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Komatsu, Hitachi Lead Construction Sector Lower: Tokyo Mover

Komatsu Ltd., the world’s second-largest provider of construction equipment, led declines among machinery makers in Tokyo after trimming its annual profit forecast on waning investment at mining companies.

Komatsu shares fell 8.1 percent to 2,168 yen at the close in Tokyo, their biggest decline since Jan. 13, 2009. Hitachi Construction Machinery Co. fell 5.7 percent to 2,095 yen. The 120-member Topix Machinery Index, which includes Komatsu and Hitachi, dropped 2 percent.

Komatsu follows Caterpillar Inc., the biggest maker of construction and mining equipment, in reducing its outlook for the current fiscal year, which for Komatsu ends in March. Slumping demand in Latin America, Indonesia and Australia is overshadowing growth in Japan and a recovery in China, Komatsu said yesterday in its earnings statement.

“Looking at the situation based on first-half order levels, the outlook for the second half will be tougher,” Chief Executive Officer Tetsuji Ohashi said today in Tokyo.

Komatsu, which sells large dump trucks and excavators to customers such as Rio Tinto Group and BHP Billiton Ltd., said yesterday that demand for mining equipment may fall 50 percent in the 12 months ending March 31. BHP and Rio are among companies that have cut capital expenditure this year.

Komatsu estimated net income at 136 billion yen ($1.39 billion) this fiscal year, down from 184 billion yen projected in July and missing the 177 billion yen estimate of 24 analysts compiled by Bloomberg.

Hitachi Construction Machinery yesterday reported a 34 percent decline in first-half net income and reiterated profit may reach 37 billion yen for the year ending March 31. The company’s second-half sales outlook for mining equipment is optimistic, Takeshi Ishizuka, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities Co., said yesterday in a report.

Insufficient Recovery

The pace of demand recovery in China isn’t powerful enough to cover declines in mining sales, CEO Ohashi said, a day after Komatsu forecast Chinese demand for the full year will increase by between 12 percent and 17 percent.

The company’s sales for the first half ended Sept. 30 of construction and mining equipment in Asia outside Japan and China fell 30 percent to 91.9 billion yen. Japan sales rose 13 percent to 150 billion yen, while China revenue gained 16 percent to 72.8 billion yen.

Indonesia previously accounted for about 60 percent of Komatsu sales in Asia, outside China and Japan, but the exposure is set to decline to 40 percent due to declining orders for coal mining equipment, Akira Sugiki, a senior executive officer at Komatsu, said today.

“With a large earnings downward revision and an ambiguous recovery outlook in mining equipment, we think the upside in the valuation is limited,” Yukihiro Kumagai, an analyst at Jefferies Group LLC, said in a report dated yesterday. The firm cut the rating on the stock to hold from buy.

The revision also prompted analysts from Nomura Securities Co., and Goldman Sachs Group Inc. to cut their ratings on the stock.

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