Komatsu: are investors looking too far ahead?

By Yuko Inoue

TOKYO (Reuters) - Talk of a recovery in China and a rebound in commodities prices prompted investors to bet heavily on the world's No.2 construction machinery maker Komatsu Ltd (6301.T), boosting its shares 40 percent at one stage this year.

Pension funds and long-term funds flocked to the shares -- an early mover in economic cycles -- counting on the company's big exposure to growth markets and soon-to-start infrastructure and mining projects in such markets.

Anticipation of its return to robust earnings growth next financial year have outweighed continued weakness in demand except in China and Komatsu's potential earnings drop in the first half. But the shares have lost 16 percent in the past month after weaker-than-expected economic data.

LONG-TERM SAFE BETS?

Investors say Komatsu, which competes with world No.1 Caterpillar Inc (CAT.N), is a safe bet, citing its strong competitive edge, strict controls on costs and inventory and a growth potential in emerging markets.

"It ensures long-term growth. Demand for construction machinery will increase anyway in such markets," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"We plan to buy on dips, but a large decline in the share price is unlikely," he said, adding that short-term earnings fluctuations are not a concern.

Komatsu derives 60 percent of its construction machinery sales from emerging markets, and has a dominant position in the high-margin Chinese market. Beijing is spending $585 billion on an economic stimulus package, much of it focused on infrastructure projects such as roads and railways.