Top Picks in Heavy Machinery

Credit Suisse

The Machinery group slid 3.8% last week, weighed down primarily by macro headlines.

In farm equipment, we saw some positive data from both the Brazil and the U.S. markets. In Brazil, tractor sales grew of 8% year-over-year, seeing its first positive year-over-year growth since September 2010. In the U.S., combine growth turned positive for the first time since April 2011, growing nearly 10% year-over-year in October.

The September-October time frame tends to be seasonally important for combines, which should benefit Deere (ticker: DE). In construction, Caterpillar (CAT) made headlines by purchasing [Hong Kong-listed] ERA Mining Machinery, which manufactures and sells hydraulic-roof supports under its subsidiary, Siwei. On the heels of Caterpillar's recent Bucyrus International acquisition, ERA would give Caterpillar an even larger presence in the mining market with a focus on underground and a bigger footprint into China specifically. We view the deal as a modest positive as it strengthens Caterpillar's positioning in mining in China and is not too surprising given the company's more aggressive stance on improving its competitive positioning and acquisitions in general.

Top picks remain Caterpillar and Cummins (CMI).

Both KBR (KBR) and Chicago Bridge & Iron (CBI) held their investor meetings this week and both had very upbeat tones, in particular with respect to the hydrocarbons end market. 2012 could be the year of the elephant for KBR, looking to win major projects including Inpex Liquefied Natural Gas (LNG), Kitimat LNG, Browse LNG, Pluto LNG, and the Angola Refinery. In fact, KBR believes backlog could nearly double to $20 billion, up from $11.7 billion today, over the next four years. With the house in order, KBR will look to become more vertically integrated, increasing its share of the pie both through organic measures and acquisitions. Last, KBR will continue to enhance its capabilities within Power, Minerals, and Infrastructure. In our opinion, Chief Executive Bill Utt wants the scale of Fluor (FLR) (size and diversification) but with a much deeper oil and gas (i.e. offshore, LNG and Technology) portfolio and vertical integrated service offering.

Chicago Bridge was also very positive with respect to awards growth including LNG (Browse & Kitimat projects), refining, oil sands, and gas processing in 2012. Chicago Bridge also hinted acquisitions are on the table. Chicago Bridge will look to strengthen its positioning in offshore, additional technology businesses (like Lummus), and even petrochemical to balance its already market leading positioning in LNG, refining, gas processing, and oil sands. We continue to like the oil and gas names.

-- Jamie Cook
-- Peter Chang
-- Andrew Buscaglia
-- Linda Yuan
http://online.barrons.com/article/SB50001424052748704101304577038523810687072.html?mod=BOL_hpp_oe

Heavy Machinery Hauled in for Guthrie Search

HOLT COUNTY, Mo. - Crews continued another full day of searching Friday, in hopes of recovering the body of missing Missouri Highway Patrolman, Fred Guthrie.

A close friend of the Guthrie family loaned search crews several large pieces of dig equipment in hopes of speeding up the recovery effort.
Trooper Guthrie is believed to have been swept away by flood waters in early August 2011. Crews are searching for the Troopers body at Highway 111 and 118 near Big Lake, Missouri.

Guthrie's K9, Reed, was found in the area where the search is underway.
Crews from Kansas City and St. Joseph have been pumping remaining flood water from a scour hole more than 65 feet deep and four acres wide around the clock.

Thursday an "item of interest" was recovered at the dig site. Troopers are hopeful it belongs to Guthrie, but have sent it to a lab in Jefferson City for confirmation.
The dig will continue throughout the weekend.
http://stjoechannel.com/fulltext-news?nxd_id=236457

Masami Shimizu Named President of Mitsubishi Heavy Industries Printing & Packaging Machinery

Hiroshima, Japan, Mitsubishi Heavy Industries' Board of Directors unanimously approved the immediate appointment of Masami Shimizu to the position of president of Mitsubishi Heavy Industries Printing and Packaging Machinery, Ltd. (MHI-P&PM). Masami Shimizu succeeds Ken Watabe, who served as the first president of MHI-P&PM and guided the new company during its start-up phase.

Masami Shimizu brings a wealth of managerial skills and hands-on experience within the graphic arts industry to his new position. He attended the prestigious Nihon University for his undergraduate and graduate studies where he earned a Master in Mechanical Engineering. In 1978, he joined Mitsubishi Heavy Industries and was assigned to the Production Department of the Paper & Printing Machinery Division as an engineering technician, gradually expanding his responsibilities in this area over the years. Following his appointment to the position of senior manager of the Production Department, he oversaw the renovation of the production management system and headed the production cost reduction project. These and similar key accomplishments were instrumental in setting the course of the company's direction.

With the establishment of MHI-P&PM in July 2010, he was appointed to one of three executive vice president positions created within the highest managerial ranks of the new company and placed in charge of the company's paper converting machinery business (corrugating machinery and box-making machinery) and all production and procurement operations.

Calling upon his more than 30 years of experience, Masami Shimizu and former President Watabe helped mold MHI-P&PM into a leaner organization better equipped to weather the harsh economic conditions still prevalent in many of today's global markets. In his new role, President Shimizu will lead MHI-P&PM in becoming an even more customer-oriented operation through the introduction of sophisticated technologies designed to advance printers, publishers and the graphic arts industry.
http://whattheythink.com/news/51552-masami-shimizu-president-mitsubishi-printing-packaging/

Dealer deepens presence in heavy equipment sector

Heavy equipment supplier Mantrac has expanded its operations in Kenya to tap into a construction boom triggered by the ongoing infrastructure and housing projects across the country.

The construction of county government offices and related infrastructure that is expected to start soon will further provide an expanded market for construction equipment vendors.

There is also ongoing shift to give more incentives to the residential housing sector in a market that is under-supplied with lobbying directed towards enabling construction of affordable middle income homes.

Kenya is also planning mega projects in wind power, with Lake Turkana Wind Power, expected to break ground in December this year in an area that will require roads and related infrastructure.

The construction of Lamu Port, which is also in the pipeline, will need heavy equipment as well.

Mantrac and Panafrican Equipment Kenya, both vendors of earth-movers including construction tractors and heavy-duty generators are the two main players in the Kenyan market.

Mantrac said it has spent Sh160 million to expand its warehouse and renovate its premises in the Industrial Area readying for a market battle in an economy that has lined mega projects on expansion of roads, port, waterworks and airports.

“Our sales in Kenya have been growing in the last five years despite the global meltdown and post-election violence and that is why we are investing to take care of the growing client list,” said Mantrac managing director Fred Aryeetey.

The company said it plans to invest a further Sh24.6 million this year to expand its Nairobi facility to handle more equipment, spares and improve customer service.

Robust infrastructure development has provided the biggest market for earth movers and heavy diesel generators.

Other key projects that will provide long term market for earth movers include the ongoing construction of Thika Road, construction of water dams across the country, the relocation of Wilson Airport to Ruai, the Konza ICT City and other projects related to Vision 2030.

Reforms in the construction sector like the proposed National Construction Authority Bill are expected to drive growth.

Local financing solutions like the Infrastructure bonds are expected to ease the risk of stalled projects that could slow down the equipment market.

Matrac is the sole distributor of Caterpillar brand in Kenya.

The government first issued infrastructure bond in February 2009 and subsequent three others that have collectively raised Sh86 billion.