Japan’s Three Heavy-Industry Leaders: FY2026 Results and FY2027 Q1 Analysis

The FY2026 full-year results and FY2027 first-quarter results are now available for Japan’s three major heavy-industry companies—Mitsubishi Heavy Industries (7011), Kawasaki Heavy Industries (7012), and IHI (7013). This article uses only financial results summaries published on TDnet in XBRL format to examine five-year trends alongside the latest quarterly performance.

The conclusion, stated upfront, is that the common development across the three companies over the past four years has not simply been revenue growth, but a qualitative transformation in their earnings structures. Profits expanded at a pace far exceeding revenue growth, while Contract Liabilities—customer advances—accumulated on the balance sheets. The following sections examine the data in sequence.

1. Sector-Wide Trend: Profits More Than Doubled in Four Years

We begin by aggregating the three companies to capture the sector’s overall profile.

*FY2022 represents Mitsubishi Heavy Industries alone; FY2023–FY2024 represent the two-company total because IHI data is missing. Simple year-to-year comparisons should therefore be treated with caution.

Revenue increased 36.7% over four years, but Business Profit (Operating Profit) expanded 2.58-fold and net income 2.99-fold. The combined Business Profit Margin nearly doubled, rising from 4.4% to 8.3%.

The gap between revenue CAGR of 8.1% and profit CAGR of 26–32% indicates that price increases, product-mix improvements, fixed-cost absorption, or a combination of these factors had a meaningful impact. The result cannot be explained by volume growth alone.

The decline in combined Business Profit to ¥258.6 billion in FY2024 was attributable to IHI, which reported negative Business Profit of ¥70.1 billion and negative profit before tax of ¥72.2 billion. The detailed causes cannot be identified from the XBRL figures, but Business Profit recovered sharply to ¥143.5 billion in FY2025. This suggests that the FY2024 deterioration was more likely a single-year factor than a structural decline in earning power.

The most striking figure is Operating Cash Flow, which reached ¥1.2039 trillion in FY2026, 7.6 times the ¥158.5 billion recorded in FY2023. Mitsubishi Heavy accounted for most of this total, with ¥942.6 billion, directly connected to the expansion in Contract Liabilities discussed below.

2. Profitability Comparison: Kawasaki Heavy Leads in Growth

The companies’ growth rates are shown below. CAGR is calculated over the four years from FY2022 to FY2026, while YoY figures are based on actual amounts from FY2025 to FY2026.

Note: Mitsubishi Heavy’s XBRL year-on-year tags—ChangeInNetSales (+14.1%) and ChangeInOperatingIncome (+65.0%)—do not agree with the figures calculated from the actual annual amounts. This article therefore uses calculations based on the full-year results table.

Kawasaki Heavy leads in revenue growth, with a four-year CAGR of 11.4%, and also records the highest net-income CAGR among the three companies at 49.2%. However, this partly reflects its low starting point of ¥21.8 billion in net income in FY2022.

Looking only at FY2026, Mitsubishi Heavy and IHI generated net-income growth of 35–43% despite nearly flat revenue, declining 1.1% and increasing 1.0%, respectively. In other words, earnings growth without revenue growth—an improvement in profitability—drove the increase in net income. Kawasaki Heavy, by contrast, achieved revenue growth of 8.5%, but Business Profit increased only 1.4%, indicating that the additional revenue was not fully converted into profit. Profit before tax, however, rose from ¥107.5 billion to ¥145.5 billion, or 35.4%, supported by Equity Method Income/Loss of ¥24.1 billion and Finance Income of ¥21.6 billion. The relative contribution of operating and non-operating factors therefore differs from that of the other two companies.

3. Earnings Structure: IHI Takes the Lead in Gross Margin

Over four years, the improvement in Gross Profit Margin was 4.8 percentage points for Mitsubishi Heavy, 5.2 points for IHI, and 2.6 points for Kawasaki Heavy. In FY2026, IHI reached the highest profitability of the three, with a Gross Profit Margin of 23.1% and an Operating Profit Margin of 10.1%.

SG&A control is particularly noteworthy. Mitsubishi Heavy’s Selling, General & Administrative Expenses fell by ¥84.1 billion in absolute terms, from ¥716.9 billion in FY2025 to ¥632.8 billion in FY2026. Its SG&A ratio declined 1.6 points, from 14.3% to 12.7%. SG&A reductions during a period of declining revenue appear to have been a key factor lifting the Operating Profit Margin to 8.7%. IHI, by contrast, saw its SG&A ratio rise from 13.7% to 14.8%, preserving its Operating Profit Margin primarily through maintaining its Gross Profit Margin, which edged up from 23.0% to 23.1%.

