July 30, 2020 / 7:31 AM / 5 days ago

UPDATE 1-Japan's Komatsu says China demand recovering but profit to plunge

(Recasts to focus on China demand, adds analyst comment in 5th paragraph.)

By Rocky Swift

TOKYO, July 30 (Reuters) - Komatsu Ltd said demand for its heavy machinery in China is recovering, blunting an expected plunge in profit as the COVID-19 pandemic continues to affect global sales.

The company said operating profit will probably fall 54% to 115 billion yen ($1.09 billion) in the year to end-March 2021, compared with the average analyst estimate of 203.2 billion yen, according to Refinitiv data.

As the world’s second-largest maker of construction equipment, Komatsu is considered a bellwether for the broader economy and, in particular, growth in China.

In first quarter results released on Thursday, Komatsu said it expects sales will decline in all regions except for China, where pent-up demand and government stimulus will help bolster results.

“China is strong for the moment,” said Mio Kato of LightStream Research, who publishes on the Smartkarma platform. “Japan, Australia are holding up slightly better. U.S. and Europe look grim.”

The company’s KOMTRAX data has shown a rebound in machinery use in China in recent months, after double-digit declines earlier in the year.

Komatsu held off from making a full-year forecast when it reported results in May, citing uncertainties related to the COVID-19 pandemic. For the year through March 2020, Komatsu’s operating profit sank 37% to 250.7 billion yen from the previous period.

Komatsu reported a steep decline in Chinese sales last fiscal year amid increased pressure from domestic manufacturers and a sharp drop in demand after Chinese New Year.

“Competition remains high in China, and the Chinese players could continue to grab market share from foreign players,” Morningstar analyst Ken Foong said before the results on Thursday.

Komatsu said operating profit in the three months that ended in June sank 64% to 26.9 billion yen from the same period a year earlier. The company slashed its planned dividend to 36 yen per share from 94 yen last year.

$1 = 105.2600 yen Reporting by Rocky Swift; Editing by Krishna Chandra Eluri and Peter Graff

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