Heavy Industry: Profit Recovery & Defense Demand | IR Tracker

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Dissecting Three Heavy-Industry Results: Profitability Recovery and the Reality of Rising Defense Demand

Quantitative financial analysis of Mitsubishi Heavy, Kawasaki Heavy, and IHI (FY2021–FY2025, FY2026 Q3).

IRTracker

February 15, 2026

18 min read

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Table of Contents

Source: TDnet public financial statements (XBRL)

1. Introduction: A Structural Turning Point in the Heavy-Industry Sector

The heavy-industry sector is undergoing a structural turning point. This report provides a quantitative financial analysis of Mitsubishi Heavy Industries (7011), Kawasaki Heavy Industries (7012), and IHI (7013), using five full fiscal years of results (FY2021–FY2025) and the latest data through FY2026 Q3.

All three companies achieved substantial year-on-year revenue and profit growth in FY2025, with Business Profit (Operating Profit) margins reaching five-year highs. The buildup of Contract Liabilities suggests strong wins on long-term projects, and Operating Cash Flow generation has improved markedly. This piece examines revenue structure, Contract Assets & Contract Liabilities trends, Capital Expenditures (Capex), cash flows, capital efficiency, and dividend/share repurchase policy to highlight differences in each company's financial characteristics and growth trajectories.

2. Sector-wide Trend: Growth Trajectory by Aggregating the Three Firms

The combined revenue of the three companies expanded from 63,012 億円 in FY2021 to 87,832 億円 in FY2025. The table below shows the three-company aggregate.

Metric	FY2021	FY2022	FY2023	FY2024	FY2025
Revenue	¥6.30 trillion	¥5.03 trillion	¥7.28 trillion	¥7.83 trillion	¥8.78 trillion
Business Profit (Operating Profit)	¥47.1 billion	¥82.0 billion	¥54.9 billion	¥-34.9 billion	¥335.3 billion
Profit attributable to owners of parent	¥34.3 billion	¥232.5 billion	¥200.2 billion	¥179.1 billion	¥446.1 billion
Capital Expenditures (Capex)	¥-146.2 billion	¥-188.1 billion	¥-211.9 billion	¥-80.0 billion	¥-436.6 billion
Operating Cash Flow (Operating Cash Flow)	¥-24.0 billion	¥423.2 billion	¥166.5 billion	¥424.8 billion	¥856.9 billion

Note on missing Kawasaki Heavy FY2022 data
Kawasaki Heavy did not provide FY2022 financial data, so the FY2022 three-company aggregate reflects the sum of Mitsubishi Heavy and IHI only. This makes FY2022 values appear low relative to other years.

Business Profit for FY2025 totaled ¥335.3 billion, roughly seven times the FY2021 level. Operating Cash Flow likewise improved sharply to ¥856.9 billion from a negative balance in FY2021. Capex reached a record ¥436.6 billion in FY2025, which appears to be an investment in future growth capacity.

In the cumulative nine months to FY2026 Q3, combined revenue reached 60,176 億円 (¥6.02 trillion), representing roughly 64% progress toward the full-year forecast (93,600 億円 / ¥9.36 trillion).

3-company aggregate revenue CAGR (FY2021→FY2025) = (¥8.78 trillion / ¥6.30 trillion)^(1/4) - 1 = 8.7%

3. Earnings Power Comparison: Each Company’s Growth Path and Recent Results

5-year Revenue CAGR and YoY Comparison

Company	FY2021	FY2025	5-year CAGR	FY2024→FY2025 YoY
Mitsubishi Heavy	¥3.70 trillion	¥5.03 trillion	7.9%	+7.9%
Kawasaki Heavy	¥1.49 trillion	¥2.13 trillion	9.4%	+15.1%
IHI	¥1.11 trillion	¥1.63 trillion	10.0%	+23.0%

Kawasaki Heavy CAGR = (¥2.13 trillion / ¥1.49 trillion)^(1/4) - 1 = 9.4%

IHI shows the highest growth rate, with Kawasaki Heavy also at a high level. Mitsubishi Heavy records steady growth. In the most recent YoY change, IHI stands out with +23.0%, and Kawasaki Heavy achieved +15.1%.

