Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Komatsu's "Business and ESG Presentation" provided us with an opportunity to confirm our leading technology and global business development.</li>
<li>Komatsu's advantage in the electrification of construction machinery will increase because of the high technological barriers for large machines with high profit margins.</li>
<li>Komatsu's corporate governance is generally higher than Universe's in each of the criteria, but there are still some major challenges to be addressed.</li>
</ul>


Komatsu's "Business and ESG Presentation" provided us with an opportunity to confirm our leading technology and global business development.
Komatsu's advantage in the electrification of construction machinery will increase because of the high technological barriers for large machines with high profit margins.
Komatsu's corporate governance is generally higher than Universe's in each of the criteria, but there are still some major challenges to be addressed.


Japan's Governance: Komatsu (6301) ESG Presentation

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Komatsu is benefitting from the commodity boom like peer HCM and could potentially see greater support from North American mining in the short-term thanks to its greater exposure there. However, the degree of conservatism in its forecasts is not as extreme as for HCM implying a smaller potential beat.

Komatsu is benefitting from the commodity boom like peer HCM and could potentially see greater support from North American mining in the short-term thanks to its greater exposure there. However, the degree of conservatism in its forecasts is not as extreme as for HCM implying a smaller potential beat. 

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.

Japan Breaking Out; EM Remains Leadership

Hitachi Construction Machinery / Equity Bottom-Up

<h2>Revenue Guidance Overly Conservative</h2>HCM reported its 3QFY21 results on Friday (29th January) which saw both revenues and OP decrease YoY by 4.3% and 30.6% respectively with the deterioration in its profitability mainly due to the impact of lower sales volume in 3QFY21. However, the reported revenue was 1.6% higher than consensus while OP was -23.1% lower.<div><table class="table table-striped"><tbody>
<tr>
<td rowspan="2" style="width: 23.9%;">In ¥m</td>
<td colspan="3" style="width: 76.1%;">3QFY21</td>
</tr>
<tr>
<td style="width: 29.8%;">Actual Results</td>
<td style="width: 30.4%;">Consensus</td>
<td style="width: 15.9%;">Surprise</td>
</tr>
<tr>
<td style="width: 23.9%;">Revenue</td>
<td style="width: 29.8%;">                             197,825</td>
<td style="width: 30.4%;">                              194,733</td>
<td style="width: 15.9%;">1.6%</td>
</tr>
<tr>
<td style="width: 23.9%;">Operating Profit</td>
<td style="width: 29.8%;">                                  9,749</td>
<td style="width: 30.4%;">                                 12,675</td>
<td style="width: 15.9%;">-23.1%</td>
</tr>
<tr>
<td style="width: 23.9%;">OPM</td>
<td style="width: 29.8%;">4.9%</td>
<td style="width: 30.4%;">6.5%</td>
<td style="width: 15.9%;">-1.6% points</td>
</tr>
</tbody></table></div><div style="text-align: left;" class="content-caption">Source: Company disclosures, CapIQ</div>The company has not changed its full year guidance for FY21 and expects revenue and OP of ¥211bn (-13.5% YoY) and ¥21bn (-1% YoY, implying an OPM of 10.4%) respectively in 4QFY21.HCM's revenue expectation for 4QFY21 is 9.0% lower than consensus while OP is 6% higher than consensus implying an OPM of 10.3%.<table class="table table-striped"><tbody>
<tr>
<td style="width: 29.1%;">In ¥m</td>
<td style="width: 34.96%;">Expected 4QFY21</td>
<td style="width: 35.94%;">Guidance – FY21</td>
</tr>
<tr>
<td style="width: 29.1%;">Net sales</td>
<td style="width: 34.96%;">                             211,273</td>
<td style="width: 35.94%;">                              770,000</td>
</tr>
<tr>
<td style="width: 29.1%;">Operating income</td>
<td style="width: 34.96%;">                               21,702</td>
<td style="width: 35.94%;">                                 40,000</td>
</tr>
<tr>
<td style="width: 29.1%;">OPM</td>
<td style="width: 34.96%;">10.3%</td>
<td style="width: 35.94%;">5.2%</td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption">Source: Company disclosures, CapIQ</div>

Revenue Guidance Overly ConservativeHCM reported its 3QFY21 results on Friday (29th January) which saw both revenues and OP decrease YoY by 4.3% and 30.6% respectively with the deterioration in its profitability mainly due to the impact of lower sales volume in 3QFY21. However, the reported revenue was 1.6% higher than consensus while OP was -23.1% lower.

In ¥m
3QFY21


Actual Results
Consensus
Surprise


Revenue
                             197,825
                              194,733
1.6%


Operating Profit
                                  9,749
                                 12,675
-23.1%


OPM
4.9%
6.5%
-1.6% points

Source: Company disclosures, CapIQThe company has not changed its full year guidance for FY21 and expects revenue and OP of ¥211bn (-13.5% YoY) and ¥21bn (-1% YoY, implying an OPM of 10.4%) respectively in 4QFY21.HCM's revenue expectation for 4QFY21 is 9.0% lower than consensus while OP is 6% higher than consensus implying an OPM of 10.3%.