Kawasaki Heavy’s Gross Profit Margin declined 0.6 points, from 20.3% in FY2025 to 19.7% in FY2026. Cost of sales increased from ¥1.6977 trillion to ¥1.8563 trillion, or 9.3%, exceeding revenue growth of 8.5%. This may indicate that cost increases were passed through to prices less effectively than at the other two companies.

4. Contract Assets and Contract Liabilities: Mitsubishi Heavy’s Customer Advances Equal 23% of Revenue

Heavy industry is based on long-term, project-oriented businesses. The difference between Contract Assets—work completed but not yet billed—and Contract Liabilities—amounts received but not yet earned, or customer advances—reflects the cash characteristics of the business. Because order intake itself is not stored in the XBRL data, this difference is used as a proxy indicator.

A negative figure indicates an excess of customer advances. Mitsubishi Heavy’s change is particularly striking: the figure expanded from -¥231.5 billion in FY2022 to -¥1.1426 trillion in FY2026, a ¥911.1 billion increase in the negative balance over four years.

Mitsubishi Heavy’s Contract Liabilities increased by ¥718.1 billion in a single year, from ¥1.4439 trillion in FY2025 to ¥2.1618 trillion in FY2026. A substantial portion of its ¥942.6 billion in Operating Cash Flow during the same period can therefore be explained by the increase in customer advances. In FY2027 Q1, Contract Liabilities increased by a further ¥321.4 billion to ¥2.4832 trillion, while cash and cash equivalents reached ¥1.6840 trillion.

At Kawasaki Heavy, the customer-advance surplus narrowed from -¥192.9 billion in FY2025 to -¥187.1 billion in FY2026 and further to -¥167.6 billion in Q1. IHI moved in the opposite direction, with the surplus expanding from -¥139.0 billion to -¥206.5 billion. The divergence among the three companies may provide insight into the future pace of revenue recognition.

5. Inventories and Capital Investment: IHI Has the Highest Investment Intensity

Note: Kawasaki Heavy’s FY2022 Inventory Turnover Days of 19 days are based on Inventories of ¥78.6 billion reported under JGAAP and are not comparable with figures after the transition to IFRS.

Mitsubishi Heavy’s Inventory Turnover Days have remained remarkably stable at 76–77 days over five years. Maintaining this level while revenue expanded from ¥3.8602 trillion to ¥4.9741 trillion indicates continued discipline in inventory management.

Kawasaki Heavy improved from 146 days to 130 days, but remains the longest among the three companies. Inventories of ¥822.1 billion in FY2026 represented 24.7% of total assets of ¥3.3246 trillion. This likely reflects a business mix in which work in progress for long-term projects tends to accumulate, but there remains room for improvement from a cash-conversion perspective. IHI’s Inventory Turnover Days lengthened from 100 days to 112 days, while Inventories increased from ¥444.0 billion to ¥504.2 billion, or 13.6%. Inventories increased further to ¥554.4 billion in FY2027 Q1, possibly reflecting accelerated production or a change in delivery timing.

IHI had the highest capital-investment intensity at 5.9% of revenue in FY2026, 2.3 points above Mitsubishi Heavy’s 3.6%. After Mitsubishi Heavy increased investment intensity to 4.8% in FY2025, Capital Expenditures were reduced from ¥240.6 billion to ¥181.0 billion in FY2026. The largest company by revenue is therefore generating the highest level of Operating Cash Flow with the lowest investment intensity.

6. Cash Flow Analysis: Mitsubishi Heavy’s Free Cash Flow Reaches ¥893.4 Billion

Mitsubishi Heavy’s Free Cash Flow of ¥893.4 billion was approximately three times the ¥301.8 billion recorded in FY2022. Its Operating Cash Flow-to-revenue ratio of 18.9% was nearly three times that of the other two companies, with the increase in Contract Liabilities described above making a significant contribution. Financing Cash Flow was negative ¥274.5 billion, suggesting that part of the additional cash was used for debt repayment and related purposes.

Kawasaki Heavy recorded negative Free Cash Flow for two consecutive years in FY2023 and FY2024, at -¥53.8 billion and -¥58.1 billion, respectively. Although Free Cash Flow turned positive at ¥37.7 billion in FY2025 and ¥12.0 billion in FY2026, the surplus remains thin. With Operating Cash Flow of ¥140.0 billion and Investing Cash Flow of -¥128.0 billion, nearly all cash generation is being directed toward investment. Cash and cash equivalents declined from ¥132.7 billion to ¥115.4 billion and fell further to ¥73.2 billion at the end of FY2027 Q1. While quarter-end seasonality may be a factor, Kawasaki Heavy has the thinnest liquidity position among the three companies.

