Company Reports

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.

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.

We are initiating coverage of Komatsu with a JPY 5,000 fair value estimate and a narrow economic moat rating, supported by the company's established record of providing construction, mining, and utility equipment and its aftermarket support structure. Our projection assumes macroeconomic headwinds will lead to a slowdown in construction machinery demand until at least the end of the first half of fiscal 2024 (year ending March 2025), followed by a medium-term recovery. We expect mining equipment sales to be driven by demand for critical minerals (such as copper, nickel, and lithium) required for clean energy technologies as well as electric vehicle batteries. Further, global trends like infrastructure spending and factory construction due to reshoring should support top-line growth for construction equipment. We believe the shares are undervalued as the weakness in the next few quarters is already priced in and the market is overly pessimistic about recovery prospects from the second half of fiscal 2024 on.

Komatsu provides mainly construction, mining, and forestry equipment for heavy-duty applications. Its end users include global mining operators and construction contractors, who demand reliable machines that can withstand harsh environments. Despite advancements in technology, the unforgiving conditions inevitably cause wear and tear on the equipment, making aftermarket service crucial to avoid disruptions in operations and to reduce the product lifecycle cost. We expect Komatsu to not only continue refining its product quality but also use its accumulated know-how as well as new technologies to improve the speed and accuracy of aftermarket services.

We are dropping coverage of Komatsu. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage based on investor interest and staffing. We plan to resume coverage of Komatsu by the end of 2023.

We are placing Komatsu under review following a change in analyst coverage. We plan to reinitiate coverage of Komatsu at end-September.

Komatsu is the second-largest construction equipment manufacturer in the world by revenue. Its core construction, mining, and utility equipment business contributes around 90% of revenue. The remainder comes from its retail finance business and industrial machinery and others, which includes metal forging, stamping presses, machine tools, and defense-related equipment. The Americas and Asia are the main markets for Komatsu, accounting for more than 80% of revenue, followed by Europe and the Commonwealth of Independent States.

We increase our fair value estimate for Komatsu to JPY 2,710 per share (USD 26 per ADR) from JPY 2,310 (USD 22 per ADR) after considering the slightly quicker-than-expected recovery in third-quarter fiscal 2021 (ending March) and fine tuning our long-term estimates. Our narrow moat and stable moat trend ratings remain intact. We think the shares are fairly valued at the current price, with a gradual recovery in machinery sales priced in.

Komatsu is the second-largest construction equipment manufacturer in the world by revenue. Its core construction, mining, and utility equipment business contributes around 90% of revenue. The remainder comes from its retail finance business and industrial machinery and others, which includes metal forging, stamping presses, machine tools, and defense-related equipment. The Americas and Asia are the main markets for Komatsu, accounting for more than 80% of revenue, followed by Europe and the Commonwealth of Independent States.

We increase our fair value estimate for Komatsu to JPY 2,310 per share (USD 22 per ADR) from JPY 2,150 (USD 20.50 per ADR) after taking into account the slightly-better-than-expected second-quarter performance and management’s more optimistic guidance for fiscal 2021 (ending March) as business operations start to recover from the COVID-19 outbreak. Our narrow moat and stable moat trend ratings remain intact. We think the shares are fairly valued at the current price, with a gradual recovery in machinery sales priced in.

Komatsu is the second-largest construction equipment manufacturer in the world by revenue. Its core construction, mining, and utility equipment business contributes around 90% of revenue. The remainder comes from its retail finance business and industrial machinery and others, which includes metal forging, stamping presses, machine tools, and defense-related equipment. The Americas and Asia are the main markets for Komatsu, accounting for more than 80% of revenue, followed by Europe and the Commonwealth of Independent States.

We cut our fair value estimate for Komatsu to JPY 2,150 per share from JPY 2,200 after taking into account the weaker-than-expected performance and management’s cautious guidance for fiscal 2021 (ending March) as a result of the COVID-19 outbreak. However, our fair value estimate of $20.50 per ADR is unchanged due to the depreciation of the U.S. dollars against Japanese yen. Our narrow moat and stable moat trend ratings remain intact. We think the shares are fairly valued at the current price, with near-term weakness from the machinery sales priced in.

Komatsu is the second-largest construction equipment manufacturer in the world by revenue. Its core construction, mining, and utility equipment business contributes around 90% of revenue. The remainder comes from its retail finance business and industrial machinery and others, which includes metal forging, stamping presses, machine tools, and defense-related equipment. The Americas and Asia are the main markets for Komatsu, accounting for more than 80% of revenue, followed by Europe and the Commonwealth of Independent States.

We cut our fair value estimate for Komatsu to JPY 2,200 per share ($20.50 per ADR) from JPY 2,380 per share ($22 per ADR), after rolling forward our model and taking into account lower revenue and profitability mainly in its construction, mining, and utility equipment division due to the COVID-19 outbreak. Our narrow moat and stable moat trend ratings on the firm remain intact. We think the shares are fairly valued at the current price, with near-term weakness from the machinery sales priced in.

Komatsu is the second-largest construction equipment manufacturer in the world by revenue. Its core construction, mining, and utility equipment business contributes around 90% of revenue. The remainder comes from its retail finance business and industrial machinery and others, which includes metal forging, stamping presses, machine tools, and defense-related equipment. The Americas and Asia are the main markets for Komatsu, accounting for more than 80% of revenue, followed by Europe and the Commonwealth of Independent States.

Komatsu is the second-largest construction equipment manufacturer in the world by revenue. Its core construction, mining, and utility equipment business contributes around 90% of revenue. The remainder comes from its retail finance business and industrial machinery and others, which includes metal forging, stamping presses, machine tools, and defense-related equipment. The Americas and Asia are the main markets for Komatsu, accounting for more than 80% of revenue, followed by Europe and the Commonwealth of Independent States.

We lowered our fair value estimate for Komatsu to JPY 2,380 per share ($22.00 per ADR) from JPY 2,460 per share ($22.50 per ADR), after taking into account the weaknesses mainly in North America, Asia (excluding China and Japan), Commonwealth of Independent States and Oceania for its construction, mining and utility equipment division. Our narrow moat and stable moat trend ratings on the firm remain intact. We think the shares are fairly valued at the current price, with near-term weakness from the machinery sales priced in.

Komatsu is the second-largest construction equipment manufacturer in the world by revenue. Its core construction, mining, and utility equipment business contributes around 90% of revenue. The remainder comes from its retail finance business and industrial machinery and others, which includes metal forging, stamping presses, machine tools, and defense-related equipment. The Americas and Asia are the main markets for Komatsu, accounting for more than 80% of revenue, followed by Europe and the Commonwealth of Independent States.

Komatsu is the second-largest construction equipment manufacturer in the world by revenue. Its core construction, mining, and utility equipment business contributes around 90% of revenue. The remainder comes from its retail finance business and industrial machinery and others, which includes metal forging, stamping presses, machine tools, and defense-related equipment. The Americas and Asia are the main markets for Komatsu, accounting for more than 80% of revenue, followed by Europe and the Commonwealth of Independent States.

We lowered our fair value estimate for Komatsu to JPY 2,460 per share ($22.50 per ADR) from JPY 2,560 per share ($23.50 per ADR), after taking into account: 1) weaknesses mainly in China, Asia (excluding China and Japan), Oceania and Africa for its construction, mining and utility equipment division; and 2) weakness in the industrial machinery and others division, driven by softer sales of machine tools for the autos industry and excimer lasers for the semiconductor industry. Our narrow-moat and stable moat trend ratings on the firm remain intact. We think the shares are fairly valued at the current price with near-term weakness from machinery sales, priced in.