Komatsu, Caterpillar to benefit from China plan

China's $586 billion stimulus package to build roads and railways may offer more of a sales boost to Tokyo-based Komatsu Ltd. than U.S. construction- machinery makers such as Caterpillar Inc. and Terex Corp.

Komatsu and Swedish truck manufacturer Volvo AB have a greater market share in China, making them more likely to get a lift from the two-year spending plan than their American competitors, said Brian Rayle, an analyst with FTN Midwest Research.

The 4 trillion yuan plan announced Nov. 9 is aimed at keeping the fourth-largest economy growing amid a global recession. Komatsu sells about 17 percent of the excavators in China, compared with 10 percent from Peoria, Illinois-based Caterpillar, according to a Nov. 10 note from Morgan Stanley analyst Robert Wertheimer. Chinese companies that make small wheel loaders also are likely to benefit, Rayle said.

``Komatsu has always been better positioned in China than the North American guys,'' Rayle said in a phone interview from St. Louis. He rates Caterpillar ``neutral'' and Terex ``buy.''

China accounts for 5 percent of Caterpillar's projected sales of $50 billion this year. Chief Executive Officer Jim Owens, 62, is spending $100 million to triple excavator capacity at its Shandong SEM Machinery Co. unit in northern China as part of a $1 billion investment in emerging markets in the next three years.

``This kind of fairly concentrated spending plan gives us an opportunity to move ahead a bit more aggressively,'' said Rich Lavin, Caterpillar's group president overseeing the Asia region. ``Given time, we'll be a leader in China just like we are in other parts of the world.''

$7 Trillion Market

Komatsu's location in neighboring Japan won't give it a ``competitive advantage'' in winning projects, Lavin said in a telephone interview yesterday from Peoria. The strengthening yen may also make the Japanese products more expensive, he said.

The Chinese government will invest funds in low-rent housing, projects in rural areas, as well as roads, railways and airports, the Beijing-based State Council said on its Web site.

``The recently announced stimulus package will most definitely be a big chance'' for us, Masahiro Yoneyama, Komatsu's Director of China Operations, said in an interview today. ``We have the biggest share of the Chinese market and we can turn this to our advantage better than our competitors.''

Forecast Slash

Komatsu on Oct. 29 said industry demand worldwide for machines used in construction and mining will drop 3 percent this year, the first decline in seven years, dragged down by the U.S., Europe and Japan. The company had forecast global market growth of as much as 10 percent.

It also slashed its annual profit forecast by 13 percent due to falling demand and because a strong yen will reduce the value of repatriated earnings. A gain of 1 yen to the dollar reduces Komatsu's operating profit by 3.6 billion yen ($36 million) a year and every 1 yen gain to the euro cuts earnings by as much as 600 million yen.

The China's spending isn't likely to help Caterpillar counter declines in construction sales in North America and Europe, Rayle and Wertheimer said. The world's largest maker of earthmoving equipment gets more than a third of revenue from construction machinery such as backhoes and excavators.

``Even the massive China stimulus would add only about 4 percent to the fast-weakening $7 trillion global construction market,'' Wertheimer wrote. ``Most other countries don't have the same capacity.''

Volvo

Volvo, which bought Ingersoll-Rand Co's road-building unit in 2007, undertook plans this year to double wheel-loader production at its Shandong Lingong Construction Machinery Co. unit in China, from 17,000 vehicles in 2007. Wheel loaders are used to scoop and load material at quarries and construction sites. The Gothenburg, Sweden-based company, the world's second- biggest truck maker, got 15 percent of last year's sales of 285 billion kronor ($35.4 billion) from Asia.

Terex, based in Westport, Connecticut, may gain on the need for small road-building and construction machinery, Rayle said. CEO Ron DeFeo has been expanding in China and India in a bid to lift sales from emerging markets to $4 billion by 2010, from $2.2 billion in the 12-months period ended in June. Terex is the world's third-largest maker of construction machinery.