TOKYO -- Mitsubishi Heavy Industries returned to profit in the six months through September despite sluggish sales, as the company works to transform itself into a leader in decarbonation technology.
The Japanese industrial conglomerate aims to return to its pre-COVID level sales by fiscal 2023, while making technologies such as carbon capture, usage and storage (CCUS), and hydrogen and ammonia combustion new drivers of revenue within a decade.
But investors so far seem unconvinced by this growth story: The company's share price remains well below where it was before the pandemic.
Mitsubishi Heavy reported an operating profit of 26 billion yen ($228.7 million), compared with a year-earlier loss of 58.6 billion yen. Sales edged up 0.3% to 1.66 trillion yen. The sluggish performance was blamed on slow orders for aircraft structures from Boeing and production cuts at Japanese automakers amid a semiconductor supply crunch. Rising materials costs also weighed on the company's bottom line.
Growth in the energy business, which accounts for 40% of the company's sales, was also nearly flat. Mitsubishi Heavy makes turbines for gas power plants and boilers for coal power plants. The business was brought under the full control of Mitsubishi Heavy in September last year through the acquisition of a 35% stake in the unit from Hitachi. Global efforts to cut carbon emissions mean that Mitsubishi Heavy needs to decarbonize the energy business quickly.
In response, the company is racing to develop technology to use carbon-free fuels, such as hydrogen and ammonia, in thermal power plants. In a project in the U.S. state of Utah, an existing coal-fired power station will be refitted with Mitsubishi's dual-fuel turbines that run on a mix of natural gas and hydrogen.
Mitsubishi Heavy is also developing a technology that uses liquids to capture carbon dioxide from emissions and recycles it as a fuel and for other uses. The company already boasts a 70% share in the market, thanks to carbon-capture equipment it has previously developed. Analysts are paying close attention to whether the company can commercialize these emerging technologies.
Mitsubishi Heavy's share "may decline in the future as a result of market growth and regional differences, but it aims to keep its market share in the range of 30% to 40%, and to develop new technologies to add to existing technologies," analysts at J.P. Morgan said in a research note.
The CO2 capture market is projected to expand to 6 trillion yen in 2030 and 10 trillion yen by 2050, according to the analysts.
A report by U.S. consultancy McKinsey & Co. predicts that Japan is likely to continue relying on natural gas as an energy source due to the limited availability of land for renewable energy. The country's deep coastal waters make it difficult to install offshore wind turbines, while its mountainous terrain is a hurdle for onshore wind and solar farms, the report said.
Continued reliance on natural gas for part of its energy mix will make carbon capture and hydrogen combustion technology all the more important for Japan, the report continued.
Analysts say the question is whether Mitsubishi Heavy and other Japanese companies will be able to maintain their technological edge and turn their know-how into profit as economies shift to a lower-carbon future.