February 24, 2017 6:40 pm JST
Interview

Emerging-market demand yet to bottom out -- Komatsu CFO

The construction machinery maker sees strong market in China, Russia, Indonesia

TOKYO -- Shares of Japan's Komatsu have risen fairly consistently since mid-2016, and the price is now 60% higher than the level a year ago. The investor enthusiasm was prompted by data showing the operating hours of its machinery in China have been on the rise for the past 12 months. The more active use of its machinery, which the company monitors through GPS devices installed in each, is a sign there may be an increase in orders for Komatsu equipment.

Mikio Fujitsuka, Komatsu's executive vice president and chief financial officer, spoke to the Nikkei.

Q: With construction equipment sales on a recovery in emerging markets, the market is expecting Komatsu to see operating profit rise by some 20% for the next fiscal year. What is your sense of the degree of the rebound?

A: This fiscal year we are seeing a stronger-than-expected demand in areas including China, the Russia region and Indonesia. In China, there are many public works projects outside of Beijing, and housing investment is active in some of the major cities. In the Russia region and Indonesia, demand from the coal mining industry is strong. 

But I wouldn't clearly state that demand has bottomed out. The situation is still not ripe enough for me to have the confidence to say that the demand recovery will continue for the next two to three years. The previous demand recovery phase in the year ended March 2014 turned to a slump in the next fiscal year and later. There have not been large construction projects in the Middle East where we have many customers in the oil industry.

Q: How about sales in advanced markets?

A: In the U.S., consumer spending and housing starts are strong, and I expect construction machinery sales to continue to slowly grow. I have a similar view about the European market. In Japan, the need to renew aging roads and bridges and urban redevelopment projects are driving demand.

Q: Sales of new mining machinery have recently rebounded. What is your view on the future?

A: Sales of less-than-100 ton dump trucks grew in the Russia region and Indonesia, but the demand for super-large dump trucks used by iron-ore and copper producers has not returned.

We may bring Joy Global (a major U.S. mining machinery maker whose acquisition Komatsu announced last July) under our consolidated accounts as early as the January-March period. Because of legal constraints, we cannot talk with Joy Global executives until we complete the acquisition. I hope to spend time first talking with them to make sure we understand each other well, and then we'll work out detailed business plans.

Q: Komatsu's industrial machinery business is expected to see a significant fall in profits in the current fiscal year. Do you expect it to recover?

A: I think things won't be worse than the current fiscal year. I think smaller engines will generate new demand, and sales to the auto industry will grow. In the current fiscal year, we failed to win a contract that we had expected to win. There is also a deal for which we expect to book sales later than we had planned as the customer is taking longer than planned to launch a new plant.

Q: A key issue for Komatsu is to control business results from fluctuating in response to demand swings. What efforts are being made to achieve this?

A: We are currently focused on a service called "smart construction" where the geography of the site is digitally measured and mapped using drones, and construction machinery does the work semi-automatically using the map. As there is a growing shortage of construction workers in Japan, we expect this service to go a long way in assisting customers and boost their profits by helping to raise the efficiency of construction projects. We have set a goal of 10 billion yen ($89 million) in sales for this service as early as possible, but we are looking beyond that goal for bigger expansion.

We are also trying to reduce inventory by utilizing internet-of-things technology at factories. We think this will help boost working capital and cut administrative expenses.

Interviewed by Nikkei staff writer Kazuhiro Noguchi

Komatsu Ltd.

Japan

Market(Ticker): TKS(6301)
Sector:
Industry:
Producer Manufacturing
Trucks/Construction/Farm Machinery
Market cap(USD): 25,328.09M
Shares: 971.96M

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