Komatsu Earnings: Continued Demand for Mining Machinery to Mitigate Weaker Construction Activity

We raise Komatsu’s revenue assumption for fiscal 2023 (ending March 2024) and 2024 to 6% growth and 1% decline, respectively, from 5% growth and 2.5% decline previously, based on stronger mining machinery sales and a smaller top-line decline in North America. While construction machinery sales in Europe and Asia remain weak due to macroeconomic headwinds, demand for mining machinery appears to be robust. We retain our fair value estimate of JPY 5,000 and believe Komatsu’s shares are undervalued, as the market is overly pessimistic about a recovery from the second half of fiscal 2024. In the medium term, we expect robust demand for mining equipment for critical minerals required for clean energy technologies—such as copper, nickel, and lithium—to drive Komatsu’s revenue growth.