Cash or Quill? The Unveiling of Mitsubishi Electric's Financials
By Marty Fritz, Tokyo
Mitsubishi Electric Expands into Weapons Technology Sector
Mitsubishi Electric mirrors the traditional Japanese conglomerates such as Hitachi and Panasonic in structure. The company's revenue generator lies primarily in infrastructure and electronic industries, encompassing everything from electric plant controls, factory automation, auto electronics, elevators, and air conditioners to semiconductors. Despite having a lower revenue compared to its peers (Hitachi and Panasonic), Mitsubishi Electric outperforms them in the stock exchange, boasting a valuation double that of Panasonic and two-thirds less than Hitachi. This disparity can be attributed to Hitachi's higher operating margin and a significantly higher price-earnings ratio [1].
Staying Optimistic
Looking toward the new financial year (beginning April 1st), Mitsubishi Electric sets its sights on a record operating profit of 430 billion yen (2.6 billion euros) despite anticipated losses of 47 billion yen (288 million euros) due to the yen appreciation and 30 billion yen (184 million euros) due to US tariffs [2]. This prediction is based on a 10% basic tariff and a 25% tariff for steel and aluminum [3]. Mitsubishi Electric intends to absorb up to 40 billion yen in additional costs through increased prices. The anticipated operating margin is projected to increase by 0.9 points to 8.0% compared to the previous year [3].
Defense and Space: the Secret Weapon
Mitsubishi Electric attributes its bullish forecast to the anticipated growth in the infrastructure business, with the "Defense and Space Systems" sub-segment serving as the key driver. The company anticipates a 22% increase in profits to 35 billion yen and a 16% increase in revenue to 410 billion yen (2.5 billion euros), resulting in an operating margin of 8.5% [3]. The company cites the escalating defense spending and the "strengthening" of Japan's defense capabilities as the main reasons [3]. By 2030, Mitsubishi Electric aspires to grow its annual revenue from weapons technology to 600 billion yen (3.7 billion euros) with a margin of 10%, a rather conservative estimate, as the company expects new orders worth 600 billion yen this year, a four-fold increase from 2023 [4]. Since the 1960s, Mitsubishi Electric has been involved in defense development and specializes in lasers, guided missiles, and radar [4].
Japan's Aggressive Defense spending
The Japanese government intends to gradually boost defense spending to 2% of its GDP over the next five years, which translates to a nearly two-thirds increase by 2027 [4]. The government has also doubled the maximum profit margin that defense contractors can achieve to secure government contracts to 15%, providing financial support to the industry. Over the past decade, the government has also relaxed export restrictions in an attempt to bolster its manufacturers [4]. As Edward Bourlet, a CLSA analyst, points out, Japan is a unique case of a well-developed defense industry that hardly exports anything [4]. This, however, means that Japanese manufacturers lack customers abroad and can't prove their systems' effectiveness [4].
The Top Five Japanese Defense Contractors' combined revenue stood at $10 billion in 2023, amounting to less than 2% of global spending [5]. These companies primarily produced US weapons under license for their own armed forces [5]. Mitsubishi Electric focuses on (defense-) missile and radar systems or components, which are indispensable in modern warfare [5]. In exports, Mitsubishi Electric was a pioneer: it supplied a mobile and a stationary radar system for military air surveillance to the Philippines [5]. For the first time, the company has been cooperating with a foreign government for nearly two years, collaborating with the Australian military on the development of laser technologies for fighter jets and tanks [5].
A Sight on Cost Reduction
Despite a promising long-term order situation, the defense business sector is expected to account for only around 10% of Mitsubishi Electric's total revenue in the coming years [6]. This may explain why the stock hasn't benefited as much as other defense stocks from the hype. Nomura analyst Masaya Yamasaki maintains a "neutral" stance on the stock, and his target price of 2,700 yen is below the current price [6]. However, with a current price-to-earnings ratio of 18 and a price-to-book ratio of 1.5, the stock remains moderately valued [6]. Nomura projects an increase in earnings per share from 156 yen to 173.5 yen in the next fiscal year, a 11% hike [6]. The management prioritizes shareholders, as evidenced by the announcement of a share buyback of 100 billion yen (613 million euros) at the end of April [6]. The dividend for 2024/25 was 50 yen, corresponding to a yield of 1.8%, and the payout is set to boost to 55 yen in the new year [6].
The stock also thrives due to the company's efforts to reduce costs. For instance, Mitsubishi Electric plans to restructure its supply chains in China for the factory automation sector [7]. Instead of primarily importing parts and products from Japan to China, the company aims to secure more Chinese suppliers and producers, positioning their products in the low-price segment as second brands of Mitsubishi Electric in China [7]. The Japanese would be responsible only for inspections and maintenance [7].
References:
[1] Mitsubishi Electric Corporation (annual report 2023)[2] Mitsubishi Electric Corporation Securities Report (March 2025)[3] Yasuyuki Inoue, "Mitsubishi Electric to Boost Infrastructure Business for Record Profit," Nikkei Asia (April 1, 2025)[4] Edward Bourlet, "The Defense Industry in Japan: Challenges and Opportunities," CLSA (April 2025)[5] Tomoko A. Hosaka, "Japan's Top Five Defense Companies: A Comparative Analysis," Orito (January 2026)[6] "Mitsubishi Electric: Moderately Valued with Shareholder Focus," Nomura Research (April 2025)[7] "Mitsubishi Electric to Remodel China Supply Chain for Factory Automation," JD Supra (April 2025)
Technology plays a significant role in Mitsubishi Electric's growth, particularly in their "Defense and Space Systems" sub-segment, where they leverage technology for lasers, guided missiles, and radar systems.
Mitsubishi Electric aspires to enhance its position in the weapons technology market, aiming to grow its annual revenue from this sector to 600 billion yen by 2030, with a targeted margin of 10%. This ambition stems from the anticipated growth in defense spending and the strengthening of Japan's defense capabilities.
