Earnings call transcript: Kawasaki Heavy Industries Q2 2025 sees stock surge

Kawasaki Heavy Industries (TYO:7012) reported its second-quarter earnings for 2025, showcasing record revenue figures and strategic advancements in hydrogen technology. The company's stock surged by 22.13%, closing near its 52-week high. Revenue reached JPY 996.2 billion, marking a year-on-year increase of JPY 112 billion. Despite a decrease in business profit to JPY 35.7 billion, the company revised its full-year revenue forecast upward to JPY 2.34 trillion.

Key Takeaways

• Record revenue of JPY 996.2 billion, a significant year-on-year increase.
• Stock price surged by 22.13%, nearing its 52-week high.
• Strategic focus on hydrogen technology and decarbonization.
• Full-year revenue forecast revised upward to JPY 2.34 trillion.
• Weak market conditions in two-wheelers and four-wheelers.

Company Performance

Kawasaki Heavy Industries demonstrated robust performance in the second quarter of 2025, with record revenue figures driven by strong performance in its energy business and ship/offshore structure segments. The company is leveraging strategic partnerships and innovations in hydrogen technology to bolster its market position. However, the company faced challenges in its two-wheeler and four-wheeler markets, which showed weak performance.

Financial Highlights

• Revenue: JPY 996.2 billion, up JPY 112 billion year-on-year.
• Business profit: JPY 35.7 billion, a decrease from the previous year.
• Quarterly profit attributable to owners: JPY 22 billion.
• Net debt to equity ratio: 82.7%.

Market Reaction

Following the earnings report, Kawasaki Heavy Industries' stock price surged by 22.13%, reflecting strong investor confidence. The stock closed near its 52-week high of JPY 2,118, driven by the company's robust revenue performance and strategic initiatives in hydrogen technology. The positive market reaction underscores the anticipation of future growth and profitability improvements.

Outlook & Guidance

Kawasaki Heavy Industries revised its full-year revenue forecast upward to JPY 2.34 trillion, signaling confidence in its growth trajectory. The company expects to achieve business profit growth from the next fiscal year, focusing on expanding its market share in power sports and developing hydrogen-ready products as part of its decarbonization strategy.

Executive Commentary

• "We will achieve growth in business profit from the next fiscal year onwards by further increasing revenue and expanding market share." - Yamamoto
• "Responding to climate change is a globally shared goal." - Yamamoto
• "The transition to hydrogen is now expected to take longer than originally forecast." - Yamamoto

Risks and Challenges

• High net debt to equity ratio may pose financial constraints.
• Weak market conditions in the two-wheeler and four-wheeler segments could impact future revenue.
• The prolonged transition to hydrogen technology may delay expected benefits.
• Macroeconomic pressures and supply chain disruptions could affect operations.

Kawasaki Heavy Industries' strategic focus on hydrogen technology and its upward revision of revenue forecasts have positioned it favorably for future growth. However, challenges in certain market segments and financial metrics require careful navigation to sustain investor confidence and achieve long-term objectives.

Full transcript - Kawasaki Heavy Industries Ltd CFD (7012) Q2 2026:

Yamamoto, Financial Presenter/Executive, Kawasaki Heavy Industries: My name is Yamamoto. Thank you for your participation. Allow me to present the financial highlights. In our financial results for the second quarter of fiscal year 2025, our company achieved record revenue of JPY 996.2 billion, a year-on-year increase of JPY 112 billion. Business profit totaled JPY 35.7 billion, decreasing year-on-year due to factors such as an appreciation of the yen based on the weighted average exchange rate, as well as rising tariff costs. However, pre-tax income and profit both increased year-on-year, reflecting improved foreign exchange gains and losses. Turning to the full-year forecast for fiscal year 2025, the forecast for revenue has been revised upward by JPY 50 billion to a record JPY 2.34 trillion for reasons such as increased revenue in the power sports and engine segment.

