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Komatsu and the Farm and Construction Machinery Industry

Komatsu and the Farm and Construction Machinery Industry

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Komatsu and the Farm and Construction Machinery Industry

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  1. Komatsu and the Farm and Construction Machinery Industry Mod 4&5 John Rojo

  2. The Company • Japanese manufacturer vehicles and machinery for construction, mining, and agriculture • Includes excavators, backhoes, skid loaders, forest machines, forklifts, cutting lasers.. • There is no specific farm equipment but many duel use products

  3. Key Financial Figures (All figures in million Yen) • Cash-93,620 • Total Assets 2,517,857 • Total Liabilities/ Equity- 1,265,162 & 1,252,695 • Net Sales- 1,884,991 • Operating Income- 211,602 • Net Income – 137,135 • To convert to dollars it is approximately 100 to 1

  4. Revenue All over the place -5 to 29%

  5. EPM Most are between 8-14%

  6. EATO Except for Joy all are Near 100%

  7. Assumptions The sales growth is high so I will lower it for the future

  8. Cost of Equity ( I didn’t use it) I didn’t use this as they don’t seem to use country specific data such as the risk free Rate and the expected market return. I found a website that says it should be 5.9% and not 12% which is more inline with expectations since the US has a expectation around 5%

  9. Cost of Debt

  10. Beta

  11. Bloomberg’s WACC I had a few changes with the equity cost but used the percentages

  12. WACC I got some info from Bloomberg and some from another class where we talked about International returns. The WACC is lower than the growth rate. The cost of debt Looks really low but maybe a result of deflation in Japan

  13. DCF Really close between current and forecasted. Changing the terminal growth to 5.25% would have given me a nearly exact match. I saw 5% in an article so I kept it

  14. Info • I move the WACC and growth rates to more normal values • The WACC goes up using more normal inputs for cost of debt • The growth rate I lowered to 5% because the current rate will decrease as the developing markets slow their growth and develop their own manufacturing companies • It is affected by the WACC and growth rate being very close • The current cost of debt pretax is .48% which is a third of the cost of Japanese government bonds so this might not be very accurate or their needs to be a new risk free rate • All the numbers are in millions of Yens

  15. Possible alternatives • Better inputs for the future numbers • Better growth rates as construction manufacturing industry has very big peaks and valleys • They have grown in sales 7-8% on average for the last decade but this must eventually decrease • Once Japan gets their economy more normalized (no deflation, not a debt of 200% of GDP etc) the interest rates can shift

  16. Questions