Joy Says IMM Unit Has a ‘Lot of Upside’ as China Recovers
Joy Global Inc. (JOY), the largest maker of underground mining machinery, said it’s “happy” with the Chinese business it acquired last year and intends to improve the unit’s product range.
Joy plans to enhance the capabilities of the equipment made at its International Mining Machinery Holdings Ltd. unit as the China’s economic growth recovers, Chief Executive Officer Mike Sutherlin said yesterday in a telephone interview.
“We see a lot of upside in the business,” he said. Joy, which is based in Milwaukee, is “happy with the IMM management team and we are happy with the integration process.”
Sutherlin was responding to questions that have been raised by analysts about IMM since Caterpillar Inc. (CAT) said it uncovered false accounting at a Chinese unit. Caterpillar announced Jan. 18 it’s taking a $580 million writedown in the fourth quarter because of the discrepancy it found at Zhengzhou Siwei Mechanical & Electrical Manufacturing Co., which makes hydraulic roof supports for underground mines.
Theoni Pilarinos, a Vancouver-based analyst for Raymond James, cut her recommendation on Joy to hold from buy on Jan. 28 on weaker demand and concerns about IMM following the Caterpillar disclosure. Ted Grace, an analyst at Susquehanna International Group LLP in Boston, reduced his rating to hold from buy on Jan. 23, partly because of “integration challenges” at IMM and what he said was the potential for an asset writedown.
Joy rose 1.3 percent to $62.17 in New York.
Joy paid HK$4.54 billion ($585 billion) for New York-based private equity firm Jordan Co.’s 41 percent in IMM in December 2011 and completed a HK$3.4 billion tender offer for the rest of the shares in June.
Like Joy and IMM, Caterpillar acquired Siwei last year, through its purchase of ERA Mining Machinery Ltd. Former ERA directors Emory Williams and Li Rubo were founders of IMM. Williams said Jan. 28 he was “shocked and dismayed” by Caterpillar’s writedown.
Sutherlin declined to comment on ERA or parallels between the two Chinese companies.
“We are not concerned with writedowns at this point,” he said.
The tests and controls Joy used before it completed the takeover of IMM, and the year-end audit conducted afterwards, “continue to confirm the reliability and accuracy of information we’re getting out of IMM,” Sutherlin said. Joy exercised a “significant amount of caution” regarding the acquisition from the start, he said.
Integration challenges including issues of language and geographic distance haven’t been out of the ordinary, he said.
“We see IMM as a really important part of our overall business,” he said. China, the largest miner of coal, is showing “early signs of improvement.”
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