Hitachi Construction Machinery Earnings: Near-term Headwinds in North America but Outlook Unchanged

Although Hitachi Construction Machinery’s, or HCM’s, June quarter revenue growth of 2.6% year on year was largely in line with expectations, its operating margin decline of 1.9 percentage points to 9.9% was below our previous estimate. We attribute the shortfall of HCM’s profitability to a negative mix from weaker value chain sales in the Americas and a worse-than-expected impact from weak capacity utilization in Europe and Asia (excluding Japan, India, China). Based on the sluggish results, we lower our operating margin assumption for fiscal 2024 (ending March 2025) to 11.0% from 12.0%, while maintaining our 2% year-on-year revenue decline assumption, with downward sales revisions in the Americas/Asia offset by upward revisions in other regions such as Oceania. We maintain our fair value estimate for HCM at JPY 5,450 as our medium-term forecasts remain unchanged.