#IHI $7013.T To 20% phase 2 operating profit margin… …and beyond

the US military cannot clear naval mines from the world’s most important oil chokepoint. The weapon defeating it costs $1,500. in September 2025 the Navy decommissioned its last 4 dedicated minesweepers from Bahrain. they arrived in Philadelphia for scrapping the same day reports surfaced of Iranian minelaying in Hormuz

while everyone is praying to the AI gods, one of the most interesting defense plays just gave a very bullish earnings call. $AVIO.MI is an Italian SRM and booster manufacturer. they power Ariane 6, Vega C, and the SM family sitting aboard European + US Navy destroyers in the Gulf right now. The CEO said it on the call today: "you can see them flying almost every day." european EBITDA is growing 20% YoY. but it's invisible in reported numbers because US startup costs of €9M are dragging the figure flat. The CEO did the math live on the call: strip out the US drag and European EBITDA hits nearly €43M in 2026. That cost drag reverses the moment Virginia starts producing. When it does, the European growth that was always there + US scale will appear. Colleferro currently produces 200-300 defense motors per year and can reach 600 comfortably, targeting 1,000 by end of decade, using infrastructure built over 100 years, with 100 inactive buildings ready to reactivate. capacity expansion for each product is largely customer-funded through contract pricing. incremental ROIC on defense volume growth is exceptional. demand is unlike anything management has seen. Raytheon and Lockheed volumes are running 2-3 factors to prior estimates. none of it in backlog yet because congressional appropriations take time to flow through the primes which $AVIO.MI supplies to. But DoD procurement cycles are shortening. Management guided €480M last March and delivered €542M. The CEO agreed on the call that €600M+ in 2026 is "a possibility I do not deny" The 2026 backlog print will look soft. "We may be at €2B this year and €3.5B next year." once the $RTX/ $LMT volumes hit the order book and US production starts, we will be looking at a very different earnings profile than what was reported today. The market is pricing it as a space contractor for a while now. this is probably the best defense pure play out there at the beginning of a multi-year restocking cycle with massive operating leverage and at a very decent price.