Kawasaki Heavy Industries Ltd., the Japanese maker of New York City subway trains, is seeking to buy a train maintenance company in the U.S. to help increase its services lineup and boost profit margins.
“The costs for maintenance are largely fixed,” company president Yoshinori Kanehanay said. “By bringing that in-house, we can cut costs and increase profit.”
Kawasaki Heavy, which gets a quarter of revenue from the U.S., its biggest market outside Japan, is considering spending “several billion yen” to acquire a U.S. company, he said. The Kobe, western Japan-based company is competing with other Asian train makers such as Hitachi Ltd. and CRRC Corp. in North America, as well as Bombardier Inc.
Kawasaki Heavy, which also supplies bullet trains to Japan and Taiwan, is targeting a 36% increase in rolling stock sales to 200 billion yen ($1.89 billion) by the year starting April 2018, from 147 billion yen ($1.39 billion) in the 12 months through March, it said in May. It is also aiming for a 52% jump in operating profit to 14 billion yen ($132.50 million) in the period.
Rolling stock accounted for 9.3% of operating profit of 96 billion yen ($908.57 million) and 9.5% of sales in the year ended March, according to data provided by the company.
Kawasaki Heavy, which also makes gas turbines, is interested in tying up with an Asian engineering company to boost its energy business.
“We make very high quality products, but our weakness lies in combining that with” engineering, procurement and construction of an energy project, Kanehana said. “We’re looking for a company that can do the whole engineering process.”
The executive said Kawasaki Heavy and the other company could start by collaborating on a project “and then move to M&A in the future. There are several candidates in Indonesia and the Philippines,” he said, without identifying them.
Kawasaki Heavy also builds parts for engines used in Airbus Group SE and Boeing Co. planes. The U.K.’s decision to exit the European Union could affect the Japanese company’s engine tie-up with Rolls-Royce Holdings Plc, should the move lead to export taxes that reduce sales, Kanehana said.
“We operate a risk and profit sharing relationship with Rolls-Royce,” he said. “It’s worth several tens of billions of yen of work. We are watching the situation very carefully.”
By Chris Cooper and Kiyotaka Matsuda