Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Mitsubishi Heavy Industries / Equity Bottom-Up

<ul>
<li>MHI was sold off last week as FY Mar-24 operating profit fell short of guidance and management guided for a decline in new orders this fiscal year.</li>
<li>Orders momentum has peaked. Sales and profits will follow. But the latter are still rising and guidance could once again be conservative.</li>
<li>Consolidation of the share price is likely to continue until orders and profit trends are confirmed.</li>
</ul>


MHI was sold off last week as FY Mar-24 operating profit fell short of guidance and management guided for a decline in new orders this fiscal year.
Orders momentum has peaked. Sales and profits will follow. But the latter are still rising and guidance could once again be conservative.
Consolidation of the share price is likely to continue until orders and profit trends are confirmed.


Mitsubishi Heavy Industries (7011 JP): Orders Momentum Has Peaked

Japan Specialist

Mark Chadwick

<ul>
<li>MHI's stock fell 7% following the announcement of results. Guidance for FY3/25 missed analyst expectations</li>
<li>Even so, MHI remains a key beneficiary of the global shift to clean energy and national policies aimed at bolstering national security </li>
<li>We remain bullish. The stock has performed well this year and but 13x EV/EBIT seems reasonable given the structural drivers</li>
</ul>


MHI's stock fell 7% following the announcement of results. Guidance for FY3/25 missed analyst expectations
Even so, MHI remains a key beneficiary of the global shift to clean energy and national policies aimed at bolstering national security 
We remain bullish. The stock has performed well this year and but 13x EV/EBIT seems reasonable given the structural drivers


<ul>
<li>MHI's share price has risen more than 60% year-to-date and nearly tripled over the past 12 months on the improving outlook for Japanese defense contractors.</li>
<li>A huge increase in new orders, prospects for a doubling of sales and a rapidly rising operating margin on Aircraft, Defense &amp; Space have been factored into the price.</li>
<li>The shares do not look expensive compared with international comparables, but neither are they particularly cheap. Potential problems, from Japanese defense budget constraints to production glitches, have been ignored. </li>
</ul>


MHI's share price has risen more than 60% year-to-date and nearly tripled over the past 12 months on the improving outlook for Japanese defense contractors.
A huge increase in new orders, prospects for a doubling of sales and a rapidly rising operating margin on Aircraft, Defense &amp; Space have been factored into the price.
The shares do not look expensive compared with international comparables, but neither are they particularly cheap. Potential problems, from Japanese defense budget constraints to production glitches, have been ignored. 


Mitsubishi Heavy Industries (7011 JP): Take Profits and Wait for Reality to Catch Up

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>Japan Industrial Partners (JIP) will launch the <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> tender offer of JPY4,620 per share from 8 August to 20 September.</li>
<li>The Board has reaffirmed its recommendation to accept the offer. JIP’s inability to raise its bid is used as an excuse to ignore the material peer rerating and unattractive terms.</li>
<li>The 1Q results undermine the Board’s view of an overstated DCF and show its unwillingness to entertain a potential Kioxia merger as a superior alternative, increasing deal risks. </li>
</ul>


Japan Industrial Partners (JIP) will launch the Toshiba Corp (6502 JP) tender offer of JPY4,620 per share from 8 August to 20 September.
The Board has reaffirmed its recommendation to accept the offer. JIP’s inability to raise its bid is used as an excuse to ignore the material peer rerating and unattractive terms.
The 1Q results undermine the Board’s view of an overstated DCF and show its unwillingness to entertain a potential Kioxia merger as a superior alternative, increasing deal risks. 


Toshiba (6502 JP): Tender Offer Launches, 1Q Results Increase Deal Risks

<ul>
<li>On 28 July, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> disclosed that JIP delayed the tender start to “<em>sometime in August 2023</em>” vs the target “<em>in the last ten days of July 2023.</em>”</li>
<li>Toshiba reports 1Q results on 7 August. A solid 1Q will undermine the Board’s recommendation of the offer in part on the premise that the IFA’s DCF valuation is unrealistic.</li>
<li>The current low spread points to a done deal, partly due to shareholder fatigue. However, risks persist as the rerating of peers continues to chip away at the offer’s attractiveness. </li>
</ul>


On 28 July, Toshiba Corp (6502 JP) disclosed that JIP delayed the tender start to “sometime in August 2023” vs the target “in the last ten days of July 2023.”
Toshiba reports 1Q results on 7 August. A solid 1Q will undermine the Board’s recommendation of the offer in part on the premise that the IFA’s DCF valuation is unrealistic.
The current low spread points to a done deal, partly due to shareholder fatigue. However, risks persist as the rerating of peers continues to chip away at the offer’s attractiveness. 


Toshiba (6502 JP): Risk/Reward as 1Q Results and Tender Start Approach

Japan

Mitsubishi Heavy Industries, Ltd. is a comprehensive heavy machinery maker. The Company manufactures machinery, ships, turbines and engines, prime movers, aircrafts, and machine parts for military and commercial use.  Mitsubishi Heavy Industries also researches and develops nuclear power plants.

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Mitsubishi Heavy Industries (7011 JP)