cs machinery monthly - may

CS Machinery Monthly - May

May 31st, 2017

Research Analysts

Jamie L. Cook, CFA

+212-538-6098

[email protected]

Themis Davis

[email protected]

+212-538-8443

Jamie Anderson

+212-538-3418

[email protected]

1

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Machinery – Highlights for May

Truck – industry forecasts suggesting flat NA HD production in ‘17: given the strength in NA truck orders year-to-date, ACT brought up its forecast for 2017

Class 8 production by 10K units in May, now expecting 228K units, or flat from 2016 levels. Despite the lack of growth in the freight environment, heavy duty orders

appear to be driven by small and medium fleets supporting work that is already taking place as well as the energy sector having a small pulse. Also worth noting that

several OEs are out with new models in 2017 which is helping. On used truck, while pricing has largely stabilized, the inventory situation remains an issue that will

require the balance of the year if not more to get worked through. In China, heavy duty truck was up 51% in April driving an 80% growth year-to-date. We anticipate

that demand for trucks will slow from current levels in the back half of the year due to normal seasonality, a slowing of replacement and tougher comps. For the EU

truck markets which have been a concern, we are encouraged by the fact that PCAR raised its European industry retail sales 10k on each end after Q1 showed a 5%

increase for industry heavy duty truck registrations. Still, April heavy duty registrations were disappointing at down 10% y/y.

Construction equipment – NA improving, China remains strong, EMEA and Lat. Am. still challenged: broadly speaking and by geography, NA seems to be

improving, there are still no signs of a recovery in Brazil, and EMEA continues to be challenged. Only last week, DE raised its C&F forecast to up 13% y/y (prev. up

7%) reflecting a strong order book as well as what the company is seeing in terms of retail growth over the past 3 months. In NA, machinery rental utilization levels

are improving, inventories are in good shape and a rebound in o&g is also providing tailwinds. On the flipside, pricing remains competitive. CAT’s April dealer stats

for construction were largely stable m/m (up 8% in April vs. up 7% in March) and consistent with CAT’s revenue guide for the full year. We would note that it usually

takes 3-4 months for Construction orders to translate into retail sales. In China, excavator demand was up 142% in April (vs. up 70% in March) and strength is

expected to continue through mid-year though afterwards comps will be getting increasingly tougher.

Ag. equipment – stabilization in NA and the EU, political uncertainty in Brazil: while we have yet to see a material inflection in retail sales/registrations for the

NA and EU markets, the signs of stabilization are there. In the US, declines in the large ag tractors have decelerated and were down in the single digit range in April

(down 8% y/y while small ag grew 9%) vs. double digit declines in previous months. In Europe, registrations in Germany for April were disappointing with small

tractors (less than 100HP) down 1% and large tractors (over 100HP) down 20%. However, UK registrations are still posting increases and were up 5% in April and

broadly speaking the dairy and livestock sectors are providing some tailwinds across several EU regions. More importantly, DE’s order book for large ag both in NA

and Europe is shaping up very nicely with visibility into Q3'17 for a good portion of the product lines suggesting a healthy environment. Finally shifting to Brazil, while

tractor sales maintained momentum in April (lover 80HP was up 17% y/y) the recent political instability is raising questions. Recall that political stability was one of

the primary reasons that helped the cycle turn as it had been conducive to the improved farmer sentiment.

Mining equipment– broad based improvement though from a low base: on mining, commentary from CAT’s call was encouraging. Hours of utilization on trucks

is up, the parked fleet has come down to under 20% of total, and the sales increase for aftermarket parts was broad based across all 4 regions. There appears to be

good activity in iron ore and coal in Australia, good activity for copper in Lat. Am, as well as machines being put back to work around coal in NA while the CIS region

is doing well for gold mining. Komatsu’s orders for mining equipment are also painting a similar picture with book-to-bill exceeding 1x across all regions in April,

consistent with previous months. CAT’s retail stats for April stayed at down 19%, same as in March but we would note that it takes ~6-7 months for Resources orders

to translate into retail sales.

2

Truck

3

Major Truck OEs Sales Mix\Brands

Sources: company data,

Credit-Suisse estimates 4

As of FY16

OE Ticker North America Europe Asia LatAm ROW North America International

Daimler DAI.DE 29% 41% 23% - 6%Freightliner

Western Star

Mercedes-Benz

Mitsubishi (Asia & LA)

Freightliner (Aus & LA)

Paccar PCAR 59% 29% - - 12%Peterbilt

Kenworth

DAF (Europe)

Kenworth (Aus) Volvo

Volvo VOLV-B.ST 25% 41% 18% 5% 11%Volvo

Mack

Renault (Europe)

Mack (Aus)

Eicher (India)

UD Trucks (Asia)

Navistar NAV 91% - - 3% 6% International International

MAN (VW) MAN 3% 62% 14% 9% 12%MAN (Europe)

VW (LatAm) Sitrak (China)

Scania (VW) SVKBY - 67% 13% 12% 8% Scania

PCAR: ROW consists of Mexico, SA, Australia and Other

NAV: NA consists of US, Canada and Mexico

MAN: NA reflects Americas and Asia reflects APME Source: Bloomberg

Unit/Sales Mix HD Brands

Commercial Vehicle Market Share

Sources: ACT, company

data, ACEA, Wards, Credit-

Suisse estimates

Data: as of 2016

5

Truck OEM

Heavy Duty

Share

Medium Duty

Share

Heavy Duty

Share

Medium Duty

Share

Heavy Duty

Engine

Medium Duty

Engine

Heavy Duty

Engine

Medium Duty

Engine North America Europe\

DAIMLER 39% 21%20-25% for both HD and

MD

91% Detroit Diesel

8% Cummins

1% Mercedes-Benz

<90% CMIFreightliner

Western StarMercedes-Benz

PACCAR 30% 6% 16% 10%59% Cummins

41% PACCAR <90% PCAR DAF Cummins

Kenworth

PeterbiltDAF

NAVISTAR 12% 14% - -87% Cummins

13% Navistar

Over 50% CMI

Rest NAV- - International -

VOLVO/MACK 17% - 24%smaller

player

88% Volvo/Mack

12% Cummins-

Volvo

Mack

Renault

Volvo

MAN - -big player in both

categories- - - MAN

VOLKSWAGEN

(Scania)- -

big player in both

categories- -

Volkswagen

(Scania)- - Scania

FIAT S.p.A - - - - - Iveco

JAPANESE

OEMs- 8% -

Hino - Toyota -

Hino

(Toyota)

OTHERS 2%50% (32% is

Ford)Various Manufacturers Various Manufacturers

Various

Manufacturers

Various

Manufacturers

Ford

GMC

Various

Brands

Brands

Mercedes-Benz

Volvo

Cummins

MAN

smaller players

FIAT

Share Engine

North America Europe North America Europe

NA Heavy Truck Bottoming...

ACT revised downwards its production outlook for 2017 several

times in 2016.

More recently, order have been very strong with all four months in

2017 surprising to the upside.

…After several cuts in forecasts, production expectations were

raised twice during 2017 with production now expected flat.

Cancelations pulled back in the last 6 months after a spike in October.

