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Japan-Update

Mitsubishi Heavy cuts profit guidance on power systems slump

Delays in Mitsubishi Regional Jet's launch also dim prospects

Mitsubishi Heavy Industries has postponed the launch of its jet until mid-2020.

TOKYO -- Mitsubishi Heavy Industries downgraded its fiscal 2017 net profit estimate Tuesday, projecting a 9% drop to 80 billion yen ($705 million) compared with the earlier forecast of a 14% increase to 100 billion yen.

Orders have been sluggish in the mainstay fossil-fuel power systems business, and repeated delays in the development of the Mitsubishi Regional Jet are another factor that may compel the company to re-examine its medium-term strategy.

The company cut its sales forecast by 100 billion yen to 4.05 trillion yen for the year through March 2018, a 3% increase for the year. It also downgraded orders received, a precursor of future earnings, by 500 billion yen to 4 trillion yen.

Mitsubishi Heavy slashed its operating profit projection for the power systems segment to 100 billion yen from 145 billion yen. Gas turbine orders for the April-September half fell to five, down from nine units in the year-earlier period. And two big orders with a combined value topping 300 billion yen will be delayed to next fiscal year at the earliest.

"The business environment for thermal power generation is fairly harsh," Chief Financial Officer Masanori Koguchi told reporters Tuesday.

This fossil-fuel power generation slump can be seen in crude oil prices, which have fallen by roughly half from a few years ago to around $50 per barrel. Many customers also aim to avoid coal power, given its heavier carbon emissions, prompting a slowdown in construction and expansion of power generating facilities.

"Energy demand will increase and orders will pick up over the medium to long term," Koguchi said. But orders have fallen vastly short of the business scale expected.

Mitsubishi Heavy merged the power operations with those of Hitachi in 2014 and increased facilities on the expectation of expanding business. But orders may not cover the increase in fixed costs. Reassessing personnel needs is also a challenge.

The future of the Mitsubishi Regional Jet also remains uncertain. The company expects no new orders for the plane until spring, Koguchi said.

Mitsubishi Heavy resumed construction of a prototype in Aichi Prefecture, but acquiring type certification -- a necessary step before mass production -- is taking a long time. The delivery time frame for the jets has been postponed many times, currently to mid-2020.

Of the 427 units ordered, nearly 200 are under an option contract or offer customers the right to cancel the order.

Mitsubishi Heavy's stock plunged Tuesday after the company downgraded its earnings projection at 1:30 p.m., closing the day nearly 3.5% lower at 4,419 yen. An analyst from a non-Japanese securities company sees no other business poised to compensate for the weaker mainstay operations in the immediate future.

Mitsubishi Heavy also reported Tuesday that April-September net profit totaled 13.5 billion yen, rebounding from an 18.9 billion yen loss in the year-ago period, while sales rose 4% to 1.82 trillion yen.

(Nikkei)

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