Business Profit (Operating Profit) and Net Income Trends

Company	Metric	FY2021	FY2025	FY2024→FY2025 YoY
Mitsubishi Heavy	Business Profit (Operating Profit)	¥24.5 billion	¥145.0 billion	+97.3%
Mitsubishi Heavy	Net Income (attributable to owners)	¥40.6 billion	¥245.4 billion	+10.5%
Kawasaki Heavy	Business Profit (Operating Profit)	¥-5.3 billion	¥46.8 billion	Turned positive
Kawasaki Heavy

Kawasaki Heavy turned from a loss in FY2021 to profit in FY2025. IHI more than doubled both Business Profit and Net Income. Mitsubishi Heavy’s Business Profit expanded roughly sixfold, signaling a dramatic improvement in earnings power.

4. Revenue Structure Deep Dive: Margin Trends and Comparison

We compare five-year trends for Gross Profit Margin (売上総利益率), Operating Profit Margin (営業利益率), and Selling, General & Administrative Expenses (販管費率).

Company	Metric	FY2021	FY2022	FY2023	FY2024	FY2025
Mitsubishi Heavy	Gross Profit Margin	15.8%	17.0%	18.2%	-	20.5%
Mitsubishi Heavy	Operating Profit Margin	0.7%	0.1%	0.3%	1.6%	2.9%
Mitsubishi Heavy

まとめ

- Gross Profit Margin: IHI highest at 23.0%; Kawasaki Heavy and Mitsubishi Heavy also reached the 20% range - Operating Profit Margin: IHI stands out at 8.8%; Mitsubishi Heavy 2.9%, Kawasaki Heavy 2.2% - Selling, General & Administrative Expenses: all three firms remain stable around 13–14%, with IHI decreasing to 13.7%

IHI achieves a high Gross Profit Margin driven by higher value-added products and a lower SG&A ratio, delivering an 8.8% Operating Profit Margin. Kawasaki Heavy swung from FY2024 losses to FY2025 profitability. Mitsubishi Heavy improved Gross Profit Margin by 4.7 percentage points over five years and raised Operating Profit Margin to 2.9%.

In the cumulative nine months to FY2026 Q3, Operating Profit Margins were above full-year levels: Mitsubishi Heavy 8.1% (Business Profit ¥268.6 billion / Revenue ¥3.33 trillion), Kawasaki Heavy 5.3% (Business Profit ¥82.4 billion / Revenue ¥1.56 trillion), and IHI 9.1% (Business Profit ¥102.5 billion / Revenue ¥1.13 trillion).

5. Contract Assets & Contract Liabilities Analysis: Long-term Project Progress

In heavy industry, the balance between Contract Assets and Contract Liabilities is a key indicator of progress on long-term projects. When Contract Liabilities exceed Contract Assets (a negative difference), this indicates a high level of advance receipts and significant future revenue recognition potential.

Company	FY2021	FY2023	FY2024	FY2025	FY2026 Q3
Mitsubishi Heavy	¥-152.8 billion	¥-204.9 billion	-	¥-652.1 billion	¥-736.9 billion
Kawasaki Heavy	-	¥-96.8 billion	¥-128.7 billion	¥-192.9 billion	¥-200.3 billion
IHI	¥-53.9 billion	¥-57.1 billion	-

What a surge in Contract Liabilities implies
Mitsubishi Heavy’s Contract Liability excess increased from ¥204.9 billion in FY2023 to ¥652.1 billion in FY2025—more than triple—indicating strong orders for large-scale projects. Kawasaki Heavy and IHI show similar buildups in Contract Liabilities, suggesting future revenue realization.

Contract Assets - Contract Liabilities = Amount of revenue recognized on the percentage-of-completion basis that is not yet billed/collected - advance receipts

At FY2026 Q3, Mitsubishi Heavy’s Contract Liabilities reached ¥1,843.4 billion (18,434 億円), far exceeding Contract Assets of ¥1,106.5 billion (11,065 億円). Kawasaki Heavy and IHI show the same pattern of accumulating unearned revenue, confirming sizable long-term order backlogs.