Sources: ACT research

ACT monthly revision to 2017 production

outlook for NA HD truck ACT NA Class 8 Truck forecasts - production

6

0

5

10

15

20

25

30

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17

Tho

usa

nd

s

Expectations

Actual

-10%

-5%

0%

5%

10%

50

100

150

200

250

300Jan-1

5

Mar-

15

May-

15

Jul-15

Sep-1

5

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-16

Sep-1

6

Nov-

16

Jan-1

7

Mar-

17

May-

17

Thousa

nds

2016 Production Outlook monthly revision as a %

-60%

-40%

-20%

0%

20%

40%

60%

80%

-

50

100

150

200

250

300

350

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17E

20

18E

20

19E

20

20E

Thousa

nds

Build % ∆

0.0%5.0%

10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%

% Orders Canceled Historic Average

…Medium Duty More Stable

Minor Revisions from ACT for the NA MD production outlook for

2017 reflect the stability in that part of the truck market.

ACT expects 2017 production up 5%.

Jan. started off strong with orders surprising to the upside while

Feb. and March maintained momentum, though April pulled back.

Order cancellations for MD have been trending well below

historical averages for a while now.

Sources: ACT research

ACT monthly Revision to 2016

production outlook

for NA MD truck

7

ACT NA Class 5-7 Truck Forecasts -

Production

0

5

10

15

20

25

30

Tho

usa

nd

s

2017

2016

2015

-10%

-5%

0%

5%

10%

50

100

150

200

250

300

350Jan-1

5

Mar-

15

May-

15

Jul-15

Sep-1

5

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-16

Sep-1

6

Nov-

16

Jan-1

7

Mar-

17

May-

17

Thousa

nds

2016 Production outlook monthly revision as a %

-10%

0%

10%

20%

30%

40%

50%

-

50

100

150

200

250

300

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17E

20

18E

20

19E

20

20E

Thousa

nds

Build % ∆

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

% Orders Cancelled Historic Average

Correlations High Correlation Between ATA Truck Tonnage and Class 8 Truck

Builds (graph compares %Δ y/y for average annual ATA tonnage

and annual change in truck builds).

High Correlation Between Housing Starts and MD Truck Builds.

ATA Tonnage numbers have been spotty YTD exhibiting lack of growth

in the freight environment.

Expectations for Total Housing Starts to grow 5% in 2017.

-90%

-70%

-50%

-30%

-10%

10%

30%

50%

70%

90%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

'80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13

ATA Tonnage (lhs)

Class 8 Truck Build (rhs)

R2: 0.61

0

500

1,000

1,500

2,000

2,500

-

9,000

18,000

27,000

36,000

45,000

Jan-04 Aug-05 Mar-07 Oct-08 May-10 Dec-11 Jul-13 Feb-15

Housing Starts (1 unit) MD Truck Orders

R2: 0.52

Sources: ACT research,

Census Bureau, ATA,


0

500

1,000

1,500

2,000

2,500

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17

ATA Truck Tonnage Index

NA Truck Market Share Heavy Duty Market Share: from 2010 to 2015 there was a market share shift from Navistar to other OEMs. In 2016, PCAR was the

market share winner, successful in expanding it’s share by 4%.

Medium Duty Market Share: similar to HD, Navistar has lost significant market share in MD in recent years. More recently, Ford has

been leading the pack and was able to capture 3 points of market share in 2016.

Sources: ACT research 9

39%

12%

30%

17%

2%

40%

12%

26%

20%

2%

34%

23% 25%

16%

2%

Daimler Navistar PACCAR Volvo Others

2016 2015 2010

32%

21%

14%

8% 6%

18%

29%

23%

16%

8% 7%

16%

23%

19%

31%

8%

5%

14%

Ford Daimler Navistar Japanese OEMs PACCAR Others

2016 2015 2010

NA Truck Engine Market Share CMI’s share was strong in Q1 averaging ~35%, well above the full

year guide of 29-32%.

In Class 7, CMI’s share in Q1 is trending above 2016 at ~60%.

In 2016, Detroit Diesel was the market share leader with 33% while

CMI was second at 32% and Volvo was third at 19% (Volvo & Mack)

In 2016, the two dominant players for Class 7 were CMI and PCAR

with market shares at 53% and 29% respectively.

Market Share for Diesel Engines

in NA Class 8 Group 2 trucks Market Share for Diesel

Engines in NA Class 8

Group 2 trucks in 2015

Market Share for Diesel

Engines in NA Class 7

trucks in 2015

Sources: Wards

Market Share for Diesel

Engines in NA Class 7 trucks

10

36%

41%

8%

0%

15%

0%

34% 35%

11%

0%

20%

0%

36% 39%

10%

0%

15%

0%

CMI DetroitDiesel Mack NAV PCAR Volvo

Jan17 Feb17 Mar17

32%

33%

9%

3%

14%

10%

CMI

DetroitDiesel

Mack

NAV

PCAR

Volvo

53%

6%

3%

9%

29%

CMI

Hino

MB

NAV

PCAR69%

5% 1% 0%

25%

53%

10%

3% 0%

34%

60%

6% 3%

0%

31%

CMI Hino MB NAV PCAR

Jan17 Feb17 Mar17

European Truck Exceeding Expectations…

Story is similar for trucks in the 3.5-16t range where the momentum from the end of 2015 continued into early 2016 but moderated in the

last few months of 2016. YTD numbers look very similar to HD with Q1 being strong and ~10% declines in April.

EU Heavy and Medium Commercial Vehicle Registrations (3.5-16t).

Data labels show y/y change

Heavy Commercial Vehicle Registrations (<16t). Data labels show y/y change

Sources: ACEA 11

In 2016 registrations were up 11%, though OEs remain cautious in regards to 2017. The first quarter was solid up 5%, though April was

weak down 10% driving YTD performance of up 1%.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2017

2016

2015

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2017

2016

2015

Emerging Markets: China Positive, Brazil Negative

China: truck was under significant pressure in 2015 with y/y double digit declines. Demand inflected in February of 2016 and momentum has

been very strong ever since. YTD heavy duty is up 80%.

Brazil: truck has been under a lot of pressure due to the general uncertainty in the country with DD declines in 2015, that persisted in

2016 and without any signs of a meaningful recovery underway as so far all months YTD are down.