Although revenue has increased, business profit remains unchanged from the previous announcement due to the impact of tariffs and other factors. Progress toward profit in the first half of the fiscal year was 25%, falling short of the level in the previous year, but we expect no issues in terms of achieving the forecast, mostly because profit in the Aerospace Systems segment is concentrated more in the second half of the fiscal year than in previous fiscal years. This concludes the summary. I will provide more details beginning on page 5. Orders received in the second quarter of fiscal year 2025 amounted to JPY 1,015.4 billion, revenue amounted to JPY 996.2 billion, business profit was JPY 35.7 billion, quarterly profit before tax was JPY 35.3 billion, and quarterly profit attributable to owners of the parent was JPY 22 billion.

Despite the year-on-year decrease in business profit, there was an increase in quarterly profit before tax and net profit. The main reasons for this included an improvement in foreign exchange gains and losses. As you can see, the weighted average exchange rate was approximately JPY 6.3 stronger than in the previous year, and U.S. dollar-based transactions amounted to approximately $1.14 billion. Please see page 6. This chart provides a breakdown of orders received, revenue, and business profit for each segment. As point 1 shows, there was a strong performance from the energy business and the ship and offshore structure business in the Energy Solution and Marine Engineering segment.

In contrast, as points 2 and 3 show, there was a major impact from the temporary decline in profitability due to increased shipments of newly manufactured commercial aircraft engines, as well as higher tariff costs and increased sales promotion expenses in the power sports and engine segment. Overall, business profit was JPY 35.7 billion, a year-on-year decrease of JPY 12 billion. Page 7 shows the statement of profit and loss. Please see the chart for details. Please see page 8. As point 2 shows, gain and loss on foreign exchange moved sharply into positive territory due to depreciation in the value of the yen through to the end of the fiscal year. As a result, quarterly profit before tax increased JPY 11.6 billion year-on-year to JPY 35.3 billion, and profit attributable to owners of parent increased JPY 8.4 billion to JPY 22 billion. This is page 9.

I will now explain the factors behind changes in business profit. The appreciation of the yen against the U.S. dollar compared to last year's exchange rate was a factor contributing to a decrease of JPY 16.3 billion in effects of FX rates. Regarding change in revenue, revenue increased in all segments, and particularly revenue increase in the power sports and engine segment made a noticeable contribution. Consequently, business profit increased JPY 28.2 billion, offsetting the negative impact of exchange rate fluctuations. Despite improvements in the rolling stock, energy solution and marine engineering, and precision machinery and robot segments, there was a deterioration of JPY 15.1 billion in change in product mix and other factors due to sharp declines in the power sports and engine and aerospace systems segments. Please refer to page 10 for a detailed breakdown by segment. Page 11 shows the statement of financial position.

Concerning the factors contributing to changes in assets in the second quarter, as point 2 shows, inventories followed an upward trend in the power sports and engine and the aerospace systems segments as a result of increasing revenue. Please see page 12. Factors that led to changes in liabilities and net assets are shown for your reference. The net debt to equity ratio was down significantly year-on-year at 82.7%. Page 13 shows the cash flow statement. Details are shown in the materials. As explained under point 1, cash flows from operating activities improved JPY 10.8 billion year-on-year as a result of increased quarterly profit before tax. As point 2 shows, cash flows from financing activities reflect the change resulting from the transfer of a 20% stake of Kawasaki Motors Ltd., a business subsidiary in power sports and engine, to Itochu Corporation for JPY 80 billion. Please see page 14.

For reference, we have provided a chart showing the cash flow trends over the past 10 years. This is page 16. This shows the full-year forecasts for fiscal year 2025. The forecast for orders received has been revised upward by JPY 300 billion from the previous announcement to JPY 2.53 trillion, reflecting an order indication in the project for the New York City Transit (MTA). The forecast for revenue has been revised upward by JPY 50 billion from the previous announcement to JPY 2.34 trillion. However, the forecast for business profit was kept unchanged from the previous announcement. I will provide more details on the next page. This is page 17. Concerning the full-year forecast for business profit, please refer to the changes in the forecasts since the beginning of year announcement. Please see page 18. This chart shows a breakdown of performance forecast by segment.