6. Inventories & CapEx Analysis: Strengthening Production Capacity

Inventory Turnover Days

Company	FY2021	FY2023	FY2024	FY2025
Mitsubishi Heavy	70 days	76 days	-	77 days
Kawasaki Heavy	17 days	146 days	140 days	133 days
IHI	107 days	101 days	-	100 days

Inventory Turnover Days = Inventories / (Cost of sales / 365)

Kawasaki Heavy’s Inventory Turnover Days jumped from 17 days in FY2021 to 146 days in FY2023; however, FY2021 data were under JGAAP while FY2023 onward are under IFRS, so simple comparisons may be misleading. From FY2023 onward, Kawasaki Heavy has ranged 133–146 days, consistent with a long-project business model. Mitsubishi Heavy and IHI remain stable in the 70–100 day range.

CapEx-to-Sales Ratio (CapEx / Revenue)

Company	FY2021	FY2023	FY2024	FY2025
Mitsubishi Heavy	-4.0%	-3.1%	-	-4.8%
Kawasaki Heavy	-	-3.4%	-4.3%	-4.6%
IHI	-	-	-	6.0%

Mitsubishi Heavy and Kawasaki Heavy both continue investing around 4–5% of revenue. IHI stepped up investment to 6.0% in FY2025. All three companies expanded CapEx in FY2025, indicating intentions to expand production capacity.

7. Cash Flow Analysis: Dramatic Improvement in Cash Generation

Operating Cash Flow, Investing Cash Flow, FreeCF (億円 converted)

Mitsubishi Heavy

Metric	FY2021	FY2022	FY2023	FY2024	FY2025
Operating Cash Flow (Operating Cash Flow)	¥-94.9 billion	¥285.5 billion	¥80.8 billion	¥331.1 billion	¥530.4 billion
Investing Cash Flow (Investing Cash Flow)	¥-182.2 billion	¥16.3 billion	¥-45.5 billion	¥-131.0 billion	¥-187.7 billion
FreeCF	¥-277.1 billion	¥301.8 billion

Kawasaki Heavy

Metric	FY2021	FY2023	FY2024	FY2025
Operating Cash Flow (Operating Cash Flow)	¥34.6 billion	¥23.6 billion	¥31.6 billion	¥148.9 billion
Investing Cash Flow (Investing Cash Flow)	¥-37.3 billion	¥-77.4 billion	¥-89.8 billion	¥-111.2 billion
FreeCF	¥-2.7 billion	¥-53.8 billion	¥-58.1 billion	¥37.7 billion

IHI

Metric	FY2021	FY2022	FY2023	FY2024	FY2025
Operating Cash Flow (Operating Cash Flow)	¥36.3 billion	¥114.1 billion	¥54.1 billion	¥62.1 billion	¥177.6 billion
Investing Cash Flow (Investing Cash Flow)	¥-40.4 billion	¥27.9 billion	¥-52.3 billion	¥-51.6 billion	¥-58.8 billion
FreeCF	¥-4.1 billion	¥142.0 billion

まとめ

- Mitsubishi Heavy: V-shaped recovery from FreeCF ¥-277.1 billion in FY2021 to ¥342.7 billion in FY2025 - Kawasaki Heavy: FreeCF negative in FY2023–FY2024 but turned positive to ¥37.7 billion in FY2025 - IHI: Strong FreeCF of ¥118.8 billion in FY2025

Combined FreeCF for the three firms improved from ¥-283.9 billion in FY2021 to ¥499.2 billion in FY2025—evidence of strengthened cash-generation capabilities and more efficient investing activities.

Shareholder Returns

Company	Metric	FY2021	FY2023	FY2024	FY2025
Mitsubishi Heavy	Share Repurchases / Buybacks	¥-0.01 billion	¥-0.02 billion	-	¥-12.10 billion
Mitsubishi Heavy	Total Shareholder Returns (cash)	-	¥0.02 billion	-	¥12.30 billion
Kawasaki Heavy	Share Repurchases / Buybacks	-

Mitsubishi Heavy completed ¥12.1 billion of share buybacks in FY2025. Kawasaki Heavy and IHI continued to return capital—primarily through dividends—strengthening shareholder returns.

