Mitsubishi Heavy Industries,Ltd. FY2027 Q1 Earnings Report

Quick View

Executive Summary

In 2026 FY Q1, Mitsubishi Heavy Industries delivered higher revenue and higher profit, with Business Profit and Net Income expanding faster than revenue. Improved profitability in the core Energy Business (GTCC and nuclear power) was the primary driver. Revenue was ¥1兆1,942.0B (¥1兆341.1B in the same period of the previous year, +15.5%), Business Profit was ¥1,596.5B (¥966.9B, +65.1%), and Profit Before Tax was ¥1,764.3B (¥886.6B, +99.0%). Consolidated Net Income, including non-controlling interests, was ¥1,381.4B (¥714.2B, +93.4%), of which Net Income Attributable to Owners of the Parent was ¥1,346.8B (¥682.3B, +97.4%). EPS was ¥40.08 (¥20.32, +97.2%). The primary reasons profit growth significantly outpaced revenue growth were the increase in gross margin resulting from price revisions and an improved product mix (23.4%, +1.4pt year on year), as well as progress on high-margin projects in the Energy Business.

Factors Affecting Results

【Revenue】Revenue increased by +15.5%. By segment, Energy posted a significant increase of +27.0% and drove overall growth, while Industrial Solutions (+14.9%) and Aviation, Defense & Space (+9.8%) also contributed to the increase. Plant & Infrastructure was down -1.5%, essentially flat, reflecting differences in the pace of construction progress on existing projects. Contract liabilities (advance receipts) increased by +3,071.9B from the end of the previous fiscal year, indicating that advance collections associated with expanding orders are progressing.

【Profit and Loss】Business Profit increased by +65.1%, substantially outpacing revenue growth, and the Business Profit margin improved to 13.4% (9.3% in the previous year, +4.0pt). The main factor was a significant increase in the Energy Business margin to 18.9% (13.4% in the previous year, +5.6pt), supported by improved profitability in GTCC and nuclear power. Other income of ¥287.3B included gains on the sale of property, plant and equipment and other assets (approximately ¥99.1B), which was a temporary factor. At the same time, the contribution from equity-method investment gains increased substantially to ¥90.9B (¥34.3B in the previous year). The difference between Profit Before Tax (¥1,764.3B) and Net Income Attributable to Owners of the Parent (¥1,346.8B) mainly corresponds to income taxes (¥448.6B) and non-controlling interests (¥34.6B). The gap is attributable to ordinary tax and ownership-related factors rather than a structural distortion. Overall, the company achieved higher revenue and higher profit, with earnings growth driven more by margin improvement than by revenue expansion.

Segment Analysis

The core business is Energy, which generated revenue of ¥5,351.5B (44.8% of total revenue), accounting for approximately half of company-wide revenue. Segment Business Profit was ¥1,013.97B (¥564.0B in the previous year, +79.8%), and the margin reached 18.9% (13.4% in the previous year, +5.6pt). Energy alone accounted for approximately 70% of the company-wide increase in Business Profit (+¥629.6B), making it the largest driver of earnings growth.

Aviation, Defense & Space maintained an almost flat level, with Business Profit of ¥324.3B (¥288.1B, +12.6%) and a margin of 11.3% (11.1% in the previous year). Plant & Infrastructure achieved higher Business Profit of ¥217.2B (+17.1%) despite a revenue decline of -1.5%, while its margin improved to 11.3% (9.5% in the previous year, +1.8pt). Industrial Solutions posted the highest growth rate, with Business Profit of ¥99.5B (¥40.4B, +146.3%), but its margin was 5.7% (2.6% in the previous year), the lowest among the four segments, indicating that profitability improvement remains ongoing.

Key Financial Indicators

Profitability: ROE (quarterly actual, not annualized) was 4.3% (equivalent to 2.9% in the same period of the previous year, +1.4pt), while the Business Profit margin was 13.4% (9.3% in the previous year, +4.0pt). Management has set a full-year ROE target of 12%.

Cash flow quality: Operating Cash Flow / Net Income Attributable to Owners of the Parent was 2.11x, substantially exceeding 1.0x, indicating strong cash backing for earnings.

Investment efficiency: Capital expenditures / depreciation was 1.18x (capital expenditures of ¥324.6B and depreciation and other expenses of ¥275.2B), indicating a growth investment phase above 1.0x.

Financial soundness: The Equity Ratio was 38.9% (37.3% in the previous year), and the current ratio was approximately 125.6% (current assets of ¥5,270.4B ÷ current liabilities of ¥4,195.4B).

Cash Flow Analysis

Operating Cash Flow: ¥2,846.0B (¥896.6B in the previous year, +217.4%), equivalent to 2.11x Net Income Attributable to Owners of the Parent (¥1,346.8B). The increase in contract liabilities (+¥3,071.9B) and progress in collecting trade receivables (+¥2,995.0B) boosted cash generation, while an increase in inventories (-¥1,786.2B) partially offset these factors.

Investing Cash Flow: +¥1,069.1B (previous year: -¥253.1B). Proceeds from the sale of businesses, including subsidiaries, of ¥1,461.7B made a significant contribution against capital expenditures of -¥324.6B. The temporary effect of asset sales turned Investing Cash Flow positive.

Financing Cash Flow: -¥821.5B, primarily due to dividend payments of -¥426.2B; share repurchases were effectively zero.