In ¥m
Expected 4QFY21
Guidance – FY21


Net sales
                             211,273
                              770,000


Operating income
                               21,702
                                 40,000


OPM
10.3%
5.2%

Source: Company disclosures, CapIQ

<h2>Better Revenue, but Lower Profitability Compared to 2QFY21</h2>Komatsu reported its 3QFY21 results on Friday (29th January) with revenue and OP decreasing YoY by 10% and 20% respectively. Revenue beat consensus by 2% but OP missed by 6.6%.<table class="table table-striped"><tbody>
<tr>
<td rowspan="2" style="width: 24.18%;">In ¥m</td>
<td colspan="3" style="width: 75.82%;">3QFY21</td>
</tr>
<tr>
<td style="width: 29.08%;">Actual Results</td>
<td style="width: 29.9%;">Consensus</td>
<td style="width: 16.84%;">Surprise</td>
</tr>
<tr>
<td style="width: 24.18%;">Revenue</td>
<td style="width: 29.08%;">                             555,593</td>
<td style="width: 29.9%;">                              544,731</td>
<td style="width: 16.84%;">2.0%</td>
</tr>
<tr>
<td style="width: 24.18%;">Operating Profit</td>
<td style="width: 29.08%;">                               34,017</td>
<td style="width: 29.9%;">                                 36,440</td>
<td style="width: 16.84%;">-6.6%</td>
</tr>
<tr>
<td style="width: 24.18%;">OPM</td>
<td style="width: 29.08%;">6.1%</td>
<td style="width: 29.9%;">6.7%</td>
<td style="width: 16.84%;">-0.6% points</td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption">Source: Company disclosures, CapIQ</div>The company did not change its full year guidance for FY21 and thus implied guidance for 4Q is now revenue of ¥606bn (-1.6% YoY) and OP of ¥26bn (-54% YoY) implying an OPM of 4.4% in 4QFY21.Even though, Komatsu’s revenue guidance for 4QFY21 is 11% higher than consensus OP guidance is -27% lower and the implied OPM of 4.4% would be extremely low when considering typical seasonality.<table class="table table-striped"><tbody>
<tr>
<td style="width: 29.08%;">In ¥m</td>
<td style="width: 34.96%;">Implied 4QFY21 Guidance</td>
<td style="width: 35.94%;">Guidance – FY21</td>
</tr>
<tr>
<td style="width: 29.08%;">Net sales</td>
<td style="width: 34.96%;">                             605,690</td>
<td style="width: 35.94%;">                           2,119,000</td>
</tr>
<tr>
<td style="width: 29.08%;">Operating income</td>
<td style="width: 34.96%;">                               26,464</td>
<td style="width: 35.94%;">                              134,000</td>
</tr>
<tr>
<td style="width: 29.08%;">OPM</td>
<td style="width: 34.96%;">4.4%</td>
<td style="width: 35.94%;">6.3%</td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption">Source: Company disclosures, CapIQ</div>

Better Revenue, but Lower Profitability Compared to 2QFY21Komatsu reported its 3QFY21 results on Friday (29th January) with revenue and OP decreasing YoY by 10% and 20% respectively. Revenue beat consensus by 2% but OP missed by 6.6%.

In ¥m
3QFY21


Actual Results
Consensus
Surprise


Revenue
                             555,593
                              544,731
2.0%


Operating Profit
                               34,017
                                 36,440
-6.6%


OPM
6.1%
6.7%
-0.6% points

Source: Company disclosures, CapIQThe company did not change its full year guidance for FY21 and thus implied guidance for 4Q is now revenue of ¥606bn (-1.6% YoY) and OP of ¥26bn (-54% YoY) implying an OPM of 4.4% in 4QFY21.Even though, Komatsu’s revenue guidance for 4QFY21 is 11% higher than consensus OP guidance is -27% lower and the implied OPM of 4.4% would be extremely low when considering typical seasonality.

In ¥m
Implied 4QFY21 Guidance
Guidance – FY21


Net sales
                             605,690
                           2,119,000


Operating income
                               26,464
                              134,000


OPM
4.4%
6.3%

Source: Company disclosures, CapIQ

Japan

KOMATSU LTD. manufactures and sells construction and mining machinery, including excavators, bulldozers, and wheel loaders.  The Company, operating on a global scale, also produces forklift trucks and engineering equipment such as press system.

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Komatsu Ltd (6301 JP)

Japan's Governance: Komatsu (6301) ESG Presentation

"Business and ESG Presentation" helped to confirm its leading technology and global business development, but there are some challenges in...

Metrical Inc

Komatsu – Mining Away

Komatsu is benefitting from the commodity boom like peer HCM but the degree of conservatism in its forecasts is not as extreme as for HCM implying...

Mio Kato

Japan Breaking Out; EM Remains Leadership

Major global indexes continue to trend higher and are devoid of bearish inflections. As a result, we remain bullish and we continue to recommend...

Vermilion Research

HCM - Favour HCM over Komatsu for Now

HCM's guidance looks conservative on the revenue line though margins have been disappointing. However, there are signs of underlying improvement...

Mio Kato

Komatsu - Guidance Beat Looking Likely

Komatsu looks to be on track for recovery and the lack of an upward revision looks conservative, putting the company in a position to beat guidance.

Mio Kato

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