Detailed explanations will be provided on the individual segment pages. Page 21 is about Aerospace Systems. This slide shows the results for the second quarter of fiscal year 2025. Orders received and revenue both increased year-on-year due to increases in Ministry of Defense business and Boeing business. However, business profit dropped due to the impact of a stronger yen and decreased profitability resulting from a rise in newly manufactured commercial aircraft engines. The full-year forecast for orders received in fiscal year 2025 was revised upward by JPY 30 billion compared with the previous announcement due to increased orders from the Ministry of Defense and Boeing. There were no significant changes in either revenue or business profit, and these forecasts remain unchanged. This is page 22.

For your reference, page 22 provides the results of orders received and revenue in the aerospace and aero engine businesses, including the number of aircraft component parts sold to Boeing and the number of aircraft engine component parts sold. This is page 23. This page shows the quarterly trends in revenue and business profit. Also provided for your reference, it gives an overview of past trends. This is page 24. It provides details of the business environment and order trends, as well as specific efforts, and there have been no changes from the previous announcement. Page 25 is about rolling stock. This slide shows the results for the second quarter of fiscal year 2025.

Concerning the full-year forecast for fiscal year 2025, as explained earlier, an order indication has been received for an order of 378 railcars in the R268 project for New York City Transit (MTA) in the United States, and this is reflected in the forecast for orders received. There are no changes from the previous announcement in terms of either revenue or business profit. This is page 26. This page shows orders received in revenue in Japan, Asia, and North America. For your reference, it also shows revenue in after-sales service, which we have focused on as a profitable business undertaking, and the progress of the R211 project for New York City Transit (MTA). For your reference, page 27 shows quarterly trends in revenue and business profit. This is page 28.

Under special efforts, we have added the R268 project for New York City Transit (MTA), which was included in the orders received plan in this announcement. Page 29 is about Energy Solution and Marine Engineering. This slide shows the results for the second quarter of fiscal year 2025. Both revenue and business profit increased year-on-year due to higher revenues across various segments, including the energy and the ship and offshore structure. Concerning the full-year forecast for the fiscal year 2025, an upward revision was made due to increased orders received for overseas LNG tanks, power generation equipment, and marine machinery. An upward revision of JPY 10 billion was made to revenue due to increased orders for the Ministry of Defense, and business profit was revised upward by JPY 1 billion due to higher equity in earnings of affiliates and other factors. This is page 30.

This page provides a breakdown of orders received and revenue for the energy, plant and marine machinery business, and the ship and offshore structure business. This is page 31. This page shows quarterly trends in revenue and business profit for your reference. This is page 32. Looking at specific efforts, the key role in this segment is played by products and services that contribute to realizing a low-carbon or decarbonized society. We have shown an order received to supply LNG tanks to Taiwan. For your reference, we have included an example of a solution for a decarbonized society: the installation of a demonstration facility for newly developed low-concentration carbon dioxide separation and capture technology. Page 33 is about the precision machinery and robot segment. This slide shows the results for the second quarter of fiscal year 2025. Year-on-year increases were recorded for orders received, revenue, and business profit.

There is no change to the full-year forecasts for fiscal year 2025 from the previous announcement. This is page 34. This page shows orders received and revenue for both the precision machinery business and the robot business. Revenue from hydraulic machinery to the Chinese market and a breakdown of robot-related revenue by segment are also provided for your reference. This is page 35. This page shows quarterly trends in revenue and business profit for your reference. This is page 36. Concerning the business environment, details of the recovery in demand in the construction machinery markets in China and Europe are shown for your reference. Page 37 is about power sports and engine. This slide shows the results for the second quarter of fiscal year 2025.

