Komatsu and the Farm and Construction Machinery Industry Mod 6 John Rojo
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
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
Regression- 2 years of weekly data compiled. I used the Nikkei 225 Japanese Stock market. My companies market was not available on Yahoo or any where else I looked so I chose the Largest alternative in the country This is a sample of the data
Regression Analysis Beta of .85 a low end of .58 and high of 1.13 which is a sizable range
Beta Comparison There where many sites not publishing Komatsu’s Beta. This is most likely because it is a foreign corporation on a foreign index. Professional Betas are near 1.15 while only my upper end approaches that. That could be because they are not comparing to the same market return or either of us are factoring currency volatility in a return. I will use Bloomberg’s number because it is near the mean of website data.
CAPM • Re=Rf+B(Rm-Rf) • That is how you determine the cost of equity using the Beta you got online or calculated • Then you determine your after tax cost of debt • Multiply your cost of equity by equity’s weight in the capiatal structure by the after tax cost of debt by the debt’s weight
WACC using Bloomberg’s (AKA my high end) Beta Notice the current versus future (terminal) rates
Bloomberg’s WACC I had a few changes with the equity cost but used the percentages
Possible differences • 6.32% compared to 10.3% is a large difference • I used their debt and cost of debt as well as their Beta • The difference comes in the market premium it appears. Their cost of equity is over 50% bigger. This means that they are estimating a higher premium. • If they calculate a country risk premium and depending on how that can lead to substantial changes in the cost of equity.
Low end Beta All things constant the WACC fell to 3.81% from 6.32% and in future years to 4.73% from 7.32%.
DCF with low end • Divide by 0 basically • It can’t be done • The terminal growth rate and the WACC are nearly identical which gives a very large number, even for Yen.