Sources: ANFAVEA, China

automarket 12

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

0

1

2

3

4

5

6

7

8

9

10

Jan-1

4

Mar-

14

May-

14

Jul-1

4

Sep

-14

Nov-

14

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Thousand

s

Semi heavy and heavy CV

y/y change

-60.0%-40.0%-20.0%0.0%20.0%40.0%60.0%80.0%100.0%120.0%140.0%160.0%

0

20

40

60

80

100

120

140

Jan-1

4

Mar-

14

May-

14

Jul-1

4

Sep

-14

Nov-

14

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Thousand

s

Heavy CV sales

y/y change

Truck Stocks Roll With NA Truck Builds

$--

$20

$40

$60

$80

$100

$120

$140

$160

--

5

10

15

20

25

30

35

40

Jan

-91

Nov-9

2

Se

p-9

4

Jul-

96

Ma

y-9

8

Ma

r-0

0

Jan

-02

Nov-0

3

Se

p-0

5

Jul-

07

Ma

y-0

9

Ma

r-1

1

Jan

-13

Nov-1

4

Builds CMI

$--

$12.50

$25.00

$37.50

$50.00

$62.50

$75.00

$87.50

$100.00

--

5

10

15

20

25

30

35

40

Jan

-91

Jan

-93

Jan

-95

Jan

-97

Jan

-99

Jan

-01

Jan

-03

Jan

-05

Jan

-07

Jan

-09

Jan

-11

Jan

-13

Jan

-15

Builds Daimler

$--

$10

$20

$30

$40

$50

$60

$70

$80

--

5

10

15

20

25

30

35

40

Jan

-91

Nov-9

2

Se

p-9

4

Jul-

96

Ma

y-9

8

Ma

r-0

0

Jan

-02

Nov-0

3

Se

p-0

5

Jul-

07

Ma

y-0

9

Ma

r-1

1

Jan

-13

Nov-1

4

Builds PCAR

$--

$20

$40

$60

$80

$100

$120

$140

$160

--

5

10

15

20

25

30

35

40

Jan

-91

Nov-9

2

Se

p-9

4

Jul-

96

Ma

y-9

8

Ma

r-0

0

Jan

-02

Nov-0

3

Se

p-0

5

Jul-

07

Ma

y-0

9

Ma

r-1

1

Jan

-13

Nov-1

4

Builds Volvo

$--

$5

$10

$15

$20

$25

$30

$35

$40

--

5

10

15

20

25

30

35

40A

ug-0

2

Au

g-0

3

Au

g-0

4

Au

g-0

5

Au

g-0

6

Au

g-0

7

Au

g-0

8

Au

g-0

9

Au

g-1

0

Au

g-1

1

Au

g-1

2

Au

g-1

3

Au

g-1

4

Au

g-1

5

Builds RUSHA

$--

$10

$20

$30

$40

$50

$60

$70

$80

--

5

10

15

20

25

30

35

40

Jan

-91

Nov-9

2

Se

p-9

4

Jul-

96

Ma

y-9

8

Ma

r-0

0

Jan

-02

Nov-0

3

Se

p-0

5

Jul-

07

Ma

y-0

9

Ma

r-1

1

Jan

-13

Nov-1

4

Builds NAV

Sources: Thomson Reuters,

ACT research 13

Construction Equipment

14

Construction Equipment Market

Sources: Company Data,

Bloomberg, Off-highway

Research Credit-Suisse

estimates

Data: as of 2015

15

Aftermarket

Construction OEM NA EAME SA Asia ROW NA Europe Brands Direct Rental (as % of sales)

United States:

Caterpillar (Construction) 50% 22% 9% 19% - 22% 11% Caterpillar ~60-70% ~30-40%

Deere (Construction) 87% 13% - - - 18% - Deere ~80-85% ~15-20%

Case,

CNH (Construction) 44% 20% 27% 9% - 11% 4% New Holland ~85-90% ~10-15%

Niche players:

Cranes: 20-25% Terex,

Terex (Cranes, AWP) 41% 25% 8% 14% 12% Genie, ~25% ~75%

Demag

Cranes: #1 towers, Manitowoc,

Manitowoc (Cranes) 56% 28% 4% 11% 1% lattice-boom, RT, Potain, Grove, ~25% ~75%

boom trucks, #2 AT Shuttlelift, Yard Boss

AE: JLG

Oshkosh (AE) 82% 12% - - - Telehandlers: >50% Boom truck: IMT, Jerr-Dan ~10% ~90%

Mixers: London, McNeilus

Europe:

Volvo

Volvo (Construction) 18% 39% 11% 25% 7% 6% 11% SDLG/Lingong (China) ~60-70% ~30-40%

Drill rigs: 95% Drill rigs: 5%

Sandvik 17% 38% 7% 28% 10% - - Sandvik Crushing, screening: Crushing, scrreing: 50%

~100% small

Drill rigs: 95% Drill rigs: 5%

Atlas Copco 18% 32% 11% 28% 11% - 2% Atlas Copco Road constr: 30% Road constr: 70% 60%

Metso 14% 25% 26% 23% 12% - - Metso ~100% Small 50%

Asia:

UK: 30% UK: 70%

Komatsu 15% 6% 13% 60% 6% 6% 4% Komatsu US: 65-70% US: 25-30%

Japan: 40% Japan: 60%

Hitachi Construction 6% 16% 0% 78% 0% <1% 5% Hitachi

Doosan 39% 18% 0% 36% 7% 13% 6% Doosan

Bobcat

Sany - - - 70% 30% - - Sany ~100% -

Zoomlion - - - 93% 7% - - Zoomlion ~100% -

XCMG - - - 83% 18% - - XCMG ~100% -

Liugong - - - 80% 20% - - Liugong - -

Sales by Geography Market Share Channel-to-market

Construction Equipment Correlations

Independent (Leading) Variable Dependent Variable Best Lead Corr.

Total Non-Residential Construction 27 Months 0.77

Commercial Construction 27 Months 0.74

Manufacturing Construction 27 Months 0.73

Institutional Construction 10 Months 0.30

Total Non-Residential Construction 17 Months 0.89

Commercial Construction 24 Months 0.93

Manufacturing Construction 26 Months 0.87

Institutional Construction 29 Months 0.59

Total Non-Residential Construction 7 Quarters 0.54

Commercial Construction 7 Quarters 0.55

Manufacturing Construction 3 Quarters 0.46

Institutional Construction 2 Quarters 0.58









Total Non-Residential Construction 1 Year 0.87

Commercial Construction 1 Year 0.88

Manufacturing Construction 1 Year 0.79

Institutional Construction 1 Year 0.86

Construction Equipment

(Units Sold)

Architectual

Billings Index (ABI)

E&C Backlogs

Housing Starts

AWP Backlog

Cranes Backlog

Construction Equipment Type Tot. Non-Res Comm. Manu. Inst.

Articulated Dump Trucks 0.76 0.80 0.65 0.70

Asphalt Finishers 0.81 0.89 0.55 0.74

Backhoe Loaders 0.72 0.71 0.72 0.78

Craw ler Dozers 0.78 0.78 0.76 0.80

Craw ler Excavators 0.82 0.84 0.73 0.79

Craw ler Loaders 0.81 0.86 0.70 0.75

Mini Excavators 0.95 0.96 0.75 0.90

Motor Graders 0.55 0.60 0.63 0.59

Motor Scrapers 0.77 0.83 0.70 0.76

RTLTs - Masted 0.31 0.42 0.36 0.39

RTLTs - Telescopic 0.21 0.40 0.11 0.21

Rigid Dump Trucks 0.65 0.47 0.72 0.69

Skid Steer Loaders 0.84 0.85 0.80 0.87

Wheeled Excavators 0.46 0.34 0.78 0.67

Wheeled Loaders < 80 Hp 0.86 0.75 0.96 0.91

Wheeled Loaders > 80 Hp 0.76 0.77 0.76 0.81

Total 0.87 0.88 0.79 0.86

AWP is early cycle and 2015 marked the beginning of downturn whereas cranes are later

cycle and has yet to recover (below prior trough).

Sources: Credit-Suisse

estimates 16

Architecture Billings Index After beginning the year with a marginal decline, the ABI has posted three consecutive months of growth in design revenue at

architecture firms. The AIA reported the April ABI score was 50.9, down from a score of 54.3 in the previous month. The new projects

inquiry index was 60.2, up from a reading of 59.8 the previous month, while the new design contracts index increased from 52.3 to 53.2.

Sector and Regional Index breakdown and Correlations btw ABI and different types of construction.

Sources: AIA, Credit-Suisse

estimates 17

Leading Variable Dependent Variable Best Lead Corr.