IHI reduced Investing Cash Flow outflows from ¥58.8 billion to ¥18.4 billion and generated Free Cash Flow of ¥102.9 billion. Its Financing Cash Flow of -¥97.8 billion indicates that almost all of the cash generated was directed toward improving its financial position.

Share Repurchases / Buybacks were small at all three companies. FY2026 Total Shareholder Returns (cash) were ¥100 million for Mitsubishi Heavy, ¥25.9 billion for Kawasaki Heavy, and ¥21.2 billion for IHI. Although Mitsubishi Heavy, the largest company by revenue, appears to have the smallest Total Shareholder Returns (cash), this figure may depend on the scope of dividend-payment and treasury-share-acquisition tags captured in the XBRL data and may not match actual total shareholder distributions. Its Dividend Payout Ratio is calculated at 25.3%.

7. Capital Efficiency and Financial Soundness: IHI’s ROE Is 28.4%

IHI’s ROE of 28.4% is by far the highest of the three, but its composition requires careful analysis. Its Equity Ratio is 26.9%, with equity attributable to owners of the parent of ¥652.2 billion against total assets of ¥2.4285 trillion. In other words, high leverage is one factor lifting ROE. In addition, its Effective Tax Rate of 10.9% is the lowest among the three, and the light tax burden is boosting net income. The rate was also low at 15.3% in FY2025, marking two consecutive years of low taxation. If IHI’s tax rate had been equivalent to Mitsubishi Heavy’s 24.5%, its ROE would have been lower.

That said, IHI’s Net D/E has improved steadily, from 0.59x in FY2022 and 0.62x in FY2023 to 0.52x in FY2025 and 0.31x in FY2026. Its Equity Ratio increased 6.6 points from 20.3% to 26.9%, while equity attributable to owners of the parent rose 1.7-fold, from ¥382.1 billion to ¥652.2 billion. Although financial leverage remains high, it is clearly trending downward. Net D/E cannot be calculated for Mitsubishi Heavy or Kawasaki Heavy because the relevant breakdown of interest-bearing debt is not available in the source data.

Mitsubishi Heavy has the highest Equity Ratio at 37.3%. Equity attributable to owners of the parent reached ¥3.0885 trillion, an increase of ¥741.8 billion from FY2025. The increase in equity, which substantially exceeded net income of ¥332.1 billion, indicates a significant contribution from other comprehensive income; year-on-year comprehensive income was reported at +312.8%.

Kawasaki Heavy’s Equity Ratio improved 3.1 points, from 23.3% to 26.4%. A notable development was the ¥48.2 billion increase in Non-Controlling Interests, from ¥22.1 billion to ¥70.3 billion. This suggests some change in the capital structure of its subsidiaries, although the details cannot be identified from the XBRL figures.

8. Per-Share Metrics and Dividend Policy: The Stock-Split Trap

This section requires particularly careful interpretation. All three companies carried out stock splits within the past five years, meaning that headline per-share figures cannot be compared on a continuous basis without adjustment.

When restated on a post-split basis, the figures are as follows.

Kawasaki Heavy’s EPS appears to have plunged from ¥525.44 in FY2025 to ¥129.41 in FY2026, or to one-quarter of its prior level, but this is due to the 1:5 stock split. After adjustment, FY2025 EPS was ¥105.09, representing actual earnings growth of 23.1%. Similarly, IHI’s EPS appears to have fallen from ¥744.84 to ¥151.88, but adjusted FY2025 EPS was ¥106.41, representing a 42.7% increase. Following unadjusted headline figures can therefore lead to the exact opposite conclusion.

Mitsubishi Heavy’s reported FY2024 dividend of ¥200 per share is subject to the same issue. Back-calculating from a Dividend Payout Ratio of 30.3% and EPS of ¥66.07 produces an effective dividend of approximately ¥20 on a post-split basis, confirming that the displayed figure is based on the pre-split share count. On a post-split basis, Mitsubishi Heavy’s dividend has followed an increasing trend, from approximately ¥20 in FY2024 to ¥23 in FY2025 and ¥25 in FY2026.

IHI’s FY2026 per-share dividend data is missing, but the Dividend Payout Ratio of 13.2% and EPS of ¥151.88 imply an estimated post-split dividend of approximately ¥20. IHI’s Dividend Payout Ratio is the lowest of the three at 13.2%, while its DOE is the highest at 3.7%. In other words, shareholder returns are generous relative to equity but conservative relative to earnings. This appears consistent with a financially cautious stance given its Equity Ratio of 26.9%.

Mitsubishi Heavy’s Dividend Payout Ratio declined from 29.6% in FY2022 to 25.3% in FY2026, while DOE increased from 2.3% to 3.1%. Profit growth outpaced dividend growth, increasing retained earnings; retained earnings rose from ¥1.0991 trillion to ¥1.8803 trillion.