8. Capital Efficiency & Financial Soundness: Sharp ROE Improvement

ROE, Equity Ratio, Net D/E Trends

Company	Metric	FY2021	FY2022	FY2023	FY2024	FY2025
Mitsubishi Heavy	ROE	3.1%	7.7%	7.9%	11.1%	10.7%
Mitsubishi Heavy	Equity Ratio (自己資本比率)	28.4%	30.8%	31.8%	35.9%	35.2%
Mitsubishi Heavy

Net D/E calculability
Net D/E (net interest-bearing debt / equity) can only be calculated for IHI because detailed interest-bearing debt (current & non-current) was available only for IHI in the disclosed datasets. Mitsubishi Heavy and Kawasaki Heavy did not provide the necessary breakdowns for Net D/E calculation.

IHI’s ROE surged to 26.3% in FY2025, reflecting improved profit margins and higher equity turnover. Mitsubishi Heavy achieved ROE of 10.7%, while Kawasaki Heavy reached 13.2%—both in double digits.

IHI reduced Net D/E from 1.14x (FY2021) to 0.52x (FY2025), indicating deleveraging. Mitsubishi Heavy has the strongest Equity Ratio at 35.2%, with Kawasaki Heavy and IHI both in the low-20% range.

Effective Tax Rate (実効税率) Trends

Company	FY2021	FY2022	FY2023	FY2024	FY2025
Mitsubishi Heavy	12.5%	27.7%	23.4%	-	30.0%
Kawasaki Heavy	-19.0%	-	21.4%	14.6%	16.0%
IHI	38.6%	21.4%	25.4%

Mitsubishi Heavy’s effective tax rate rose to 30.0% in FY2025. Kawasaki Heavy and IHI report relatively low effective tax rates of roughly 15–16% in FY2025, which may have had a positive effect on reported net income.

Mitsubishi Heavy (⚠ stock split ~1:10 in FY2024)

Metric	FY2021	FY2022	FY2023	FY2024	FY2025
EPS (¥)	120.92	338.24	388.43	66.07	73.04
BPS (¥)	4,064.73	4,696.42	5,183.10	667.86	698.91
Dividend per share (¥)	75.00	100.00	130.00

Note on Mitsubishi Heavy’s stock split
Mitsubishi Heavy implemented an approximately 1:10 stock split in FY2024 (estimated from the change in shares outstanding). EPS, BPS and dividend-per-share figures prior to FY2024 are presented on a pre-split basis and are not directly comparable with post-split figures. Adjusting FY2023 EPS 388.43 by dividing by 10 gives ~38.84; comparing that to FY2025 EPS 73.04 indicates ~88% growth.

Kawasaki Heavy & IHI (no stock splits)

Company	Metric	FY2021	FY2023	FY2024	FY2025
Kawasaki Heavy	EPS (¥)	-115.73	316.63	151.51	525.44
Kawasaki Heavy	BPS (¥)	2,785.71	3,440.39	3,785.57	4,205.63
Kawasaki Heavy	Dividend per share (¥)	0.00	90.00

Kawasaki Heavy moved from an FY2021 loss to EPS ¥525.44 in FY2025. IHI recovered from an FY2024 loss to EPS ¥744.84 in FY2025—its highest level on record in this dataset.

Dividend Payout Ratio (配当性向) and DOE

Company	Metric	FY2021	FY2023	FY2024	FY2025
Mitsubishi Heavy	Dividend Payout Ratio	57.8%	29.6%	33.5%	30.3%
Mitsubishi Heavy	DOE	3.8%	2.3%	2.6%	3.4%
Kawasaki Heavy	Dividend Payout Ratio	31.3%	53.0%

Mitsubishi Heavy targets stable dividends with a payout ratio around 30% and DOE in the 3% range. Kawasaki Heavy’s payout ratio has varied but shows an increasing trend after dividend restoration. IHI maintains a modest payout ratio while targeting DOE in the low- to mid-3% range, implying a preference for retaining earnings for reinvestment.

10. Forecasts and Progress Toward Full-Year Targets

FY2026 full-year forecasts and cumulative Q3 (nine-month) progress are shown below.