ABI Index 27 Months 0.77




Total Non-Residential

Institutional

Manufacturing

Commercial

44.0

46.0

48.0

50.0

52.0

54.0

56.0

58.0

Regional Averages

2017 Northeast Midwest South West

January 51.8 52.9 53.2 48.6

February 51.8 53.4 51.7 49.1

March 50.2 53.5 54.0 50.0

April 50.7 53.3 55.3 50.9

Sector Index Breakdown

2017

multi-family/

residentital

commercial

/industrialinstitutional

mixed

practive

January 50.3 51.0 53.0 50.0

February 51.1 50.5 53.2 50.7

March 51.5 50.3 52.6 53.5

April 49.9 52.4 54.0 53.4

Housing Starts & Permits Expectations are for total housing starts in the US to grow ~5% in

2017…

Housing permits, a leading indicator to housing starts, were strong

in early 2016 but moderated more recently.

2016 posted solid performance, up in the 5% range for the full year.

Correlations

Leading Variable Dependent Variable Best Lead Corr.

17 Months 0.89

23 Months 0.93

25 Months 0.87

28 Months 0.59

Housing Starts Manufacturing

Housing Starts Institutional

Housing Starts Total Non-Residential

Housing Starts Commercial

Sources: Census Bureau,


0

500

1,000

1,500

2,000

2,500

0

200

400

600

800

1,000

1,200

1,400

2014

2015

2016

0

200

400

600

800

1,000

1,200

1,400

1,600

2014

2015

2016

Non-res Trends

Consensus is expecting a ~5.6% growth in Non-res in 2017. YTD total Non. Res is up 5% y/y.

So far in the year Commercial and Institutional Construction has been accelerating while manufacturing has been declining y/y.

19 Sources: AIA, Census Bureau,

Dodge Construction

0

5,000

10,000

15,000

20,000

25,000

Jan-1

3

Mar-

13

May-

13

Jul-1

3

Sep

-13

Nov-

13

Jan-1

4

Mar-

14

May-

14

Jul-1

4

Sep

-14

Nov-

14

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Commercial

Manufacturing

Institutional

Consensus 2017 2018

Non-residential Total 5.6% 4.9%

Commercial Total 8.3% 4.4%

Office 10.6% 4.6%

Retail/Other Comm 6.8% 5.3%

Hotel 7.2% 1.8%

Industrial Total 0.4% 3.3%

Institutional Total 5.7% 5.8%

Health 4.9% 4.9%

Education 6.3% 6.7%

Religious -1.9% 0.6%

Public Safety -0.7% 4.0%

Amusement/Recreation 7.7% 4.3%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Jan-1

3

Jun-1

3

Nov-

13

Ap

r-1

4

Sep

-14

Feb

-15

Jul-1

5

Dec-1

5

May-

16

Oct-

16

Mar-

17

Non Resi

Construction put in

place

CAT April Construction Dealer Stats

North America was down 4%, vs. down 6% last month.

EAME was down 11% vs down 10% last month.

Latin America was up 3%, vs. down 1% last month.

Asia/Pacific was up 59% vs. up 56% last month.

Global Construction inflected positive in February after 30 months of declines, and was up 8% in April propelled by Asia/Pacific.

Sources: CAT 20

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan-

14F

eb-1

4M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4S

ep-1

4O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16F

eb-1

6M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6S

ep-1

6O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb

-17

Mar

-17

Apr

-17

North America zero mark

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Jan-

14F

eb-1

4M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4S

ep-1

4O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16F

eb-1

6M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6S

ep-1

6O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb

-17

Mar

-17

Apr

-17

Latin America zero mark

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Jan-

14F

eb-1

4M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4S

ep-1

4O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16F

eb-1

6M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6S

ep-1

6O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb

-17

Mar

-17

Apr

-17

EAME zero mark

-40%

-20%

0%

20%

40%

60%

80%

Jan-

14F

eb-1

4M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4S

ep-1

4O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16F

eb-1

6M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6S

ep-1

6O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb

-17

Mar

-17

Apr

-17

Asia/ Pacific zero mark

Trends in China/Japan Komatsu: China Excavator Sales have been strong in the past few

months with consistent double digit increases and actually up

close to 3x in February.

China Komtrax: utilization has improved y/y in the last 13/15

months.

Hitachi: China Monthly Excavator Demand surprising to the upside

in the first 4 months of the year. April was up 142%.

Japan Komtrax: trend in Japan is also encouraging

y/y growth for demand

for hydraulic

excavators as

reported by Hitachi

Sources: Komatsu, Hitachi,

Komatsu China unit sales (above 6

ton excavator, excludes mini)

21

-150.0%-100.0%-50.0%0.0%50.0%100.0%150.0%200.0%250.0%300.0%350.0%

-

200

400

600

800

1,000

1,200

1,400

Jan-1

5

Mar-

15

May-

15

Jul-15

Sep-1

5

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-16

Sep-1

6

Nov-

16

Jan-1

7

Mar-

17

China unit excavator sales y/y change

-40%

-20%

0%

20%

40%

60%

80%

100%

- 20.0 40.0 60.0 80.0

100.0 120.0 140.0 160.0 180.0

Jan-1

5

Mar-

15

May-

15

Jul-15

Sep-1

5

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-16

Sep-1

6

Nov-

16

Jan-1

7

Mar-

17

Hourse per month y/y change

-20%

-15%

-10%

-5%

0%

5%

10%

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Jan-1

5

Mar-

15

May-

15

Jul-15

Sep-1

5

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-16

Sep-1

6

Nov-

16

Jan-1

7

Mar-

17

Hours per month y/y change

2015 2016 2017

January -37% -34% 48%

February -80% 46% 286%

March -51% 10% 70%

April -47% -34% 142%

May -48% -5%

June -54% 15%

July -52% 26%

August -51% 62%

September -49% 86%

October -43% 76%

November -36% 86%

December -37% 85%

Mining Equipment

22

Mining Competitive Landscape Surface Mining Products

Company

Dozers &

Graders

Wheel

Loaders

Mining

Trucks

Hydraulic

Shovels &

Excavators

Highwall

Miners

Surface

Dril ls

Rope

Shovels Draglines

Surface

Belt

Systems

Electric

Shovels

CAT

JOY

Komatsu

Hitachi

Liebherr

Belaz

Terex

OMZ

Atlas Copco

Sandvik

Underground Mining Products

Company

Belt

Systems

Roof

Supports

Armored

Face

Conveyors Shearers Dril ls

Trucks &

Loaders

Continuou

s Miners

Diesel

Transport

CAT

JOY

Atlas Copco

Sandvik

Boart

Longyear

Furukawa

Sources: Company data,


Mining Market Share by Product

Sources: Parker Bay

24

The Mining Equipment Cycle

Sources: Parker Bay

25

2016 was down 77% vs. 2012 peak and 48% below 20-year average.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

units delivered 10 year avg. 20 year avg. '92-'03 avg.

Total m ining equipment units shipped in a year by all OEs.

Mining Commodities Mining commodities where under significant pressure in 2014-2015

but enjoyed a nice rebound in 2016.

Global Mining Capex by commodity: trend has been shifting away

from coal, big winner is copper.

In 2016 the big winners were iron ore (up 44%), gold (up 24%) and

coal (up 41%), while copper was up only 1%.

