Tokyo-based Mitsubishi Heavy Industries (MHI) (TYO:7011) is grappling with a series of new challenges, even as it celebrates a significant A10billion(6.47 billion) contract to construct a fleet of Mogami-class frigates for the Royal Australian Navy. While the deal has bolstered the company’s defense sector, MHI is contending with supply chain disruptions, a sluggish recovery in commercial aviation, and heightened competition in the renewable energy market.
The Australian contract, confirmed by Deputy Prime Minister Richard Marles, saw MHI’s upgraded Mogami design chosen over Germany’s MEKO A-200. This landmark agreement, one of Japan’s largest-ever defense export deals, will see the first three frigates built in Japan, with the remainder to be constructed in Western Australia. The first vessel is slated for delivery in 2029. News of the deal positively impacted MHI’s stock, which saw a notable rise.
Despite this significant win, the industrial giant faces hurdles in other key areas. MHI’s Logistics, Thermal & Drive Systems segment has experienced a decline in business profit due to lower unit sales and supply chain disruptions affecting its turbocharger business. The company also points to global economic uncertainty and the potential impact of tariffs as risks to its fiscal year 2025 outlook.
Furthermore, the commercial aviation sector’s recovery has been slower than anticipated, impacting MHI’s aerospace division. In the burgeoning renewable energy sector, the company faces intensified pricing pressures from Chinese and European competitors.
Looking ahead, MHI’s fiscal year 2025 forecast anticipates growth driven by the execution of its substantial order backlog in the defense and space sector, along with continued demand for its gas turbine combined cycle (GTCC) and aero engines. The company’s performance in fiscal year 2024 saw a significant 35.6% year-on-year increase in operating profit, largely driven by its defense and energy segments.
For investors weighing these factors, it’s notable that MHI is not currently featured in the AI-powered stock selection strategies of ProPicks. ProPicks utilizes artificial intelligence to analyze a vast range of financial metrics to identify stocks with the potential to outperform market benchmarks.
