Komatsu CEO Sees China Construction Rebound Next Fiscal Year – Bloomberg

Komatsu Ltd., the Japanese maker of
construction equipment whose sales have fallen for seven
consecutive quarters in China, expects demand from the Asian
nation to recover this year, aided by stimulus spending.

The world’s top producer of diggers and the second-biggest
maker of bulldozers and dump trucks after Peoria, Illinois-based
Caterpillar Inc. forecasts China demand to grow 5 percent to 10
percent in the year starting April 1, said President Kunio Noji.
The yen’s slide to its lowest since May 2010 will also help
boost competitiveness, he said.

“Demand in China will definitely improve,” Noji said Feb.
13 in an interview at Komatsu’s Tokyo headquarters. “Our
company will see an immediate earnings improvement once demand
recovers because we don’t have any excess stockpiles and are
able to speed production.”

Total retail sales of construction equipment in China, the
world’s biggest market, slid about 19 percent in 2012 to $32.3
billion, according to data compiled by Bloomberg. While
construction may rebound after China’s Lunar New Year holidays,
inventory levels may weigh on excavator production, said Karen
Ubelhart, a Bloomberg Industries analyst in New York.

The yen, which last week traded as low as 94.46 to the U.S.
dollar, is about 7 percent weaker than the 88 yen the company
has budgeted on for the current quarter. A drop in the
currency’s value bolsters Japan’s exporters when overseas
earnings are repatriated. 　

China Unit Sales

Komatsu’s unit sales in China may match year-ago levels for
the current quarter after a peak decline of 60 percent earlier
in the fiscal year, Noji said.

China’s gross domestic product rose 7.9 percent in the
final three months of 2012 from a year earlier, halting a seven-
quarter deceleration. The World Bank forecasts economic growth
in the Asian nation will accelerate to 8.4 percent this year,
more than four times the pace of the U.S., and versus a 0.1
percent contraction in Europe.

Komatsu was up 1.2 percent at 2,427 yen as of 1:33 p.m. on
the Tokyo Stock Exchange today. The stock has climbed about 11
percent this year, compared with a 6.7 percent increase for
Caterpillar and a 20 percent gain for China’s Sany Heavy
Industry Co.

The Japanese currency traded at 15 yuan as of 9:51 a.m. in
Tokyo. Komatsu last month forecast the yen would trade at 14.1
yuan this quarter, weakening from 12.8 yuan in the previous
quarter, according to a Jan. 29 presentation.

Yen Effect

Komatsu forecasts that each one yen decline against the
dollar will boost operating profit by 1.4 billion yen ($15
million) for the current three months, while every 0.1 yen
decline against the yuan will increase earnings by 100 million
yen in the period.

The yen’s depreciation has boosted the outlook of Japanese
exporters from Toyota Motor Corp. to Komatsu, whose Japan-made
components and heavy machines account for more than half of its
global manufacturing.

The weakening of the yen will push up Komatsu’s operating
profit by about 23 billion yen in the quarter ending March 31,
exceeding the company’s Jan. 29 estimate of a 15 billion yen
gain, Noji said. Similar windfalls will follow next year should
the yen stay at current levels, he said.

“Benefits of the currency will be big if the yen stays low
and the decline isn’t short-lived,” Noji said.

Komatsu’s exposure to China is set to decline to 8 percent
of total sales of construction and mining equipment in the
current fiscal year from 12 percent the previous year.

China passed Japan as Komatsu’s biggest regional market by
percentage of sales in the fiscal year ended March 2011 only to
fall to fourth place the following year as growth in Asia’s
biggest economy stalled.

To contact the reporters on this story:
Masumi Suga in Tokyo at
msuga@bloomberg.net;
Yasumasa Song in Tokyo at
ysong9@bloomberg.net

To contact the editor responsible for this story:
Jason Rogers at
jrogers73@bloomberg.net