Terex Corp. (TEX) is expanding its presence in China as is evident from these two announcements — its move to acquire a 65% control of privately held, Jinan-based crane maker Shandong Topower Heavy Machinery Company and a joint venture agreement with Fujian South Highway Machinery Company to establish a mobile materials processing equipment manufacturing in Quanzhou, China.
Shandong Topower Heavy Machinery Company manufactures lattice boom crawler cranes in the 70 to 360 ton class. The acquisition of Topower will strengthen Terex’s position in the crawler crane market in China.
Terex will be a 60% owner in the materials-processing joint venture with Fujian South Highway Machinery Company, which will manufacture jaw crushers, cone crushers, impact crushers and screens for aggregates, mining and material recycling applications. Both the acquisition and joint venture are expected to close by the end of 2010.
These strategic moves would further strengthen Terex’s foothold in China, where it already runs the Terex Port Equipment facility in Xiamen and is on the verge of completing its Aerial Work Platforms factory in Changzhou.
In 2008, China announced a RMB4 trillion ($586 billion) economic stimulus package to prevent the global financial crisis from ravaging its economy. Of the package, the lion’s share of RMB1.5 trillion was earmarked for public infrastructure development. Projects that were lined up included railway, road, irrigation and airport construction. The second-largest allocation of RMB1 trillion was for reconstruction in the earthquake hit regions of Sichuan. This has spurred construction in China, triggering demand for construction equipment.
According to government data released earlier this week, China passed Japan in the second quarter to become the world’s second-largest economy behind the United States. This year, even though growth has begun to moderate a bit, China’s economy is projected to expand about 10%, continuing a remarkable three-decade streak of double-digit growth.
China is thus a viable option for expansion and we appreciate Terex’s focus on expanding its global presence in China as well as in other developing geographies such as India, Russia, the Middle East and Latin America.
Terex’s competitor, Caterpillar Inc. (CAT), also announced plans to expand its excavator facility in Xuzhou, China. Caterpillar is eyeing emerging markets, particularly China, India and Brazil in order to accomplish its long-term goals. Likewise, the Topower acquisition by Terex might resuscitate the latter’s underperforming Crane segment.
In spite of its efforts to offset lower volumes by cutting down costs and managing inventories, Terex has been continuously posting losses since the first quarter of fiscal 2009, affected by the global economic slowdown. Particularly hit were the Aerial Work Platforms and Construction businesses. However, in the recent quarter, even though these segments continued to suffer losses, there has been a considerable year-over-year improvement, holding out a glimmer of hope.
On the whole, the moderating losses do not indicate a striking recovery in any of the company’s end-markets in the near term. We, thus, maintain our long-term Neutral rating supported by a Zacks #3 Rank (‘Hold’) on Terex Corp.
Westport, Connecticut-based Terex Corporation is a global manufacturer of a broad range of equipment for the construction, infrastructure, quarrying, mining, shipping, transportation, refining, energy and utility industries. The company’s manufacturing facilities are located in the U.S, Canada, Europe, Australia, Asia and South America. It operates through four business segments: Aerial Work Platforms, Construction, Cranes, and Materials Processing.
CATERPILLAR INC (CAT): Free Stock Analysis Report
TEREX CORP (TEX): Free Stock Analysis Report
Zacks Investment Research