Looking at revenue, amid a weak market for both two-wheelers and four-wheelers, by utilizing sales promotion expenses we were able to expand market share and increase revenue in the first half of the fiscal year. Business profit decreased due to the yen's appreciation, increased fixed costs associated with production investment, higher sales promotion expenses, and the impact of U.S. tariff policies. This shows the forecasts for fiscal year 2025. Revenue has been revised upward to JPY 660 billion, an increase of JPY 40 billion from the previous announcement, taking into account the growth in motorcycles for emerging markets and the market conditions in North America outperforming earlier expectations. We will achieve growth in business profit from the next fiscal year onwards by further increasing revenue and expanding market share.

Meanwhile, the forecast for business profit remains unchanged from the previous announcement due to higher sales promotion expenses, rising tariff costs, and other factors. This is page 38. Page 38 shows revenue from motorcycles for developed countries, motorcycles for emerging markets, four-wheelers and PWC, and general-purpose engines. We have also included regional wholesale volumes for motorcycles, four-wheelers and PWC for your reference. This is page 39. This page shows quarterly trends in revenue and business profit for your reference. This is page 40. Page 40 describes the business environment and the specific efforts in the power sports and engine business. On the right-hand side of the slide, for your reference, we have shown a project in which a hydrogen-powered motorcycle was showcased in a parade run during the Tour de France. This is page 42.

Regarding shareholder returns, the annual dividend per share will be JPY 150, unchanged from the previous announcement. This is page 43. Here, I would like to report on three project topics. Firstly, please allow me to explain the liquefied hydrogen supply chain business, which our company is tackling as a core next-generation business. We have received subsidies under the NEDO Green Innovation Fund projects and we are working on the liquefied hydrogen supply chain commercialization demonstration. The project's main base is at Ogoshima in Kawasaki City, where work has already started on building a pipeline to connect a liquefied hydrogen terminal. The plan is to start laying the pipeline during fiscal year 2026. Construction of the terminal itself started in May 2025, and work is currently progressing steadily on building foundations for the storage tank.

Furthermore, the construction of a commercial-scale liquefied hydrogen carrier, which will play a key role in the demonstration project, is expected to start construction soon. In this way, the company is making steady progress toward realization of a hydrogen society. This is page 44. On this page, I will explain our company's efforts to build partnerships in preparation for the commercial demonstration project explained earlier. Firstly, the left side of the slide shows the signing of the Memorandum of Understanding for cooperation to develop a Japan-Germany hydrogen supply chain that we concluded in September this year with Toyota Motor Corporation, the Kansai Electric Power Company, Daimler Truck Holding, and Hamburger Hafen & Logistik. The memorandum aims to promote the international utilization of hydrogen beyond national and industry borders and to build a hydrogen supply chain with high economic value by aligning Japanese and German demand.

The center of the slide shows our company's subsidiary Japan Suiso Energy (JSE), signing a Memorandum of Understanding for cooperation to develop a Japan-Australia liquefied hydrogen supply chain with Woodside Energy, Australia's leading energy company, and the Kansai Electric Power Company. The aim is to develop a supply chain for transporting liquefied hydrogen manufactured in Australia to receiving terminals in Japan using liquefied hydrogen carriers. Lastly, the right side of the slide shows a third-party share allotment by our company's subsidiary JSE to six companies across various industrial sectors, which are listed on the slide. In this way, our company is making steady progress with global partners toward the realization of a hydrogen society. This is page 45. Lastly, please allow me to explain the current rollout of hydrogen-ready products in relation to hydrogen.

Amid the current trend of returning to LNG, the transition to hydrogen is now expected to take longer than originally forecast. However, it remains the case that responding to climate change is a globally shared goal. In this environment, and with a view to future hydrogen usage, there has recently been an increase in renewal and replacement projects for hydrogen co-firing facilities. Power generation capacity of planned projects alone accounts for more than 10 times that of fiscal years 2023 and 2024. One example of this is the operational launch of our company's hydrogen co-firing gas turbine generator at Nishin Oilio's Yokohama Isogo Complex. In this way, Kawasaki Heavy Industries will work to grow our business by actively expanding sales of hydrogen-ready products, even during the transition to realizing a hydrogen society. Please refer to the supplementary information provided from page 46 onward. This concludes the presentation.

Thank you for your attention.

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