Mitsubishi Heavy Industries: Defense Demand Fuels Profit Surge Amid Strategic Growth

Mitsubishi Heavy Industries (MHI) has emerged as a global powerhouse in defense and advanced manufacturing, with its fiscal year 2024 (FY2024) results showcasing a remarkable 35.6% year-on-year increase in operating profit (business profit) to ¥383.1 billion, driven by robust demand in defense, energy, and infrastructure sectors. While the company’s 2025 outlook projects a more modest 9.6% operating profit growth, the fundamentals remain strong, fueled by long-term contracts and strategic execution. Here’s why investors should take note.

The Financial Breakdown: Defense and Energy Lead the Charge

MHI’s FY2024 performance was a testament to its diversified portfolio. Key highlights include:
- Defense & Space (ADS) Segment: Revenue surged 35.7% YoY to ¥689.6 billion, with operating profit jumping 38.1% to ¥99.9 billion. This segment benefited from executing large backlogs, including Japan’s hypersonic missile defense systems and contributions to the Next-Generation Fighter (NGF) project.
- Energy Systems: Business profit rose 27% YoY to ¥205.3 billion, driven by gas turbine combined cycle (GTCC) units and aero engines, which leveraged strong global demand for energy infrastructure.
- Plants & Infrastructure (P&I) Segment: Profit increased 34% YoY to ¥59.6 billion, aided by demand for metals machinery and infrastructure projects.

The company’s profit margin expanded to 7.6% in FY2024, up from 6.1% in FY2023, reflecting improved operational efficiency and cost management.

Defense Demand: A Catalyst for Growth

The ADS segment’s performance was pivotal, with two standout contracts:
1. ¥56 Billion Glide Phase Interceptor Contract (2025): Awarded by Japan’s defense ministry, this project targets hypersonic missile defense—a critical priority amid regional security concerns.
2. Next-Generation Fighter (NGF) Collaboration: As a lead contractor in a trilateral partnership with Italy and the UK, MHI is advancing sixth-generation stealth fighter technology, positioning itself as a leader in advanced defense systems.

Japan’s defense budget, set to double by 2027, is a tailwind for MHI. The company’s long-term backlog in defense projects—estimated at ¥2.6 trillion as of March 2024—ensures sustained revenue visibility.

Challenges and Risks

Despite its successes, MHI faces headwinds:
- Supply Chain Disruptions: The Logistics, Thermal & Drive (LT&D) segment saw a 33% YoY drop in operating profit due to logistics system sales declines and cost pressures in turbochargers.
- Global Economic Uncertainty: The FY2025 outlook assumes a ¥420 billion operating profit, but geopolitical tensions and tariff policies could disrupt execution.

The Road Ahead: FY2025 and Beyond

MHI’s FY2025 guidance reflects cautious optimism:
- Revenue: Targeted at ¥5.4 trillion, a 7.5% increase over FY2024.
- Operating Profit: A ¥420 billion goal (+9.6% YoY), with margins expected to reach 7.8%.
- Free Cash Flow: Projected to grow further, supported by advanced project payments and asset sales.

The company’s focus on high-margin sectors—defense, energy transition technologies, and infrastructure—aligns with global megatrends. For instance, the GTCC division’s 25 large-frame turbine deliveries in FY2024 highlight demand for reliable energy solutions, while defense contracts underpin long-term stability.

Conclusion: A Strong Investment Case, With Caution

MHI’s FY2024 results underscore its ability to capitalize on strategic sectors. With a 35.6% profit surge, robust defense backlog execution, and expanding energy business, the company is well-positioned for growth. However, investors should monitor risks such as supply chain volatility and geopolitical shifts.

Crucially, MHI’s ¥56 billion missile defense contract and its role in the NGF project signal a shift toward advanced defense systems—a sector poised for sustained demand. Pair this with its leadership in energy infrastructure and a 7.1% dividend yield (as of FY2024), and MHI emerges as a compelling play for investors seeking exposure to Japan’s defense modernization and global industrial growth.

Final Take: Mitsubishi Heavy Industries is not just surviving—it’s thriving in high-margin, long-cycle industries. While near-term risks exist, the company’s diversified portfolio and execution capabilities make it a stock to watch for the next decade.

Data sources: MHI’s FY2024 financial results, management commentary, and industry reports.