Mitsubishi Heavy Industries Profit Rises 11% in FY2024: Defense and Energy Drive Growth

Mitsubishi Heavy Industries (MHI) reported a robust 11% increase in net profit for fiscal year 2024 (ended March 31, 2025), with its profit from business activities surging to ¥383.2 billion, up 35.6% year-on-year. The growth was fueled by strong demand in its core segments—Defense & Space and Energy Systems—alongside strategic execution of large backlogs and cost optimization. Here’s a deep dive into the drivers, risks, and what lies ahead for this industrial giant.

The Growth Engine: Defense and Energy

MHI’s profit leap was powered by two key segments:

1. Defense & Space (ADS):
2. Revenue jumped 30% to ¥1.03 trillion, driven by defense contracts such as naval ships, hypersonic missile systems, and contributions to the Next-Generation Fighter (NGF) project.
3. Business profit rose 36% to ¥99.9 billion, benefiting from margin improvements and backlog execution.
4. The segment now accounts for nearly 20% of total revenue, up from 18% in the prior year.

1. Energy Systems:
2. Revenue grew 5.3% to ¥1.82 trillion, with orders for gas turbine combined cycle (GTCC) units and aero engines surging.
3. Business profit hit ¥205.3 billion, up 35.6%, as margins expanded due to improved GTCC execution and recovery from prior-year one-time costs.

Strategic Leverage: Backlogs and Yen Depreciation

• Order Backlogs: MHI’s FY2024 performance was amplified by executing a record ¥2.6 trillion order backlog in Defense and a large GTCC pipeline.
• Yen Weakness: The weaker yen (averaging ¥145/USD) boosted export revenues, particularly for defense equipment and energy infrastructure.
• Cost Management: MHI renegotiated supply chain costs with customers, mitigating tariff impacts, while fixed asset sales added a one-time profit boost.

The Weak Link: Logistics & Thermal Systems

Not all segments shone. Logistics, Thermal & Drive (LT&D) saw revenue dip 0.6% to ¥1.31 trillion due to supply chain disruptions in turbochargers and logistics bottlenecks. Business profit fell 33% to ¥49.3 billion, though MHI projects stabilization at ¥70 billion in FY2025.

Investor Takeaway: Stock Performance and Risks

While MHI’s stock has underperformed the Nikkei 225 by about 5% over the past year, investors should focus on its long-term structural advantages:
- Defense Tailwinds: Japan’s ¥43 trillion defense budget through 2027 positions MHI to capitalize on demand for advanced systems like hypersonic interceptors.
- Energy Transition: GTCC units and renewable projects align with global energy infrastructure spending.

FY2025 Outlook: Ambitious but Manageable?

MHI aims for ¥5.4 trillion in revenue (+7.4%) and ¥420 billion in business profit (+9.6%). Key risks include:
- Supply Chain Volatility: LT&D’s recovery hinges on resolving logistics and tariff-related costs.
- Execution Delays: Complex projects like NGF fighters or submarine builds could strain margins if timelines slip.

Conclusion: A High-Reward, High-Risk Play

MHI’s FY2024 results underscore its dominance in two high-margin, growth-oriented sectors: defense and energy. With a backlog-driven model and geopolitical tailwinds, the company is well-positioned for further profit expansion. However, investors must weigh these opportunities against execution risks and global macroeconomic headwinds.

The stock’s P/E ratio of 18.5x (vs. the Nikkei 225’s 16x) reflects this duality. For investors seeking exposure to Japan’s defense boom and energy transition, MHI offers compelling upside—if it can navigate its operational challenges. The next 12 months will test whether its strategic bets on defense and energy translate into sustained outperformance.

Data sources: MHI Financial Reports 2023–2025, company presentations.