Global Mining Capex by country: significant decrease in China,

Australia, Brazil, significant increase in Chile and Peru

0%

5%

10%

15%

20%

25%

30%

35%

40%

Copper Iron Ore Coal Gold Nickel Other*

2009

2015

0%2%4%6%8%

10%12%14%16%18%20%

2009

2015

Notes for top charts: gold future prices were

multiplies by 1 order of magnitude for scaling

purposes. Secondary axis is for gold and

copper. Chart on the top right is based on

prices of continuous futures.

Sources: Quandl, Company

data, Credit-Suisse

estimates, Bloomberg 26

-

50

100

150

200

250

300

350

400

- 2,000 4,000 6,000 8,000

10,000 12,000 14,000 16,000 18,000 20,000

9/2

9/2

00

9

9/2

9/2

01

0

9/2

9/2

01

1

9/2

9/2

01

2

9/2

9/2

01

3

9/2

9/2

01

4

9/2

9/2

01

5

Copper ($/mt)

Gold ($/oz)

Iron Ore ($/mt)

Coking Coal

($/mt)

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

1/1

/16

2/1

/16

3/1

/16

4/1

/16

5/1

/16

6/1

/16

7/1

/16

8/1

/16

9/1

/16

Coal

Gold

Iron Ore

Copper

Metals & Mining Capital Expenditures


Thomson Reuters Credit-

Suisse estimates 27

Metals & Mining Capex

($M)

Company Ticker FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E

BHP Billiton Ltd BHP 1,085 2,102 2,895 2,981 3,512 5,314 7,300 8,438 9,900 10,809 11,670 16,974 22,077 19,604 14,632 10,286 5,578 4,984 5,319

Vale SA VALE.K 419 606 633 1,640 2,227 4,141 4,510 7,276 7,120 9,277 13,408 14,247 14,618 11,980 10,460 6,802 5,331 3,743 4,255

Rio Tinto PLC RIO 967 1,483 1,420 1,663 2,259 2,590 3,992 5,000 8,574 5,388 4,591 12,573 17,615 13,001 8,162 4,685 3,012 4,117 5,452

Glencore PLC GLEN.L NULL NULL NULL NULL NULL NULL 1,103 1,643 1,875 1,116 1,890 2,810 3,117 9,587 9,060 5,519 3,048 3,800 3,591

Freeport-McMoRan Inc FCX 171 167 188 139 141 143 251 1,755 2,708 1,587 1,412 2,534 3,494 5,286 7,215 6,353 2,638 1,576 1,755

Anglo American PLC AAL.L 1,615 1,883 2,490 3,071 3,233 3,361 2,910 3,932 5,146 4,607 5,280 6,203 5,959 6,125 5,974 4,053 2,418 2,361 2,434

Barrick Gold Corp ABX.N 753 474 228 322 824 1,104 1,087 1,035 1,807 2,351 3,778 4,973 6,773 5,501 2,432 1,713 1,126 1,422 1,502

Teck Resources Ltd TCK 141 217 113 122 180 278 336 557 763 561 813 1,213 1,714 1,750 1,289 1,142 1,054 1,497 1,222

Newmont Mining Corp NEM.N 421 390 300 505 674 1,204 1,537 1,669 1,870 1,769 1,402 2,787 3,210 1,900 1,040 1,311 1,133 963 908

Vedanta Resources PLC VED.L NULL NULL NULL 273 489 626 1,030 1,597 2,536 2,471 2,459 2,720 2,365 2,194 2,263 1,227 922 1,010 1,028

Antofagasta PLC ANTO.L 319 123 67 92 80 223 507 482 1,146 1,376 1,302 671 877 1,345 1,646 1,049 905 803 842

First Quantum Minerals Ltd FM.TO 16 NULL 28 40 198 180 264 320 460 362 358 1,109 1,373 2,601 2,647 1,508 1,141 1,329 1,118

Kaz Minerals PLC KAZ.L NULL NULL 156 118 157 339 338 943 694 428 726 715 1,241 1,285 1,438 1,030 272 470 505

Fortescue Metals Group Ltd FSUGY.PK 0 0 0 0 1 2 4 16 495 774 1,006 3,736 6,200 4,175 1,422 605 482 700 767

Kumba Iron Ore Ltd KIOJ.J NULL NULL NULL NULL NULL 21 NULL 310 272 541 716 725 700 618 733 437 171 204 280

Lonmin PLC LMI.L 126 124 154 168 192 199 206 302 342 241 298 410 346 143 104 124 106 123 137

Ferrexpo PLC FXPO.L NULL NULL NULL NULL NULL NULL 50 105 278 86 167 380 429 278 235 65 50 79 79

Total* 4,932 5,467 5,592 7,721 9,810 13,245 15,339 22,023 29,971 27,931 33,290 49,346 60,805 51,205 39,744 27,837 18,205 17,304 19,274

Average 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160 24,160

*total includes only companies with continuous datasets for period 2000-2018

Metals & Mining Capex

(y/y)

Company Ticker FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016E FY2017E FY2018E

BHP Billiton Ltd BHP na 94% 38% 3% 18% 51% 37% 16% 17% 9% 8% 45% 30% -11% -25% -30% -46% -11% 7%

Vale SA VALE.K 58% 44% 4% 159% 36% 86% 9% 61% -2% 30% 45% 6% 3% -18% -13% -35% -22% -30% 14%

Rio Tinto PLC RIO 5% 53% -4% 17% 36% 15% 54% 25% 71% -37% -15% 174% 40% -26% -37% -43% -36% 37% 32%

Glencore PLC GLEN.L na na na na na na na 49% 14% -40% 69% 49% 11% 208% -5% -39% -45% 25% -6%

Freeport-McMoRan Inc FCX 9% -2% 13% -26% 1% 1% 75% 600% 54% -41% -11% 79% 38% 51% 36% -12% -58% -40% 11%

Anglo American PLC AAL.L 25% 17% 32% 23% 5% 4% -13% 35% 31% -10% 15% 17% -4% na na -32% -40% -2% 3%

Barrick Gold Corp ABX.N 3% -37% -52% 41% 156% 34% -2% -5% 75% 30% 61% 32% 36% -19% -56% -30% -34% 26% 6%

Teck Resources Ltd TCK 139% 54% -48% 8% 47% 55% 21% 66% 37% -26% 45% 49% 41% 2% -26% -11% -8% 42% -18%

Newmont Mining Corp NEM.N 56% -7% -23% 68% 33% 79% 28% 9% 12% -5% -21% 99% 15% -41% -45% 26% -14% -15% -6%

Vedanta Resources PLC VED.L na na na na 79% 28% 65% 55% 59% -3% -1% 11% -13% -7% 3% -46% -25% 9% 2%

Antofagasta PLC ANTO.L -47% -61% -46% 37% -12% 177% 127% -5% 138% 20% -5% -48% 31% 53% 22% -36% -14% -11% 5%

First Quantum Minerals Ltd FM.TO 368% 44% 390% -9% 47% 21% 44% -21% -1% 210% 24% 89% 2% -43% -24% 16% -16%

Kaz Minerals PLC KAZ.L na na na -24% 33% 116% 0% 179% -26% -38% 70% -2% 74% 4% 12% -28% -74% 73% 8%

Fortescue Metals Group Ltd FSUGY.PK -35% -88% 212% 511% 162% 195% 164% 259% 3077% 56% 30% 271% 66% -33% -66% -57% -20% 45% 10%

Kumba Iron Ore Ltd KIOJ.J na na na na na na na na -12% 99% 32% 1% -3% -12% 19% -40% -61% 19% 38%

Lonmin PLC LMI.L 7% -2% 24% 9% 14% 4% 3% 47% 13% -30% 24% 37% -16% -59% -27% 20% -15% 16% 11%

Ferrexpo PLC FXPO.L na na na na na na na 112% 165% -69% 94% 127% 13% -35% -16% -72% -24% 59% -1%

Total 12% 11% 2% 38% 27% 35% 16% 44% 36% -7% 19% 48% 23% -16% -22% -30% -35% -5% 11%

*total includes only companies with continuous datasets for period 2000-2018

Key Factors 2016 was down 77% vs. the 2012 peak and 48% below the 20 year

average.

