Komatsu Bets on Abe Stimulus to Lift Construction Gear Demand

Komatsu Ltd., the world’s second-biggest construction equipment maker, expects Japanese Prime Minister Shinzo Abe’s economic spending policy will spur local demand, Chief Executive Officer designate Tetsuji Ohashi said.

“Abenomics, combined with Japan’s effort to rebuild the earthquake-hit areas, will fuel domestic demand,” Ohashi, who assumes charge on April 1, said in an interview at Komatsu’s Tokyo headquarters. “This places our industry in a strong position.”

Abe, who took office in December, plans to spend 10.3 trillion yen ($111 billion), including about 3.8 trillion yen for disaster prevention and reconstruction, to stimulate an economy where construction spending has almost halved in the past 20 years. The extra budget spending is aimed at boosting gross domestic product by 2 percentage points and creating about 600,000 jobs, the government said Jan. 11.

Japan, Komatsu’s biggest market, is rebuilding areas that were wrecked by the earthquake and tsunami two years ago. Demand for construction equipment in Japan will probably increase about 10 percent in the financial year starting April 1, Ohashi said.

Komatsu fell as much as 1.4 percent to 2,306 yen and traded at 2,315 yen as of 2:26 p.m. in Tokyo, paring its gain this year to 6 percent. Peoria, Illinois-based Caterpillar Inc., Komatsu’s bigger rival, gained 3.1 percent this year.

Bulldozers, Dump Trucks

Bulldozers and dump trucks will be needed to prepare homes for those moving inland from coastal areas to avoid any future tsunami, Ohashi said. Excavators have been mostly used to the clear the debris, he said.

Komatsu, which gets 17 percent of its sales in Japan, intends to defend its home market and focus on faster growing economies in Asia to challenge Caterpillar, Ohashi said. Caterpillar’s revenue is about triple that of Komatsu because of its domination in the west.

“In North America, Caterpillar is a big fish as it’s their home turf,” Ohashi said. “We should take the lead in Asia instead.”

Kunio Noji, the current CEO, will become chairman from April. Komatsu named Ohashi, 58, as his successor, expecting his international experience will help Komatsu’s global expansion, Noji said. Ohashi, who joined the company in 1977, spent about eight years in the U.K., where he helped build a plant. He was appointed head of Komatsu America Corp. in 2004.

The yen’s slide to almost a three-year low against the dollar is benefiting Komatsu. The company’s operating profit may increase by about 60 billion yen in the year starting April 1 should the yen stay at 88, budgeted for the current quarter, Ohashi said. The yen weakened to as low as 94.46 on Feb. 11, the lowest since May 2010, and traded at 92.57 as of 10:52 p.m. in Tokyo.

Komatsu has no plan to cut product prices because of the weak yen to protect margins, Ohashi said. A decline of 1 yen against the dollar will boost operating profit by 1.4 billion yen for the current quarter, he said.

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