Mitsubishi Heavy Industries, Ltd. (MHVYF) Q3 FY2026 Earnings Call Transcript & Summary

Thank you for joining us today. Allow me to walk through our Q1 through 3 FY 2025 financial results and the full year earnings forecast. Please note that I will not read the materials word for word. I instead will focus upon some takeaways by providing some supplementary information to provide the overviews. First of all, on Slide 4, which shows the result in our KPI. Order intake was JPY 5,029.1 billion. This is an increase of 13% Y-o-Y and a record cumulative high through Q3. Looking at the industry -- individual segments, order intake increased significantly in Energy Systems, particularly in GTCC. Although not shown on Slide 4, our order backlog exceeded JPY 12 trillion, an increase of approximately JPY 2 trillion from the end of the previous fiscal year. Revenue increased 9% to JPY 3,326.9 billion. Business profit increased 26% to JPY 301.2 billion and was up Y-o-Y in all segments, except Energy, which booked some onetime expenses in Q2. Net income increased 23% to JPY 210.9 billion, which was also a record high through Q3. Top right side, free cash flow was positive JPY 167.6 billion. Left bottom, the interest-bearing debt decreased to JPY 573.9 billion. Please refer to the table near the bottom of Page 7. JPY 167.6 billion in free cash flow included JPY 256.7 billion in operating cash flow. This is mainly due to the increased profit as well as effort to secure advanced payments in GTCC against the backdrop of strong demand for gas turbines. Slide 8 shows the balance sheet. Please note that assets and liabilities related to Mitsubishi Logisnext are included in assets and liabilities held for sales. Total assets were JPY 7,393 billion, up JPY 734.1 billion from the end of the previous fiscal year. Excluding an impact of JPY 240 billion from currency -- foreign currency rate fluctuations, the increase was JPY 490 billion. Mitsubishi Logisnext, the reclassification of the ML items make the balance sheet a little difficult to pause. But excluding this classification, the asset side of working capital increased by about JPY 350 billion on the liabilities front to GTCC's booking of the advance received increased by about JPY 300 billion. So the net is some [indiscernible] increased by about JPY 60 billion. Balance of interest-bearing debt was JPY 573.9 billion, and the net interest-bearing debt was negative JPY 112.7 billion. Slide 9 shows the waterfall chart illustrating Y-o-Y changes in business profit. Changes in revenue and margin improvement served to increase business profit by JPY 110 billion, starting from JPY 240 billion. But looking at the improvement, we do see the increase by JPY 110 billion. We see this as a result of the steady execution of our extensive backlog and the provision of after-sales services in each segment. At the beginning of the fiscal year, we had planned for this factor to add JPY 130 billion Y-o-Y to business profit in the full year and the progress we have seen through Q3 gives us confidence in this figure. The negative JPY 20 billion from the changes in onetime expenses represent the difference between the negative JPY 10 billion booked in the previous fiscal year and the negative JPY 30 billion recorded in Q2 of the current fiscal year. The both expenses were all from the projects in the thermal power businesses. On the topic of foreign exchange rates, the average rate for the revenue recognition was JPY 152 to dollar during the previous fiscal year and JPY 148 to dollar in the current fiscal year, so that the yen was appreciated slightly. The updates on each segment were shown on the slide up and afterwards. Within Energy Systems, order intake increased significantly in GTCC Nuclear Power. Orders for GTCC were driven by strong demand for electricity in North America, Asia and Japan. Although profit increased as we steadily executed projects and provide aftersales services, profit for the segment, as I said, as a whole, decreased due to the booking of JPY 30 billion in onetime expenses in Steam Power. On the top left of the slide, we show you the full year outlook. On the back of strong order intake in GTCC, Nuclear Power and Steam Power, we have increased the full year order intake forecast from JPY 3.2 trillion to JPY 3.6 trillion. Next, going to Slide 12. This is Plants & Infrastructure Systems. Order intake, revenue and business profit all increased year-over-year. Although orders for Metal Machinery & Machinery Systems declined due to a high base effect from large projects booked in the previous fiscal year, overall order intake increased mainly due to the signing of a contract for our fertilizer plant in Turkmenisthan Turkmenistan in the Engineering business. Business profit increased significantly due to steady progress in Metals Machinery projects and improved profitability in Machinery Systems and Commercial ships. We have increased the full year order intake forecast from JPY 900 billion to JPY 1.1 trillion. This reflects the booking of the large fertilizer plant. We have also increased the forecast for business profit from JPY 70 billion to JPY 80 billion based on steady progress in Engineering and Metals Machinery. Slide 13. In Logistics, Thermal & Drive Systems, HVAC units sold continued to decline due to stagnation in the China real estate market. Revenue increased in engines, reflecting strong demand for data centers, while total segment revenue decreased. Higher business profit in engines and turbochargers offset declines in HVAC, resulting in an increase in overall segment business profit. Slide 14. In Aircraft, Defense & Space, order intake declined in Defense due to a high base effect from the booking of several large projects in the previous fiscal year. However, revenue and business profit increased due to steady execution of the backlog. Revenue and business profit also increased in Commercial Aviation due to an increase in the number of Boeing 787 unit deliveries and various profitability improvement initiatives. Next, allow me to speak about the full year earnings forecast. This is Slide 16. We have increased the full year order intake forecast by JPY 600 billion to JPY 6.7 trillion. We raised the business profit forecast by JPY 20 billion to JPY 410 billion, and the new target for net income is JPY 260 billion. The exchange rate assumption for the fourth quarter is JPY 150 to the dollar. And foreign exchange exposure on a business profit basis is $900 million. In terms of free cash flow, we have changed the target to JPY 200 billion. From Page 17 to Page 20 is the by segment order intake, revenue and profit. This will be repetitive. So please read this after today's briefing. So from '21 year onwards, we have some additional information. Page 22, this is the number of gas turbines order intake -- number of order intake. Third -- up to the third quarter, we have 31 units. The backlog is 75 units. Going to Page 23. On the top left, by segment order backlog is shown. Energy Systems, JPY 6.5 trillion, out of which DTCC is about JPY 5 trillion. Plants & Infrastructure Systems, JPY 2 trillion. Aircraft, Defense & Space is around JPY 3.5 trillion. So I have gone through my presentation. To summarize, our results in the third quarter continued to see strong trends. And going forward, we will continue to previous releases. We have seen progress in winning new orders, which is a source of future profit growth while steadily converting a sizable backlog into higher profits. We will dig in each of businesses with the aim of achieving our midterm target for 2024. This concludes my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]