europe declined.
• Profitability of the turbocharger business was adversely affected by production disruptions due to supplier issues.

Optimistic milestones

• The Power Systems segment led by GTCC orders saw significant growth.
• The plants and infrastructure systems segment saw increases in order intake, revenue and business profit.
• The Aircraft, Defense and Space segment reported a significant increase in business profit, benefiting from the weak yen and higher revenues.

Miss

• LT&D segment revenue excluding the impact of the weak yen actually declined.

Highlighted questions and answers

• The presentation ended without a question and answer session, indicating confidence in the information provided and the direction of the company.

The company’s first quarter performance sets a positive tone for the fiscal year with strong financials and strategic segment growth. Management remains focused on achieving the full-year forecast and is prepared to navigate market fluctuations.

InvestingPro Insights

Given the company’s robust performance in the first quarter, InvestingPro offers a deeper financial analysis that may be of interest to investors. With a market cap of $39.59 billion, the company is a significant entity in the market. The adjusted P/E ratio for the trailing twelve months through Q1 2025 is 26.62, suggesting that the stock may be trading at a premium to its earnings. However, the PEG ratio for the same period is 0.62, indicating potential value given the company’s earnings growth.

InvestingPro Tips points out that the company is a prominent player in the auto industry with a strong return over the last three months, showing a total price return of 45.99%. This aligns with the bullish sentiment expressed in the article regarding the company’s strategic growth in key segments. Additionally, the company’s ability to maintain dividend payments for 33 consecutive years underscores its commitment to shareholder returns, a significant consideration for income-focused investors.

For those considering a deeper dive into the company’s financial health and future prospects, InvestingPro offers additional advice. There are currently 12 more InvestingPro tips available that can provide more insight into company performance and investment potential.

To explore these additional tips and gain a comprehensive understanding of the company’s financial condition, investors are encouraged to visit InvestingPro at https://www.investing.com/pro/MHVYF.

Full Transcript – Mitsubishi Heavy Industries Ltd (MHVYF) Q1 2024:

Hisato Kozawa: Hello. Let me summarize the first quarter results using the presentation materials. So the materials are organized according to the Table of Contents on Slide 2. First, I’ll give an overview of the financial results. Please refer to slide 4. This slide shows the results in several financial indicators. Slide 5 summarizes the most important ones. This quarter was generally according to plan. Order intake, revenue and profit increased year-on-year. Order intake increased significantly from the first quarter of fiscal year 2022 to the first quarter of fiscal year 2023, but order intake exceeded even those levels in this first quarter of this fiscal year. Although Defence’s order intake, which was the main driver of order growth in Q1 FY 2023, declined, orders from the GTCC-led energy systems segment increased significantly. Progress against the full-year forecast was around 32%, a relatively strong start. Both business profit and net income increased year-on-year. In particular, the business profit increased by 61%, as I will explain later in slide 9. Order intake, revenue and profit reached record levels for the first quarter. Slide 6 provides a little more detail on the financial results. Slide 7 includes information already provided, so I’ll skip an explanation. Slide 8 presents the balance sheet and cash flows. Total assets increased by JPY 401.7 billion from the end of fiscal 2023 to JPY 6.658 trillion. Approximately JPY 140 billion of this increase was due to currency translation effects related to foreign currency-denominated assets as a result of the yen’s depreciation. Excluding this, cash and cash equivalents were just under JPY 140 billion and inventories were around JPY 100 billion. It is normal for inventory to increase in the first quarter and we believe this is within the range of normal fluctuations given that our revenues are increasing. In terms of cash flows, although investing cash flows increased significantly due to expenses related to the acquisition of an office building in Tokyo, free cash flow improved by JPY 14.1 billion year-on-year due to – – partly to an improvement in operating cash flow resulting from higher profit results. Slide 9 shows the factors that drove year-on-year changes in business profits. On the left bar, in the first quarter of 2023, the business profit was 51.9 billion JPY. While there were negative factors in Q1 FY ’24, such as lower earnings from asset sales and staff cost inflation, these were largely offset by the benefit of the weak yen. Increased revenue in each business segment, in addition to improvements in product mix and profitability, helped boost profit to JPY 83.5 billion in the first quarter of fiscal 2024. Slide 10 provides a summary of orders, revenue and profit commercial by segment. Now I will explain a little bit about each segment. Due to the establishment of Green Transformation Solutions in April of this year, we have made some adjustments to our reporting segments. Please note that our figures for Q1 FY 2023 financial results are shown here retroactively adjusted to reflect these changes. Slide 11 presents the situation in the Energy Systems segment. Order intake, revenue and business profit increased year-on-year, showing a good start in terms of progress against the full-year forecast. In particular, order intake in the GTCC has been strong since last year. In Steam Power, revenue fell in line with expectations due to the phasing out of new coal-fired thermal power plants, but business profit increased due to a steady amount of service work. Slide 12 presents the situation in the Plants & Infrastructure Systems segment. In this segment, order intake, revenue and business profit increased year-on-year, showing a good start in terms of progress against the full-year forecast. The signing of a contract for a waste-to-energy system for the city of Yokohama contributed to orders in the field of environmental systems, which are in the Others category. Slide 13 shows the situation in the Logistics, Thermal and Drive Systems or LT&D segment. Order intakes and revenue rose slightly year over year, but revenue excluding the impact of the weak yen actually fell. Business profit fell in Turbochargers due to production disruptions caused by problems at some of the suppliers. HVAC revenues declined due to lower revenues in Europe. Slide 14 shows the situation in the Aircraft, Defense and Space segment. Order intake declined year-over-year due to several large defense orders reversed in Q1 FY ’23. However, Defense order intake is still at a high level compared to the previous year and there has been steady progress against the full-year forecast. On the revenue side, there has been steady progress in the execution of our large inventory. Business profit increased significantly due to the impact of the weak yen, in addition to the effect of higher revenues. Slides 15 through 17 show earnings forecasts for fiscal 2024. Since there was no change from May’s announcement, I’ll skip a detailed explanation. Overall, there were no major surprises in the first quarter. And I think we’re off to a steady, strong start in terms of progressing against the plan for the full year. Although the financial market has been volatile in recent days, apart from the general nature of the fluctuations, the actual values ​​are still within the range of the assumptions made at the beginning of the fiscal year. We will continue to consistently implement the various initiatives to achieve the goals for the entire year. That concludes my presentation. Thank you very much.

End of Q&A:

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