Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Hitachi Construction Machinery / Event-Driven

<ul>
<li>An NHK report today post-close said <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a> would sell "about half" its stake in sub <a href="https://www.smartkarma.com/entities/hitachi-construction-machinery" target="_blank" data-smartkarma-citation="entities:19433:1" rel="noopener">Hitachi Construction Machinery (6305 JP)</a> to Itochu and Japan Industrial Partners.</li>
<li>That is quite similar to the announcement 15 months ago in the Nikkei which precipitated a large drop. While unconfirmed, it smells like there is fire behind the smoke.</li>
<li>The big question is What Next? and What Impact for shareholders? That's a tough couple of questions. </li>
</ul>


An NHK report today post-close said Hitachi Ltd (6501 JP) would sell "about half" its stake in sub Hitachi Construction Machinery (6305 JP) to Itochu and Japan Industrial Partners.
That is quite similar to the announcement 15 months ago in the Nikkei which precipitated a large drop. While unconfirmed, it smells like there is fire behind the smoke.
The big question is What Next? and What Impact for shareholders? That's a tough couple of questions. 


Hitachi Finally Bailing on Hitachi Construction (6305); Too Early To Buy

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. 

Equity Long-Short

Mo Aziz

Thematic (Sector/Industry)

<ul>
<li>The energy shock is widening the earnings gap—long China exporters with stable electricity costs, short LNG-exposed manufacturing hubs facing margin compression.</li>
<li>The trade is relative, not absolute—this is about cost competitiveness and reallocation of market share, not global growth. </li>
<li>Timing is critical—position early in prolonged energy disruption, but exit decisively if demand destruction overtakes cost advantage.</li>
</ul>


The energy shock is widening the earnings gap—long China exporters with stable electricity costs, short LNG-exposed manufacturing hubs facing margin compression.
The trade is relative, not absolute—this is about cost competitiveness and reallocation of market share, not global growth. 
Timing is critical—position early in prolonged energy disruption, but exit decisively if demand destruction overtakes cost advantage.


Energy Shock Is Not Symmetric — Why China Wins This Cycle (Part 2)

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

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)

Hitachi Finally Bailing on Hitachi Construction (6305); Too Early To Buy

NHK had an article out post-close saying Hitachi would sell "About half" it's stake in Hitachi Construction Machinery to Itochu and JIP. It will be...

Travis Lundy

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

Energy Shock Is Not Symmetric — Why China Wins This Cycle (Part 2)

Energy shock widens earnings: Long China (stable power), short LNG-exposed hubs (margin squeeze). Focus on cost competitiveness over growth. Timing...

Mo Aziz

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

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