Bloomberg News

Mitsubishi Heavy Mulls Europe Rail Deal to Boost Technology

October 25, 2011

(Updates closing share price in eighth paragraph.)

Oct. 25 (Bloomberg) -- Mitsubishi Heavy Industries Ltd., the Japanese maker of trains, ships and planes, may buy or team up with European rail suppliers to add technology and bolster bids for projects in Asia.

“We would use a European acquisition to help us compete in projects in that area,” Yoichi Kujirai, the Tokyo-based company’s senior vice president for machinery and infrastructure, said in an Oct. 21 interview. He declined to comment on possible targets or an acquisition budget.

Japan’s biggest heavy-machinery maker would aim for acquisitions that could expand its product offerings, Kujirai said, without elaboration. The company has already formed an alliance with Hitachi Ltd. to bid for overseas contracts as Southeast Asian and Middle East governments invest in railways amid rising populations and worsening traffic congestions.

“Looking at acquisitions seems to be the right direction for Mitsubishi Heavy,” said Masashi Hayami, a Tokyo-based analyst at JPMorgan Chase & Co. “There’s a number of projects under way in Southeast Asia and the Middle East, and together these could have a huge impact on the company’s business.”

The trainmaker may consider acquisitions or partnerships that could bolster its operations and maintenance offerings, as these are weaker spots for the company and they often require local knowledge, Hayami said. He has a “neutral” rating on the company.

Hitachi Partnership

Mitsubishi Heavy and Hitachi, which makes commuter trains, are already bidding for a rail contract in Southeast Asia worth several tens of billions of yen, Kujirai said, declining to elaborate. It’s the first project since the two companies formed a partnership, he said.

The companies agreed last year to work together on the design, manufacture, construction and sale of commuter and subway trains overseas. The Nikkei newspaper said in August that they were in talks on merging infrastructure-related units. The companies denied it.

Mitsubishi Heavy, which makes driverless trains, fell 2.2 percent to 315 yen at the 3 p.m. close of trading in Tokyo. The shares have risen 3.3 percent this year compared with a 14 percent slump in the Nikkei 225 Stock Average.

The company also plans to target more sales of incinerators in China amid an increasing focus on the environment, Kujirai said. It won orders for two plants already this year, he said.

“We’re looking at several possibilities to sell incinerators in China,” Kujirai said. “They’re interested in buying top-quality facilities.”

Sales Targets

The company expects sales at its machinery and steel infrastructure unit, which includes transportation, to fall 18 percent to 460 billion yen ($6 billion) in the year ending March 31. It predicts profit will dip 7.4 percent to 25 billion yen.

The unit will meet the forecasts, Kujirai said. He declined to say how much of its sales come from transportation. The company, which also builds gas turbines, satellite-launch vehicles and construction equipment, expects net income to rise 16 percent to 35 billion yen.

The trainmaker announced the completion of a 23-kilometer driverless rail system last month in Dubai, the world’s longest, and of a 2-kilometer long automated people mover at Miami’s international airport.

--Editors: Neil Denslow, Terje Langeland

To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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