Daily Brief Japan: Kawasaki Heavy Industries, TSE Tokyo Price Index TOPIX, Shift Inc and more

In today’s briefing:

Kawasaki Heavy (7012 JP): Recovery Done, Eyes on Hydrogen, Aerospace, and Margin Upside
Proxy Voting at AGMs Is Good Opportunity for Investors to Think if Managers Fulfill Fiduciary Duties
Shift 3Q: OP Beat with Upgrade to Guidance; Share Price on a Recovery

Kawasaki Heavy (7012 JP): Recovery Done, Eyes on Hydrogen, Aerospace, and Margin Upside

Past Performance: KHI has rebounded from FY21 losses to record-high revenues and profits in FY25, driven by aerospace recovery and energy systems strength.
Future Growth: Orderbook visibility of ~¥3 trillion supports 5–6% annual growth, led by hydrogen, commercial engines, and automation.
Valuations: At 7.6x EV/EBITDA and 14x PE (NTM), KHI trades at a discount to peers like MHI and Komatsu, reflecting lower ROE and execution risk on long-cycle capex bets.

Although corporate governance in Japan has gradually improved over the past decade, many listed companies have failed to achieve their management goal of sustainable growth in corporate value.
TSE seems to believe that the underlying problem is that management does not recognize “capital costs” and is therefore unable to concentrate resources on businesses that can secure sufficient margins.
I believe that the problem stems from a lack of awareness that free cash flow belongs to shareholders and that companies have a fiduciary duty to shareholders.

Shift Inc (3697 JP) reported 3QFY08/2025 results last week, with solid top-line and earnings growth. 3Q revenue fell below consensus while OP beat consensus by a huge margin.
The margin drop in 3Q was only due to seasonality and not due to operational inefficiencies. Shift also raised its full-year OP guidance which seems too conservative.
The market overreacted to Shift’s 3Q earnings with a 10% drop; however, the share price has begun to move up as there is no reason to panic.

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