FCF: On a basis of Operating Cash Flow less capital expenditures, FCF was ¥2,521.4B. On a disclosed basis, the sum of Operating Cash Flow and Investing Cash Flow was ¥3,915.1B; however, the latter includes the boost from proceeds from business sales and should be interpreted accordingly.

Cash generation assessment: Strong (even excluding temporary proceeds from asset sales, Operating Cash Flow substantially exceeded Net Income).

Earnings Quality

The difference between Profit Before Tax (¥1,764.3B) and Net Income Attributable to Owners of the Parent (¥1,346.8B) mainly corresponds to income taxes of ¥448.6B and non-controlling interests of ¥34.6B, indicating limited non-recurring distortion.

Non-operating items (the combined total of financial income of ¥204.8B, other income of ¥287.3B, and equity-method investment gains of ¥90.9B) amounted to ¥583.0B, or 4.9% of revenue, remaining generally within an acceptable range. Gains on the sale of property, plant and equipment and other assets included in other income (approximately ¥99.1B) were temporary and represented approximately 7.4% of Net Income.

From an accrual perspective, Operating Cash Flow substantially exceeded Net Income (2.11x), and earnings quality was generally high due to a cash generation structure led by increases in contract liabilities.

Earnings Forecast and Guidance

Progress against the full-year forecasts (revenue of ¥5兆4,000B, Business Profit of ¥5,400B, and Net Income Attributable to Owners of the Parent of ¥3,800B) was 22.1% for revenue (2.9pt below the standard 25% progress rate), 29.6% for Business Profit (+4.6pt), and 35.4% for Net Income (+10.4pt). Progress was therefore substantially ahead of the standard pace on the profit side. This divergence is considered to reflect the concentration of high-margin Energy Business projects in the first half and temporary earnings contributions from asset and business sales.

There were no revisions to the earnings forecast or dividend forecast based on the earnings release as of this quarter. However, the earnings presentation materials revised the full-year order intake outlook upward from ¥68,000B to ¥70,000B and the FCF outlook from ¥3,000B to ¥6,000B. Contract liabilities (advance receipts) of ¥24,832.2B correspond to 46.0% of the full-year revenue forecast, indicating a certain level of visibility into future revenue.

Shareholder Returns

The company’s full-year dividend forecast is ¥29 (¥14 interim and ¥15 year-end), resulting in a Payout Ratio of approximately 25.6% based on the full-year EPS forecast of ¥113.09. Share repurchases were effectively zero (-¥0.03B), leaving the Total Return Ratio at approximately the same level as the Payout Ratio. Quarterly dividend payments amounted to ¥426.2B and were fully covered by Q1 Operating Cash Flow of ¥2,846.0B.

Catalysts

【Short Term】Fluidity in the Middle East situation (not reflected in the full-year earnings forecast), foreign exchange trends (yen depreciation/appreciation), and cost increases such as wage growth (a factor reducing profit by approximately ¥6.0B in Q1).

【Long Term】Replacement demand for GTCC and order trends in the nuclear business; progress on large-scale projects in the defense and space fields, such as frigates for Australia; and diversification of the earnings base through expansion of the data center and thermal management businesses.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability significantly exceeded the industry median and was also close to the upper end of the range (IQR upper limit of 14.2%).

Growth and Capital Efficiency

Revenue growth also exceeded the industry IQR upper limit of 14.6%, securing a high level of growth within the industry.

※Source: Compiled by the Company

Risk Factors

1. Expansion of working capital: Inventories continued to increase to ¥1兆1,548.8B (¥1兆418.99B at the end of the previous fiscal year, +10.8%). The slower pace of inventory reduction relative to revenue growth (+15.5%) could become a source of cash flow volatility.

2. Sharp decline in non-controlling interests: Non-controlling interests fell significantly to ¥683.4B (¥1,398.34B at the end of the previous fiscal year, -51.1%). Attention should be paid to the fact that this was a temporary fluctuation associated with changes in the scope of consolidation, such as the sale of subsidiaries.

3. Geopolitical and foreign exchange uncertainty: The full-year earnings forecast does not incorporate the impact of the situation in the Middle East. The materials also explicitly identify fluctuations in the exchange rate against the U.S. dollar and economic conditions as factors that could affect performance.

Key Takeaways from the Earnings Results

1. The Business Profit margin improved by +4.0pt to 13.4% (9.3% in the previous year), while the margin of the core Energy Business increased to 18.9% (13.4% in the previous year). This suggests a structural improvement in earnings power driven by price revisions and an improved project mix.

2. Contract liabilities (advance receipts) increased by +¥3,071.9B from the end of the previous fiscal year and reached a level equivalent to 46.0% of the full-year revenue forecast, improving visibility into future revenue associated with expanding orders.

3. The 35.4% full-year progress rate for Net Income Attributable to Owners of the Parent substantially exceeded the 22.1% progress rate for revenue, reflecting progress on high-margin projects in the first half and contributions from temporary gains on asset sales. Whether these temporary factors will reverse in the second half requires monitoring.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,054–¥1,118 at ±1% for the cost of equity, and ¥1,082–¥1,091 at ±0.1 for ω.

Note:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee future share prices)

---

This report is an earnings analysis document automatically generated by AI through integrated analysis of XBRL earnings release data and PDF earnings presentation materials. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

---End of Report---