Back in 2009, mining aftermarket picked up well before OE,

functioning as a leading indicator for the industry

The trend is encouraging given that units delivered in Q4’16 were

up 19% sequentially, marking the second consecutive sequential

increase.

Aftermarket is also historically less volatile than OE. Industry is

looking for signs of stabilization in the aftermarket.

Sources: Parker Bay,

Company Data, Bloomberg,

Credit-Suisse estimates

OE vs. aftermarket sales

(USD MM) OE vs. aftermarket sales

(% y/y)

28

0

100

200

300

400

500

600

700

Dozers

Draglines

Drills

Shovels

Graders

Hydraulic Excavators

Trucks

Wheel Loader

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

units delivered 10 year avg. 20 year avg. '92-'03 avg.

2016 was down 77% vs. 2012 peak

and 48% below 20-year average

1000.00

1500.00

2000.00

2500.00

3000.00

3500.00

2006 2008 2010 2012 2014 2016 2018

OE Sales Aftermarket Sales

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2004 2006 2008 2010 2012 2014 2016 2018

OE Sales Aftermarket Sales

CAT April Resources Dealer Stats

North America was down 13% vs. down 34% last month.

EAME reverted back to negative in April, down 8%, vs up 23% vs.

last month.

Latin Am. was down 69%, deteriorating from down 53% last month.

Asia/Pacific pulled back, down 6% vs down 1% last month

Global Resources sales were down 19% in April, same as last month.

Sources: CAT 29

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Jan-

14F

eb-1

4M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4S

ep-1

4O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16F

eb-1

6M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6S

ep-1

6O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb

-17

Mar

-17

Apr

-17

North America zero mark

-80%

-60%

-40%

-20%

0%

20%

40%

Jan-

14F

eb-1

4M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4S

ep-1

4O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16F

eb-1

6M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6S

ep-1

6O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb

-17

Mar

-17

Apr

-17

Latin America zero mark

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Jan-

14F

eb-1

4M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4S

ep-1

4O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16F

eb-1

6M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6S

ep-1

6O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb

-17

Mar

-17

Apr

-17

EAME zero mark

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jan-

14F

eb-1

4M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4S

ep-1

4O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb

-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16F

eb-1

6M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16

Jul-1

6A

ug-1

6S

ep-1

6O

ct-1

6N

ov-1

6D

ec-1

6Ja

n-17

Feb

-17

Mar

-17

Apr

-17

Asia/ Pacific zero mark

Komatsu reports average orders in value for last 6 months as

a percentage of factory shipments for last 6 months for mining

equipment.

Komatsu reports data for Komatsu America (mining eqpt),

Komatsu Mining Germany and Komatsu Ltd. China (mining

equipment)

Komatsu Mining – April Trends

Orders received/Sales Index:

Komatsu Mining Germany (mining shovels): orders for

mining shovels have been accelerating

Komatsu America (mining trucks): recent readings imply

that orders have been exceeding sales which is encouraging.

Komatsu Ltd, China (trucks, shovels, loaders, dozers):

orders strong as a percentage of sales accelerating.

Sources: Komatsu 30

Agriculture Equipment

31

Agriculture Equipment Market

Industry Outlook by OEM

Industry Tractor Outlook – 2017E

Region Deere AGCO CNHI

North

America Down 5% Down 5-10% Down 5-10%

Europe Flat to down 5% Flat to Down

5% Flat

South

America Up 20% Up 15% Up 15%

Asia Flat to Up Slightly - Flat to up 5%

vs. prior

guide

Improved NA

and SA

Improved

SA

Improved NA

and EU

The Big Three: DE, AGCO, CNH



Deere AGCO CNH

*DE excludes C&F segment (CS estimate), CNH exludes Construction segment

North

America

39%

W.

Europe

40%

Latin

America

11%

APAC

14%North

America

25%

W.

Europe

11%Latin

America

58%

APAC

6%

North

America

53%

W.

Europe

14%

Other

Europe

5%

South

America

12%

ROW

13%

WASDE April Report General expectations are for relatively minor fine-tuning to the

USDA’s crop estimates with traders looking for slight increases

in carryover numbers for corn, soy and wheat.

In 2016 soy prices jumped 16%, corn prices were flat and wheat

prices dropped 12%

While US corn ending carry was not increased as had been

expected, this was offset by the USDA raising its global ending

carry estimate, driven by increased estimates for production in

Argentina and Brazil. On the soybean front, increases to US

ending carry figures were in-line with expectations, while

global ending stocks were also increased on the back of

upward revisions to (already record) production estimates in

Latin America (note that USDA now expects Brazilian soybean

production at 111mmt).

Bottom Line: negative for both corn and soybeans.

Highlights from April WASDE Report

DE is up 17% YTD while AGCO is up 6%. DE’s stock ripped up ~8%

on May 19th on much better than expected earnings.

Sources: USDA, Credit

Suisse estimates, Quandl

daily % change in

continuous commodity

futures $10.1

$3.4

$4.1

33

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

7/2

5

8/2

5

9/2

5

10

/25

11

/25

12

/25

1/2

5

2/2

5

3/2

5

4/2

5

Corn

Soybeans

Wheat

2015/16 Expectations vs. Actual

Carryover Expectations for February WASDE

Corn Soy What

Mean 2335 410 1180

Midpoint 2348 417 1178

Low 2280 386 1145

High 2415 448 1211

February 2320 420 1139

% vs Mean -0.6% 2.4% -3.5%

Source: Profarmer, Reuters, CM I, USDA

-5%

0%

5%

10%

15%

20%

DE

AGCO

US Unit Retail Sales - April Total tractors: sales were up 7% in April, similar to March

when sales were up 6%.

Higher horsepower models with over 100HP were down 8% vs. an

11% decline in March.

Units of lower HP models (less than 100HP) were up 9% after being

up 7% in February..

Combines: combines were flat in March vs. up 9% in March.

Sources: AEM 34

-20%-15%-10%-5%0%5%10%15%20%25%

-

5,000

10,000

15,000

20,000

25,000

30,000

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Total Tractors y/y change

-20%

-10%

0%

10%

20%

30%

40%

50%

-

5,000

10,000

15,000

20,000

25,000

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Less than 100HP tractors y/y change

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Over 100HP tractors y/y change

-60%

-40%

-20%

0%

20%

40%

-

100

200

300

400

500

600

700

800

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Combines Combines

US Inventories Total Tractors: tractor inventories are coming down in 2017 thus

far in the year.

Large tractors are showing the largest y/y inventory reductions

with the end of March down 18%.

Less than 100HP tractor inventories were down 8% y/y at the end of

March.

Combines saw significant inventory declines last year and have

largely stabilized in 2017.

