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Mitsubishi Motors earmarks $5.6bn for R&D and capital investment

Japanese automaker aims to lift already stellar ROE to 15% by fiscal 2019

A Mitsubishi Motors Eclipse Cross sport utility vehicle. The company's strategy of focusing on high-margin SUVs has worked well.

TOKYO -- In a move to improve its asset and profit performance, Mitsubishi Motors will spend more than 600 billion yen ($5.65 billion) on research and development and capital investment in three years through March 2020.

The automaker is expected to post a return on equity of just over 13% and return on assets of more than 6% this fiscal year. By the fiscal year through March 2020, it hopes to boost ROE and ROA to about 15% and 7.5%, respectively.

The company's ROE and ROA are higher than the industry average of about 9% and 7%, respectively, but the automaker is setting its sights higher.

"Mitsubishi Motors will increase profitable assets," said Executive Vice President Koji Ikeya, in reference to the goals. The automaker's total assets are expected to be around 1.8 trillion yen in fiscal 2019, up about 15% from the end of 2017.

Cover-up scandals in 2000 and 2004 forced the company to close plants in the U.S., Europe and Australia, as well as sell dealerships and other prime assets.

The company plans to gradually repurchase some of these assets, which include the land and buildings of dealerships and call centers.

In addition, to improve customer satisfaction and profitability, the automaker looks to increase ownership in auto-financing company MMC Diamond Finance to 97% by buying a 50% stake from Mitsubishi UFJ Lease & Finance by the end of March. 

It will also share managerial resources with Nissan Motor and Renault in an effort to cut costs.

Together, these measures are expected to increase sales and profit margin. Its medium-term management plan calls for increasing sales by 30% to 2.5 trillion yen and operating profit margin to over 6% in fiscal 2019.

Operating profit margin will be comparable to the company record of 6.1% posted in fiscal 2015.

Structural reforms through a tie-up with Nissan have increased Mitsubishi Motors' cost competitiveness. Its strategy of prioritizing Southeast Asian markets and focusing on high-margin sport utility vehicles has also worked well.

A recent QUICK consensus survey forecasts that the company's operating profit margin will reach 5.2% in fiscal 2018. However, some Japanese securities analysts predict that the automaker could beat its own target of 6%.

As of the end of 2017, Mitsubishi Motors had an equity ratio of about 48% -- relatively high among automakers. However, the company plans to improve profitability further by making effective use of assets, rather than resorting to stock buybacks and other financing methods, according to Ikeya.

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