Japan forklift sales: September sales bad, KION IPO a potential positive

by SR on October 24, 2012

Japan combined domestic sales and exports of forklifts by month and year (thousand units)

No change in trend

Conclusion: no change in the trend of weak exports and weakening domestic demand. You should continue to avoid stocks like Toyota Industries that are a mixture of auto parts and forklift exposure. I would prefer auto parts stocks, like Denso or perhaps an auto OEM like Toyota.

The Japan Industrial Vehicles Association (JIVA) released forklift sales figures for September 2012 on the morning of 24 October. To my knowledge this data comprises the only publicly available data on forklift sales for a major market and it is released within a month. Combined domestic sales and exports in September came to 10,718 units, rising 29.1% compared to the previous month but falling 7.5% compared to September 2011. That 29.1% month-on-month improvement looks pretty impressive, but it is actually well below the median change for the month of September, which was +40.3% between 2000 and 2011. For the period January to September 2012, combined sales and exports of forklifts year-to-date stand at 84,988 units, which is just 2.9% higher than the same period in 2011, despite the easy comparison caused by the negative impact of the North Japan earthquake on industrial output last year. Note the external/internal demand dichotomy: cumulative exports over that same period have fallen by 11.8% YoY while domestic sales (due to demand from the auto industry and from reconstruction efforts in Northern Japan) have risen by 15.2% YoY.

Interestingly, exports had an above-trend month in September 2012, with shipments to overseas destinations increasing by 37% as shown in the chart below. That was certainly one of the better performances for September over the past 20 years. Still, it comes on the tail of a long run of weak months and I think it’s too early to call this a break in the trend.

Japan forklift exports, month-on-month change for months of September (percent)

Still, I wouldn’t get too excited. The graphic below shows that Japan forklift exports in 2012 (the red line) are on a cumulative basis still well below exports in 2011 (the blue line) and are back to the levels of 2010 (the purple line). Not a great performance.

Japan forklifts, cumulative exports year-to-date (thousand units)

Kion group

The KION group has been talking about an IPO for at least a year and it seems that its owners (KKR and Goldman Sachs) are planning an IPO for the second quarter of 2013. In this post on the global forklift industry we laid out market shares for the main players, showing that Toyota Industries is the No.1 supplier by a clear margin but that KION is a worthy No.2. KKR and GS will want to generate some interest so they will be talking up KION’s plans to take market share from Toyota Industries, eventually surpassing the Japanese supplier by 2015-2016.

Share price performance year-to-date of Toyota Industries and other stocks (percent change)

Well, talk is cheap. What is KION doing differently now that they haven’t previously been doing, given that they haven’t made a significant impact on Toyota Industries’ market share over the past few years? Bear in mind also that KION (which operates the Linde and Still brands) is headquartered in Europe and that is where it is strongest relative to Toyota Industries. With capex on forklifts in Europe unlikely to pick up any time soon, KION is burdened with high exposure to the weakest of the major markets. In theory, the purchase by Weichai Power of 25% of KION gives KION a foothold in China and potential access to Weichai’s low-cost diesel engines but that alone will not be enough to make KION a major player in China. From the Chinese manager’s perspective Western forklifts, whether they be from KION, Toyota Industries or the Hyster-Yale forklift subsidiary newly spun-off from NACCO, are just too expensive compared to Chinese-made brands. “Excess” quality remains an issue.

Meanwhile, Toyota Industries continues to bolster its global No.1 position by acquiring Cascade, a leading supplier of attachments and spares for forklifts. This looks interesting in that Cascade is also a supplier to Caterpillar, so it could be beneficial longer term. Still, the boys at GS and KKR undoubtedly know how to put together a slick presentation, so I would expect an uptick of interest in the forklift market – including related stocks such as Toyota Industries – when KION does its pre-IPO roadshow early next year. My advice: take their bullish projections with a pinch of salt.

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