Total tractors

>100HP combines

Sources: AEM (data lags

retail sales by one month)

<100HP

35

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2015

2016

2017

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2015

2016

2017

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2015

2016

2017

-

200

400

600

800

1,000

1,200

1,400

1,600

2015

2016

2017

DE Retail Sales Comment Industry Retail sales in April as reported by the Association of

Equipment Manufactures

Industry Dealer Inventory levels as reported by the Association of

Equipment Manufactures

Relative Performance of DE vs. Industry in April

DE Dealer Inventory: at the end of February, DE dealer inventories

were in better shape than the industry for almost all tractor types

as a % of trailing 12 months retail sales

Sources: AEM, DE

as a % of trailing 12 months retail sales

36

Industry Retail Sales (April)

Utility Tractors (2WD <40HP) 10%

2WD Tractors (40<100HP) flat

Row crop tractors (2WD >=100HP) -4%

4WD tractors 32%

Combines 9%

DE Retail Sales (April)

Utility Tractors (2WD <40HP) up less than the industry

2WD Tractors (40<100HP) in line with the industry

Row crop tractors (2WD >=100HP) flat

4WD tractors up more than the industry

Combines up in line with the industry

Industry Dealer Inventory (February)

Utility Tractors (2WD <40HP) 57%

2WD Tractors (40<100HP) 64%

Row crop tractors (2WD >=100HP) 54%

4WD tractors 37%

Combines 24%

DE Dealer Inventory (February)

Utility Tractors (2WD <40HP) lower than industry

2WD Tractors (40<100HP) lower than industry

Row crop tractors (2WD >=100HP) lower than industry

4WD tractors in line with the industry

Combines lower than industry

Other Geographies – April Update

Germany Over 100HP: January inflected positive up 13% though

April decelerated, down 20% y/y.

Brazil Over 80HP: June ‘16 inflected positive and ever since Brazil

has been exhibiting momentum with strong y/y numbers.

Germany Less than 100HP: smaller tractors have been mixed, with April

down 1%.

Brazil Less than 80HP: lower HP also inflected positive in July up 9% y/y

and has been exceeding expectations ever since.

Sources: VDMA, ANFAVEA 37

-100%

-50%

0%

50%

100%

-

500

1,000

1,500

2,000

2,500

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Over 100HP tractors y/y change

-40%

-20%

0%

20%

40%

60%

80%

-

500

1,000

1,500

2,000

Jan-1

5

Mar-

15

May-

15

Jul-1

5

Sep

-15

Nov-

15

Jan-1

6

Mar-

16

May-

16

Jul-1

6

Sep

-16

Nov-

16

Jan-1

7

Mar-

17

Less than 100HP tractors y/y change

0

500

1000

1500

2000

2500

2015 2016 2017

0

500

1000

1500

2000

2500

2015 2016 2017

Disclosures

38

Companies Mentioned (Price as of 29-May-2017)

AGCO Corp (AGCO.N, $63.96, NEUTRAL, TP $61.0) Allison Transmission (ALSN.N, $38.55) Anglo American Plc (AAL.L, 1052.5p) Antofagasta (ANTO.L, 824.5p) Atlas Copco (ATCOa.ST, Skr316.6) BHP Billiton (BHP.AX, A$23.84) BHP Billiton (BLT.L, 1205.0p) Barrick Gold Corp (ABX.N, $16.38) Boart Longyear Group (BLY.AX, A$0.038) CNH Industrial (CNHI.MI, €10.09) Caterpillar Inc. (CAT.N, $105.66, OUTPERFORM, TP $123.0) Cummins Inc. (CMI.N, $156.64, OUTPERFORM, TP $196.0) Daimler (DAIGn.DE, €65.44) Deere & Co. (DE.N, $122.79, OUTPERFORM, TP $151.0) Doosan (000150.KS, W118,000) Eaton Corporation (ETN.N, $77.56) Ferrexpo Plc (FXPO.L, 172.7p) Fiat Chrysler Automobile (FCHA.MI, €9.3) First Quantum Minerals Ltd. (FM.TO, C$11.68) Fortescue Metals Group Ltd (FMG.AX, A$4.7) Freeport-McMoRan Inc (FCX.N, $11.67) Furukawa Co (5715.T, ¥197) Glencore (GLEN.L, 292.5p) Hitachi (6501.T, ¥668) Illinois Tool Works, Inc. (ITW.N, $140.37) KAZ Minerals Plc (KAZ.L, 506.0p) Komatsu (6301.T, ¥2,650) Kumba Iron Ore (KIOJ.J, R159.55) Liebherr (Unlisted) LiuGong Machinery Co., Ltd (000528.SZ, Rmb7.82) Lonmin Plc (LMI.L, 86.25p) Meritor (MTOR.N, $16.0) Metso (MEO1V.HE, €30.64) Navistar Intl (NAV.N, $26.92) Newmont Mining (NEM.N, $34.11) OMZ (OMZZ.RTS, $1.23) Oshkosh Corporation (OSK.N, $64.91) Paccar Inc (PCAR.OQ, $62.63, NEUTRAL, TP $68.0) Parker Hannifin Corporation (PH.N, $159.26) REV Group Inc. (REVG.N, $28.43) Rio Tinto (RIO.L, 3190.0p) Rio Tinto (RIO.AX, A$62.67) Rush Enterprises, Inc. (RUSHA.OQ, $36.44) Sandvik (SAND.ST, Skr135.2) Sany Heavy Industry Co (600031.SS, Rmb6.91) Scania (SVKBY.PK, $28.0) Terex Corporation (TEX.N, $32.91) The Manitowoc Company, Inc (MTW.N, $5.91) Thomas Cook Grp (TCKGY.PK, $3.91) Toyota Motor (7203.T, ¥5,970) Vale (VALE.N, $8.53) Vedanta Resources PLC (VED.L, 646.0p) Volkswagen (VOWG.DE, €141.95) Volvo (VOLVb.ST, Skr141.3) Wabco Holdings Inc. (WBC.N, $120.41) XCMG Construction Machinery Co., Ltd (000425.SZ, Rmb3.37) Zoomlion Heavy Industry (000157.SZ, Rmb4.39) Zoomlion Heavy Industry (1157.HK, HK$3.49)

Disclosure Appendix

Analyst Certification

I, Jamie Cook, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for AGCO Corp (AGCO.N)

AGCO.N Closing Price Target Price

Date (US$) (US$) Rating

29-Jul-14 49.59 55.00 N

07-Oct-14 42.13 43.00

16-Dec-14 43.93 44.00

03-Feb-15 48.96 46.00

29-Apr-15 51.58 49.00

28-Jul-15 52.24 53.00

01-Oct-15 43.83 50.00

16-Dec-15 45.50 44.00

04-Apr-16 49.32 52.00

27-Apr-16 53.97 53.00

13-Oct-16 51.28 54.00

19-Dec-16 58.14 55.00

19-Jan-17 61.68 60.00

28-Apr-17 63.99 61.00

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L

3-Year Price and Rating History for Caterpillar Inc. (CAT.N)

CAT.N Closing Price Target Price


24-Jul-14 105.04 119.00 O

15-Oct-14 92.59 108.00

23-Oct-14 99.27 109.00

08-Jan-15 88.71 100.00

27-Jan-15 79.85 90.00

23-Apr-15 84.79 92.00

23-Jul-15 76.88 89.00

24-Sep-15 65.80 75.00

22-Oct-15 70.88 78.00

12-Jan-16 61.60 72.00

04-Apr-16 75.72 87.00

26-Jul-16 82.75 90.00

13-Oct-16 86.97 102.00

25-Oct-16 84.48 101.00

19-Jan-17 93.38 111.00

25-Apr-17 104.42 123.00


O U T PERFO RM

3-Year Price and Rating History for Cummins Inc. (CMI.N)

