Komatsu Earnings: Record Share Buyback Signals Free Cash Flow Expansion for 2024

The market reaction to Komatsu’s fiscal 2023 results, ending March 2024, was strong partly due to the announcement of a record JPY 100 billion (or 3.5% of outstanding shares) share buyback, which was surprising given that the previous major one of about JPY 30 billion was in fiscal 2014. Moreover, considering the massive amount to be repurchased despite the operating income guidance of an 8% decline and a record capital expenditure plan of JPY 205 billion for fiscal 2024, we expect the company to improve free cash flow generation by managing its working capital. As a result of the market reaction, Komatsu’s shares are now trading near our fair value estimate of JPY 5,000, which is unchanged as we maintain our operating income estimate for fiscal 2024 at similar levels to guidance.