Mitsubishi Electric’s Automotive and Air Conditioner Divisions Likely to Face Near-Term Difficulties

Mitsubishi Electric’s, or MEC’s, share price has continued to trade below its book value per share, and while its shares are undervalued, limited near-term catalysts suggests investors will need to be patient to realize upside potential. We expect the automotive business will continue to be unprofitable and that air conditioner/home product and FA systems sales will peak out in fiscal 2022 (ending March 2023). We factor in declining consumer confidence/inflation and slower margin improvement to our 2022 and 2023 revenue and operating margin assumptions. However, our fair value estimate of JPY 1,900 remains intact, with the continued expectation that companywide operating margin has bottomed out in the first half of fiscal 2022, as high components costs will be increasingly transferred to prices from the second half.