9. FY2027 Earnings Forecasts and First-Quarter Progress

IHI is the only company to disclose a Business Profit forecast, at ¥240.0 billion, representing an ambitious 45.0% increase from FY2026 actual Business Profit of ¥165.5 billion. Q1 Business Profit was ¥73.2 billion, giving progress of 30.5%. However, the net-income forecast of ¥165.0 billion is only 2.5% above FY2026 actual net income of ¥160.9 billion. The substantial gap between projected Business Profit growth of 45% and net-income growth of 2.5% likely reflects normalization of FY2026’s unusually low Effective Tax Rate of 10.9%, as well as the one-off nature of Finance Income of ¥14.7 billion and Equity Method Income/Loss of ¥14.2 billion recorded in FY2026.

In terms of progress, Mitsubishi Heavy, at 35.4%, and IHI, at 32.4%, are proceeding smoothly, while Kawasaki Heavy is behind at 14.2%. In Kawasaki Heavy’s Q1, profit before tax was ¥34.7 billion and income taxes were ¥16.0 billion, producing a high Effective Tax Rate of 46.1%. This directly compressed net income to ¥15.6 billion; the full-year FY2026 Effective Tax Rate was 21.0%. First-quarter tax expense is often a provisional figure before annual smoothing, leaving room for normalization over the full year.

One additional common feature of the three companies’ Q1 results deserves mention. There is a discrepancy between gross profit less SG&A and reported Business Profit. For Mitsubishi Heavy, gross profit of ¥279.6 billion less SG&A of ¥152.7 billion equals ¥126.9 billion, versus reported Business Profit of ¥159.6 billion. For IHI, ¥89.3 billion less ¥57.6 billion equals ¥31.7 billion, versus ¥73.2 billion; for Kawasaki Heavy, ¥110.0 billion less ¥83.7 billion equals ¥26.3 billion, versus ¥35.7 billion. Even after adding Equity Method Income/Loss of ¥9.0 billion, ¥6.6 billion, and ¥7.5 billion, respectively, a gap remains, suggesting that other operating-income items are included. The gap is particularly large at IHI, accounting for more than half of Business Profit, so its sustainability should be assessed cautiously over the full year.

10. Areas to Watch Going Forward (Qualitative Analysis)

The following is qualitative analysis of areas not included in the source data. Because it is not supported by specific numerical data, it should be read as a framework for discussion only.

Positioning of Defense-Related Operations: All three companies are major suppliers of defense equipment, and expanding defense-related demand may be influencing the order environment. Customer advances associated with long-term projects may be included in the ¥1.2753 trillion increase in Mitsubishi Heavy’s Contract Liabilities over four years. However, segment-level order intake and revenue are not stored in the XBRL data, making it difficult to quantify the contribution.

Demand for Energy Equipment: There is a view that increasing electricity demand, including from data centers, is supporting demand for power-generation equipment such as Gas Turbine systems. Improved pricing under these supply-and-demand conditions may have contributed to the 4.8-point improvement in Mitsubishi Heavy’s Gross Profit Margin over four years. Product-level profitability, however, cannot be confirmed from the available data.

Aircraft Engine Operations: The sharp swing from IHI’s substantial FY2024 loss, with Business Profit of -¥70.1 billion, to a V-shaped recovery in the following year suggests the presence of risks concentrated in specific businesses. IHI’s FY2026 Gross Profit Margin of 23.1% was the highest of the three, but the source data do not identify which businesses underpin this profitability. Kawasaki Heavy’s Equity Method Income/Loss also remained high, increasing from ¥23.1 billion in FY2025 to ¥24.1 billion in FY2026, suggesting an earnings structure involving joint ventures or other equity-method affiliates.

Financial Risks to Monitor: Three issues warrant attention in future quarterly disclosures: Kawasaki Heavy’s cash balance falling to ¥73.2 billion in FY2027 Q1, IHI’s Inventory Turnover Days lengthening to 112 days, and the pace at which Mitsubishi Heavy’s expanded Contract Liabilities are recognized as revenue.

11. Summary

The two trends common to all three companies are improving profit margins and increasing customer advances. The former indicates current earning power, while the latter represents future performance obligations and the receipt of cash ahead of revenue recognition. Mitsubishi Heavy’s Operating Cash Flow-to-revenue ratio of 18.9% is exceptionally high for a manufacturing company, making its sustainability worth monitoring alongside the trend in Contract Liabilities. Meanwhile, Kawasaki Heavy’s cash-generation capacity and IHI’s tax-rate normalization will be important variables in assessing next year’s results.