It’s been a mixed-to-down year so far for many companies leveraged to the construction and mining equipment market, even though mining equipment orders are picking up nicely. Some of this is a “sell the news” reaction as many stocks ran in 2020 in anticipation, but there have also been growing concerns about the health of the Chinese market.
In any case, Komatsu (OTCPK:KMTUY) has been one of the weaker plays, with the shares down about 5% so far this year and down about 18% since my last update on the company. Not only has management guided to lower operating profits and more pressure on the Chinese business since that last article, but analysts seem increasingly worried about Komatsu’s strategic positioning in both the construction and mining markets, and its vulnerability to Chinese competition.
I’ve expressed my own concerns about Komatsu’s long-term strategic positioning before – I believe the company has stayed focused on high-end construction equipment in Asia for too long, and I believe the company overcommitted to soft rock mining (coal, in particular) and underinvested in hard rock equipment (most relevant to copper, iron, and gold). While I do still see Komatsu having room to outperform as a trade, particularly if the initial guidance for FY’22 proves conservative, I don’t like this as a long-term holding.
Click the link for the full article:
Komatsu Leveraged To Improving Mining Demand, But Long-Term Strategic Positioning Is Iffy
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