Komatsu Bets on Japanese Concrete Boom as Sales to Miners Slump
Komatsu Ltd. (6301), the world’s second-biggest maker of construction equipment by sales, expects spending on disaster reconstruction and prevention, as well as preparations for the 2020 Tokyo Olympic Games, to boost earnings in its home market.
Japan last month approved a disaster-prevention bill as part of an election commitment by the ruling Liberal Democratic Party when it returned to power in Dec. 2012. The bill doesn’t yet have a funding figure attached to it. The LDP had proposed spending 200 trillion yen ($1.9 trillion) over 10 years on prevention, such as strengthening buildings and seawalls, after the earthquake and tsunami in 2011 devastated northeast Japan and left 18,526 people dead or missing.
“Machinery will be needed for post-quake reconstruction, strengthening infrastructure and the Tokyo Olympics,” Chief Executive Officer Tetsuji Ohashi said in an interview last week at Komatsu’s headquarters in Tokyo. “Domestic demand will be stronger over the coming five-year span,” he said.
Komatsu needs the boost to help offset a slump in sales to global mining companies. As part of its sales drive, the company is rolling out automated bulldozers that could be used to remove contaminated soil near the Fukushima nuclear plant that was wrecked in the 2011 disaster, according to the Komatsu’s website.
The company, which is second only to Caterpillar Inc. (CAT) of the U.S. by sales, cut its full-year operating profit target by 31 percent to 210 billion yen on Oct. 28, citing slower demand from miners. In November, it was surpassed by Kubota Corp. (6326) as the most valuable machinery stock in Japan.
Komatsu shares fell 2.2 percent in the year to Dec. 30. Japan’s market is closed for the remainder of the week.
The world’s largest mining companies are reining in spending after a decade-long boom in metal prices slowed.
“Although the outlook is unclear until mining customers’ business year starts in January, we’ve heard things will be tough for resource majors,” Ohashi said.
Vale SA (VALE5), the biggest iron ore producer, last month slashed its investment budget for a third straight year to $14.8 billion, the lowest since 2010. Rio Tinto Group last month said it plans to cut capital spending to about $8 billion in 2015, less than half its outlay in 2012.
Global demand for mining equipment is forecast to fall by 50 percent in the year ending March 31, Komatsu said in an Oct. 28 presentation. It derived a third of its sales from miners in the last financial year.
Komatsu expects sales of its construction equipment in Japan to increase 6.9 percent from a year earlier to 313 billion yen in the current year, the presentation said. The company is set to derive 19 percent of its sales from Japan, which in 2011 once again became the company’s biggest market. Chinese sales are forecast to rebound 33 percent to 160 billion yen, or 10 percent of its revenue, after a two-year slide.
“The mood among customers in Japan is more optimistic,” Ohashi said. That’s an opportunity for Komatsu, he added.
Komatsu has begun the sale of what it calls the world’s first automated bulldozers in Japan, ahead of its original schedule, Ohashi said, without elaborating on the timing.
Increased infrastructure spending will trigger a shortage of workers in the construction industry, and automated equipment will help ease this issue, he said.
The advantage of a bulldozer with automated functions is that an inexperienced driver can learn in hours how to perform skilled tasks that normally require three years of training in a conventional model, according to Komatsu. These machines will eventually be driver-less, Ohashi said in June in an interview.
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