Hitachi Construction Machinery Co Ltd is targeting 70 percent growth in sales and a doubling in profit over four years as demand for earth-moving equipment booms in China, India and Russia, its CEO said.
Like bigger rival Komatsu Ltd and industry leader Caterpillar Inc, Japan's second-largest maker of construction machinery is gearing up for what it sees as long-term growth for many emerging economies.
Led by China's urbanisation drive, global demand for mining and construction machinery has already resulted in four years of record profits for Hitachi Construction -- one of the few money-making units of electronics conglomerate Hitachi Ltd.
And demand has continually outstripped expectations.
Only last year Hitachi Construction was aiming for 1 trillion yen in sales and 100 billion yen in recurring profit for the year ending March 2011, but those goals now look attainable in the next business year, Chief Executive Michijiro Kikawa said in an interview.
Kikawa said the company was now targeting 1.3 trillion yen
($11.2 billion) in revenue by 2010/11, up from 756 billion yen booked in the business year that ended in March.
It also aims for 140 to 150 billion yen in recurring profit
-- which is before tax and extraordinary items, compared with 70 -- which is before tax and extraordinary items, compared with 70 billion yen last year.
Komatsu is also predicting robust earnings growth. CEO Kunio Noji said on Tuesday Komatsu will post net profit growth of about 20 percent again in the next business year if current favourable market conditions continue.
Both Japanese firms are seen as stronger in emerging markets than Caterpillar.
Hitachi Construction, in partnership with Tata Motors Ltd, commands 50 percent of the Indian market for excavators. In Russia, the Japanese company accounts for half of all imported excavators and for a third of the overall market.
The companies are less exposed to the U.S. construction market, where demand is shrinking on subprime mortgage woes. Komatsu and Hitachi Construction both see the U.S. market falling some 20 percent this business year and again the next year.
Hitachi Construction sees its U.S. excavator sales falling some 40 percent in April-September but it also says demand from other markets will more than offset this.
In fact I'm a little relieved that the U.S. market is not doing so well -- it allows us to export to other countries, Kikawa.
The company recently revised its mid-term and full-year targets higher -- goals which it expected to clear very easily but a recent rise in the yen eaten into some potential earnings.
We will achieve these goals but the moves in exchange rates means we've lost that nice buffer that we had, he said.
Both Japanese makers are aggressively investing and Hitachi Construction plans to spend some 150 billion yen to expand production capacity over the next four years, up from its earlier plan of 90 billion yen.
By 2010/11, it hopes output of its main product, hydraulic excavators, will rise to 61,000 units per year from about 48,000 now.
Projects include a major expansion of output capacity at domestic factories, a tripling of excavator output in China and a parts factory in Russia. The company will also likely build either a parts or assembly plant in Vietnam, Kikawa said.
Additional investment in IT and spending to revamp stores would bring total capital spending in its four-year plan to around 200-210 billion yen.
Hitachi Construction shares have climbed 31 percent in the year to date while Komatsu's stock has jumped 47 percent compared with a 6 percent decline for the benchmark Nikkei average. Caterpillar's stock has risen 25 percent.