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Hitachi logs record profit, buoyed by excavators, IT systems
Original source: Asian Review

Hitachi's group net profit soared 35% on the year for the nine months through December to a best-ever 258.5 billion yen ($2.37 billion), building on a record first half with brisk results from mainstays such as construction machinery and information systems.

Sales rose just 2% to 6.67 trillion yen, Hitachi reported Wednesday, as the Japanese company sold such subsidiaries as Hitachi Transport System. But operating profit spiked 27% to a record 474.5 billion yen, an increase of 101.4 billion yen.

"Operating profit beat our estimate by 15 billion yen," said Mitsuaki Nishiyama, chief financial officer.

The construction machinery segment, which includes hydraulic excavators, contributed the most to Hitachi's higher operating profit, improving by 55.1 billion yen amid robust sales to China. Social infrastructure and industrial systems rose by 29.3 billion yen on strong railway operations and demand for streamlining technologies. Telecommunications added 26.6 billion yen as financial institutions invested more in information technology.

Of Hitachi's seven core businesses, only automotive systems failed to increase profit.

Profitability also improved noticeably. Hitachi lifted its operating margin in April-December to 7.1% from 5.7% a year earlier, putting the company on track to meet its goal of at least 8% in fiscal 2018.

Yet investors are not racing to reward Hitachi for its earnings. Though the company's share price hit a 2017-18 high last week, its price-earnings ratio is lower than the average for the Tokyo Stock Exchange's first section.

This contrasts with Mitsubishi Electric, whose full-year operating profit is expected to be just half of Hitachi's. As of Wednesday, Mitsubishi Electric's market capitalization came to 4.27 trillion yen, above Hitachi's 4.18 trillion yen.

The market has three concerns about Hitachi, with the first involving medium- and long-term growth. The company touts the "internet of things" as an earnings source, offering a variety of services such as using artificial intelligence to help create production plans. But Hitachi has not revealed how much it expects the business will contribute to profit.

Mitsubishi Electric, by comparison, benefits from factors such as labor shortages that are driving demand for automated equipment. "The growth scenario is clear," one domestic securities analyst said.

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