I once sold "Gosanke" to raise money! Hitachi went from being endangered to reborn, with its stock price rising 4.5 times in 5 years. What did Hitachi do right?

"Why would a company with a turnover of only more than 100 billion yen spend 1 trillion yen on acquisitions?" "Weekly Toyo Keizai" restored the scene in January 2021 when Tokunaga Toshiaki, executive director of Hitachi Manufacturing Co., proposed an acquisition case to the board of directors. The acquisition target is Global Logic (GL), an emerging digital engineering services company in the United States. Tokunaga's reason is that GL's main customers are global companies, and it can help the digital platform LUMADA promoted by Hitachi to gain international popularity.

After the successful acquisition in March 2021, the two parties began to work together and the operation gradually improved. Two and a half years later, GL's revenue in 2023 increased by 22% compared with the previous year. In addition to contributing to Hitachi's performance, this merger and acquisition also allowed this traditional Japanese company to learn how to integrate foreign corporate cultures and successfully go global. According to the biweekly report of "Wealth Magazine", Hitachi's overseas turnover currently accounts for more than 60%, reaching 61%, and the number of foreign employees also accounts for 58%, which is more than the Japanese.

Sold Gosanke to raise money and focus on growth

Looking back on 2008, due to the financial crisis caused by the bankruptcy of Lehman Brothers, the performance of Hitachi's digital media, consumer products, power industry systems and other departments declined sharply, so that in the 2008 fiscal year to the end of March 2009, the net loss was as high as 787.3 billion yen, a record high. The manufacturing industry suffered the largest loss that year, with an average daily loss of 2.2 billion yen.

Facing the biggest crisis in history, President Takashi Kawamura made an important decision to establish a foothold in the information field such as data centers. He first made good use of digital technology to reallocate company resources while focusing on overseas markets. Under this premise, Hitachi even sold off its listed subsidiaries known as the "Gosanke", namely Hitachi Chemical Industry, Hitachi Metals, and Hitachi Cable, and used the funds obtained from selling the companies to reinvest in growth areas.

After 10 years of hard work, Hitachi has almost completely transformed itself. Hitachi Group's net profit in 2023 was 589.8 billion yen. In 2024, it is expected to increase by 2% to 600 billion yen, while revenue will decrease by 7% to 9 trillion yen. Hitachi's share price closed at 3,946 yen on December 2, and its share price has increased 4.5 times in 5 years; its total market value reached 18.2959 billion yen, ranking fourth in Japan.

In line with market trends and ushering in new business opportunities

Hitachi President Keiji Kojima said in an interview with Weekly Toyo Keizai: "We gave up our listed subsidiaries and spent a lot of money to acquire the power transmission and distribution departments of GL in the United States and ABB in Switzerland. Investors were not optimistic at first; Japan Many of the company's large-scale overseas mergers and acquisitions have failed, but we have achieved results." Hitachi's execution has been praised by investors.

"Wealth Magazine" Biweekly also found that in addition to the success of mergers and acquisitions and resource concentration strategies, choosing the right direction is also the main reason for the V-shaped recovery. Hitachi's current business structure is mainly divided into three major areas: 1. Digital systems and services (DSS), including the architecture and operation of information systems, assisting the digital transformation of financial institutions, government agencies, etc., accounting for 28% of annual revenue in 2023; 2. Green energy and mobility (GEM), including railways, electricity, nuclear energy, etc., to achieve a zero-carbon society, accounting for 33%; 3. Internet industry (CI), including industrial machinery, robots, home appliances, semiconductor manufacturing equipment, etc., to Digital technology promotes product interconnection, accounting for 33%. Strike a good balance between the three.

It can be seen from Hitachi's business that it is consistent with the main investment axis in the current market. For example, digital transformation has always been a need. After the epidemic broke out, companies had to go all out to develop. Another example is green energy. Hitachi previously decided to withdraw from power generation projects such as nuclear power and thermal power and concentrate resources on power transmission and distribution because it is optimistic that the demand for carbon reduction will increase significantly.

On the other hand, renewable energy power generation is easily affected by weather conditions and requires stable power supply equipment. Smart grids that digitally manage power are Hitachi's expertise. In addition, Japan is also developing wind power generation and has huge demand for transmission and distribution networks. As of the end of June this year, the order amount reached 5.5 trillion yen, about three times that of three years ago.

In July 2020, Hitachi acquired 80% of the shares of ABB's power transmission and distribution department; in December 2022, it purchased the other 20% of the shares, turned it into a complete subsidiary, and integrated it with Hitachi's original power transmission and distribution business. The results have already been shown. In addition, the popularity of generative AI has led to shortages of semiconductors and electricity, which are business opportunities for Hitachi.

The railway business, which Hitachi has always been good at, has also grown very rapidly. Sales in 2023 will reach 856.1 billion yen, an increase of approximately 6 times in 13 years. Moreover, the acquisition of the railway signaling department of Thales, France's largest defense electronics company, in June will further upgrade services, and the railway department's turnover is expected to exceed 1 trillion yen.

Hitachi also pays attention to its stakeholders. Due to the increase in cash due to the sale of companies, Hitachi's asset sales in the past six years have reached 2.5 trillion yen. Therefore, to reward shareholders, it will buy back 200 billion yen of its own stocks in 2022 and another 100 billion yen in 2023; now it is increasing its investment, starting from From the end of April to the end of March next year, we will buy back our own stocks up to a limit of 200 billion yen. At the same time, Hitachi also decided to split its shares, the first since the stock was listed in 1949. Using June 30 as the base date, one stock was split into five, hoping to lower the investment threshold and make it affordable for more young people.

Give back to shareholders and implement treasury shares many times

Analysts commented on Hitachi that there are few large companies in Japan that have such successful reforms, so they are especially favored by foreign analysts, and they even think that the stock price is still undervalued. At the end of March this year, foreign ownership accounted for more than half of the company's shares for the first time, reaching 51.1%, an increase of 5 percentage points from a year ago.

Moreover, it is very rare for a company to own high technology, power equipment and infrastructure at the same time. They have a multiplier effect on each other. This is also the point that Hitachi is currently paying attention to. For example, when a factory needs to be repaired, AI can be used to perform the work; when managing railways, AI can be used to improve driving efficiency or save manpower. The ratio of tangible fixed assets such as Hitachi's production equipment has declined, while the ratio of intangible fixed assets such as software has increased. In other words, the business focus has shifted from goods to services, and from heavy electronics stocks to AI stocks.

As for the home appliances favored by Taiwanese consumers, the subsidiary Hitachi Global Living Solutions is in charge. Washing machines and vacuum cleaners rank first in Japan, and air conditioners rank third. However, "Wealth Magazine" biweekly pointed out that overseas businesses, mainly in Southeast Asia and China, have begun to release operational dominance, because Chinese brands win with low prices and continue to expand their market share.

In April this year, Hitachi integrated its medical equipment division under Hitachi High Technologies Corporation. Kojima pointed out, "The Hitachi Group once had three Nobel Prize candidates, and they were all measurement researchers that Hitachi High-Tech excels in." Hitachi's high-tech measurement and analysis technologies are most suitable for applications in health care, biotechnology and other welfare fields. Therefore, we hope to focus investment in this area in the future and develop it into Hitachi's third pillar after digital and green energy.