Company	Metric	Full-year forecast	Q3 cumulative	Progress
Mitsubishi Heavy	Revenue	¥5.40 trillion	¥3.33 trillion	61.6%
Mitsubishi Heavy	Net Income	¥260.0 billion	¥210.9 billion	81.1%
Kawasaki Heavy	Revenue	¥2.31 trillion	¥1.56 trillion	67.6%
Kawasaki Heavy

Mitsubishi Heavy and Kawasaki Heavy show over 80% progress to date on net income, indicating they are likely to meet full-year forecasts. IHI’s revenue and net income sit at roughly 68–71% progress, consistent with historical concentration of revenue and profit in the fourth quarter due to project completions.

Mitsubishi Heavy revenue progress = ¥3.33 trillion / ¥5.40 trillion = 61.6%

Because heavy-industry project timing drives quarter-to-quarter volatility, acceleration toward the fiscal year-end is common and should be expected.

11. Points of Focus Going Forward: Qualitative Considerations

The following factors merit attention as potential growth scenarios for the three companies. These are qualitative observations and cannot be directly computed from the disclosed figures.

Expansion of Defense & Space (防衛事業)

Rising Japanese government defense spending and heightened geopolitical risks could translate into expanding defense-related orders. Mitsubishi Heavy, Kawasaki Heavy, and IHI all participate in defense programs, which may provide downside protection and revenue support going forward. Specific order amounts and the defense segment’s share of sales/profit are not disclosed in the provided data, so quantitative assessment is not possible here.

Gas Turbine Demand (ガスタービン)

As energy systems transition toward decarbonization, demand for high-efficiency and hydrogen-capable gas turbines may grow. Mitsubishi Heavy is known to hold a strong share in large gas turbines, which could be a future growth driver. Segment-level order and market-share data are not included in the disclosed filings, so this remains a qualitative view.

Recovery in Aircraft Engine Demand

With aviation demand recovering post-pandemic, civilian aircraft engine demand is rebounding. IHI has strengths in aircraft engine components and related businesses; recovery in aviation could be a material positive. Again, segment-level impacts cannot be quantified from the provided data.

まとめ

- Defense & Space expansion, gas turbine demand, and aircraft-engine recovery are plausible growth scenarios - These remain qualitative observations due to lack of segment-level disclosure in the datasets - Future disclosures with segment detail would allow more precise, quantitative analysis

12. Conclusion: Distinct Financial Profiles across the Three Firms

Five-year financial data analysis clarifies differences in the three firms’ financial characteristics and growth paths.

まとめ

**Mitsubishi Heavy Industries (7011)** - Largest revenue base (FY2025: ¥5.03 trillion), steady growth (5-year CAGR 7.9%) - Business Profit (Operating Profit) margin improved from 0.7% (FY2021) to 2.9% (FY2025) - Contract Liabilities surged to ¥652.1 billion (FY2025), indicating strong long-term order intake - FreeCF ¥342.7 billion and enhanced shareholder returns (¥12.1 billion buybacks in FY2025) - ROE 10.7% and Equity Ratio 35.2% — a balanced profile **Kawasaki Heavy Industries (7012)** - High growth (5-year CAGR 9.4%, recent YoY +15.1%) - Turned profitable from FY2021 losses, achieving Business Profit margin 2.2% - Gross Profit Margin improved to 20.3%, indicating better revenue quality - FreeCF turned positive to ¥37.7 billion in FY2025, reflecting cash-generation recovery - ROE 13.2% with Equity Ratio ~23.3% **IHI (7013)** - Highest growth (5-year CAGR 10.0%, recent YoY +23.0%) - Best profitability among peers: Operating Profit Margin 8.8% and ROE 26.3% - Gross Profit Margin 23.0% and SG&A ratio 13.7% indicate an efficient profit structure - FreeCF ¥118.8 billion and Operating Cash Flow ¥177.6 billion in FY2025 - Net D/E improved to 0.52x, indicating lower financial leverage

As a sector, heavy industry shows clear improvement in Business Profit margins, a buildup of Contract Liabilities, and stronger cash-generation. Understanding each company’s unique financial profile helps assess future growth potential and financial resilience.

This article is for informational purposes only, based on publicly available financial data (TDnet XBRL filings).
It is intended as a financial analysis resource and does not constitute investment advice.