Jefferies

Best Research Ideas

Japan Industrials – Dawn of the Heavies: Initiating Coverage on Three Heavy Industry Majors

— Sho Fukuhara, Equity Research Analyst, Japan Industrials

Jefferies believes project cost overruns and headwinds in aircraft manufacturing may continue to dampen market confidence on the three firms’ medium-term profit generation. Initiate coverage on IHI with a Buy, preferring a lower exposure to unsettled projects and projection of a solid profit recovery track since FY3/18. Initiate on Mitsubishi Heavy Industries with a Hold rating as market re-rating may not take place until a roadmap for the mitigation on downside risks from MHI’s minority investment becomes clear. Initiate coverage on Kawasaki Heavy Industries with an Underperform rating and expectation of share-price performance to be hit by the likelihood of prolonged earnings pressure from KHI’s shipbuilding operation and projection of sluggish profit-bookings in aerospace business. FULL REPORT