Goldman Sachs sees potential SMR-project upside for Japan Steel Works and maintains a Buy view

Overview

Goldman Sachs examines reports that the third tranche of Japan-US strategic investment may prioritize small modular reactors. The report argues that further SMR deployment could benefit Japan Steel Works, whose nuclear-component capabilities are applicable despite SMRs' smaller overall reactor scale.

Core views

Kyodo News reported on September 12 JST that next-generation SMRs are the leading candidate for the third tranche of the US$550 billion in US investment projects tied to the July 2025 Japan-US tariff agreement. Large conventional nuclear reactors are also reportedly under consideration, while Japanese nuclear-equipment manufacturers expected to participate have expressed caution. The scale of the third tranche has not yet been disclosed. SMRs were already included in the second tranche announced at the March 2026 Japan-US summit. At that stage, the Japanese and US governments were reportedly assuming installation of around 10 units, and the objective from the third tranche onward is to expand deployment further. This potential increase in project scale is the report's central prospective catalyst for the nuclear-equipment supply chain. Goldman Sachs argues that SMRs can still require primary-system nuclear components with dimensions generally comparable to those used in conventional reactors. It therefore highlights Japan Steel Works, which holds a high global share in large forged nuclear-reactor components. In its March analysis, Goldman Sachs estimated that the first and second tranches combined could raise JSW operating profit by several percent; a larger SMR program could add further opportunity, although the third-tranche investment amount remains unknown. The report retains a Buy rating on JSW. Its 12-month target price is ¥11,500, versus a most recent close of ¥6,966. The target is based on Goldman Sachs' FY3/30E estimates and an EV/EBITDA multiple set at a 10% premium to the Japan aerospace and defense subsector average of 14x; the resulting theoretical value is discounted back to FY3/28E using a 10% cost of capital. IHI is another potential participant: it has invested in US-based NuScale and is developing technology with that company. Goldman Sachs sees potential for collaboration, including supply of related components, and intends to monitor announcements from the Japanese and US governments and relevant companies.

Analysis framework

The report starts with reported Japan-US policy and investment developments, compares them with the earlier second-tranche SMR plan, then links expected deployment expansion to component demand. It applies this supply-chain logic to JSW's forged-component position and supports its target price with forward estimates and relative EV/EBITDA valuation.

Methodology notes

• Valuation methodsEV/EBITDA valuation

  Forward EV/EBITDA multiple valuation

  Goldman Sachs values JSW using FY3/30E estimates and an EV/EBITDA multiple at a 10% premium to the 14x Japan aerospace and defense subsector average, then discounts the theoretical value to FY3/28E using a 10% cost of capital.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  SMR deployment-to-component-demand supply-chain linkage

  The report connects prospective SMR installations to demand for large primary-system nuclear components, identifying JSW's forged-component position as the mechanism for potential earnings benefit.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Japan Steel Works (5631.T)

  Primary covered beneficiary of potential expanded SMR deployment under Japan-US investment projects.

  Strengths

  High global share in large forged nuclear-reactor components; SMR primary-system components are generally comparable in size to conventional-reactor components.

  Comparison

  Goldman Sachs sets its valuation multiple at a 10% premium to the Japan aerospace and defense subsector average of 14x EV/EBITDA.

  Risks

  Production delays in material & engineering, higher fixed costs from capacity-expansion investment, and weaker industrial-machinery earnings.

• IHI (7013.T)

  Potential collaborator in SMR-related component supply through its investment and technology development with NuScale.

  Strengths

  Investment in US-based NuScale and ongoing technology development with the company.

Key data

• Japan-US investment projectsUS$550 billionTotal projects under the July 2025 Japan-US tariff agreement.
• Second-tranche SMR installation assumptionAround 10 unitsReported assumption at the March 2026 Japan-US summit; later tranches aim to expand the scale.
• JSW target price¥11,50012-month target price under Goldman Sachs' Buy rating.
• JSW most recent close¥6,966Price cited in the report.
• Valuation reference multiple14x EV/EBITDAJapan aerospace and defense subsector average; Goldman Sachs applies a 10% premium for JSW.
• Discount rate10% cost of capitalUsed to discount the theoretical value back to FY3/28E.

Impact & implications

Goldman Sachs views expanded SMR projects as a potential incremental demand driver for JSW's nuclear forgings. It also identifies possible IHI-NuScale collaboration in related components, while noting that the third tranche's investment scale has not yet been determined.

Risks

• Production delays in JSW's material & engineering business.
• A higher-than-assumed fixed-cost burden from large-scale capacity-expansion investment.
• A downturn in industrial-machinery business earnings.

What to watch

• Announcements from the Japanese and US governments on the third tranche's investment scale and project scope.
• Announcements from relevant companies regarding SMR participation and potential component-supply collaboration.