Hitachi Construction Machinery Earnings: Weaker Demand in Europe and Asia but Headwinds Priced In

We slightly lower our revenue estimate for Hitachi Construction Machinery, or HCM, for fiscal-year 2024 (ending March 2025) to a 2% decline from a 0.5% decline, as the full-year guidance suggests worse-than-expected demand in Europe and Asia. We expect the high interest rate environment and weaker coal mining activity in Asia to weaken construction and small-sized mining machinery sales in these regions. However, we think this will be temporary and maintain our fair value estimate at JPY 5,450, as our projection of a medium-term recovery from fiscal 2025 remains largely unchanged. We forecast 6% growth in fiscal 2025, followed by a 4.5% CAGR between 2025 and 2028, supported by aftermarket sales (the main part of the Value Chain business) as services like preventive maintenance will increase due to a higher supply of machinery with its Internet of Things platform over the past three years. We believe this revenue growth is underestimated by the market.