CMI.N Closing Price Target Price


28-Jul-14 145.35 167.00 O

15-Oct-14 128.46 156.00

28-Oct-14 144.59 161.00

05-Feb-15 138.11 156.00

28-Jul-15 128.00 148.00

01-Oct-15 105.40 124.00

27-Oct-15 102.35 116.00

12-Jan-16 86.63 98.00

04-Feb-16 97.57 108.00

04-Apr-16 109.09 125.00

03-May-16 118.60 130.00

02-Aug-16 121.04 132.00

13-Oct-16 126.13 149.00

01-Nov-16 122.29 148.00

19-Jan-17 140.97 163.00

09-Feb-17 150.14 173.00

02-May-17 160.56 196.00


O U T PERFO RM

3-Year Price and Rating History for Deere & Co. (DE.N)

DE.N Closing Price Target Price


13-Aug-14 84.49 98.00 O

29-Sep-14 82.34 95.00

08-Jan-15 86.49 100.00

22-May-15 93.35 105.00

21-Aug-15 83.29 99.00

01-Oct-15 72.89 87.00

19-Feb-16 77.00 88.00

04-Apr-16 75.90 87.00

22-Aug-16 87.96 100.00

23-Nov-16 102.17 116.00

13-Jan-17 105.79 120.00

19-Jan-17 105.02 132.00

19-May-17 120.90 151.00


O U T PERFO RM

3-Year Price and Rating History for Paccar Inc (PCAR.OQ)

PCAR.OQ Closing Price Target Price


29-Jul-14 60.19 55.92 N

08-Jan-15 65.14 58.69

30-Jan-15 57.83 60.61

28-Jul-15 62.34 59.65

01-Oct-15 49.70 53.88

17-Dec-15 45.03 54.51

12-Jan-16 44.79 48.56

29-Jan-16 48.63 49.55

04-Apr-16 53.19 54.51

26-Apr-16 58.40 57.48

13-Oct-16 56.18 61.45

25-Oct-16 54.31 62.00

19-Jan-17 65.74 68.00


N EU T RA L

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

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Restricted 2%

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Target Price and Rating Valuation Methodology and Risks: (12 months) for AGCO Corp (AGCO.N)

Method: Our price target of $61 for AGCO assumes 16x our 2019 EPS estimate, discounted back. This multiple is in-line with historical multiples for the company and the machinery group. Our Neutral rating for AGCO is merited based on the fact that we anticipate performance in line with the group.

Risk: Risks to our Neutral rating and the achievement of our $61 target price for AGCO are (1) A falloff in the agriculture markets, (2) government regulations related to farmer subsidies (especially given AGCO's heavy concentration in Europe and South America), (3) availability of component parts, raw materials prices, primarily steel, and (4) fluctuations in currency.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Caterpillar Inc. (CAT.N)

Method: Our $123 target price for CAT is based on 15.5x our 2019 EPS estimate, discounted back. This is a historically in-line multiple at this point in the cycle. Our Outperform rating is merited based on relative upside we see for CAT relative to the group.

Risk: Risks to our Outperform rating and CAT's achievement of our $123 target price are general economic risk, rising material costs or supply chain distortions, execution risk on overseas expansion, risk in integration of acquisitions, and dealership consolidation. We believe there is risk to CAT's order book if emerging/commodity markets begin to weaken, which could drive cancellations.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Cummins Inc. (CMI.N)

Method: Our price target of $196 assumes 15x our 2019 EPS, discounted back. We believe that our Outperform rating as well as the multiple are appropriate based on CMI's ability to outgrow the market over the next several years given market share gains in the engines business and secular growth related to the components business. We also see potential for an improving capital allocation story.

Risk: We view the following as risks to our Outperform rating and the achievement of our $196 target price for CMI: (1) the volatility of the Class 6-8 truck cycle, (2) results of the emissions changes, and (3) the price and availability of raw materials such as steel.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Deere & Co. (DE.N)

Method: Our $151 price target for Deere & Co. reflects 15x our CY2019 EPS (earnings per share), discounted back. Our Outperform rating is merited based on relative upside we see for DE relative to the group.

Risk: Risks to our Outperform rating and the achievement of our $151 target price by DE are (1) lack of recovery in the construction and growth in the agriculture markets, (2) government regulations related to farmer subsidies, (3) availability of component parts, (4) availability of raw materials, and (5) general macroeconomic factors.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Paccar Inc (PCAR.OQ)

Method: Our target price of $68 for Paccar is derived by using a Price to Earnings multiple of 16.5x our 2019 EPS discounted back. This multiple is in-line historically for the company at this phase of the cycle. Our Neutral rating for PCAR is merited based on the fact that we anticipate performance in line with the group.

Risk: Risks to our Neutral rating and the achievement of our $68 target price by Paccar are (1) the volatility of the Class 8 truck cycle, (2) results of the emissions changes, (3) the price and availability of raw materials such as steel, and (4) dramatic changes in currency and interest rates that could affect DAF in Europe.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (CAT.N, DE.N, TEX.N, ALSN.N, ITW.N, DAIGn.DE, VOLVb.ST, FCHA.MI, 7203.T, CNHI.MI, SAND.ST, ATCOa.ST, MEO1V.HE, 6501.T, ETN.N, REVG.N, AAL.L, KAZ.L, FM.TO, VED.L, ABX.N, FXPO.L, NEM.N, ANTO.L, KIOJ.J, 000425.SZ, BHP.AX, GLEN.L, RIO.L, VALE.N, FMG.AX, BLT.L, RIO.AX) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (DE.N, TEX.N, ALSN.N, DAIGn.DE, FCHA.MI, CNHI.MI, ETN.N, REVG.N, AAL.L, FM.TO, VED.L, ABX.N, NEM.N, KIOJ.J, BHP.AX, GLEN.L, RIO.L, FMG.AX, BLT.L, RIO.AX) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (CAT.N, TEX.N, DAIGn.DE, FCHA.MI, 6501.T, ETN.N, AAL.L, VED.L, NEM.N, GLEN.L, RIO.L, VALE.N, FMG.AX, RIO.AX) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (DE.N, TEX.N, DAIGn.DE, FCHA.MI, REVG.N, AAL.L, FM.TO, FMG.AX) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (DE.N, TEX.N, ALSN.N, DAIGn.DE, FCHA.MI, CNHI.MI, ETN.N, REVG.N, AAL.L, FM.TO, VED.L, ABX.N, NEM.N, KIOJ.J, BHP.AX, GLEN.L, RIO.L, FMG.AX, BLT.L, RIO.AX) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CAT.N, AGCO.N, DE.N, CMI.N, TEX.N, ALSN.N, MTW.N, PH.N, ITW.N, OSK.N, DAIGn.DE, VOLVb.ST, FCHA.MI, 7203.T, CNHI.MI, SAND.ST, ATCOa.ST, MEO1V.HE, 6501.T, ETN.N, REVG.N, AAL.L, KAZ.L, FM.TO, VED.L, ABX.N, FXPO.L, NEM.N, ANTO.L, KIOJ.J, 000157.SZ, 000425.SZ, BHP.AX, GLEN.L, RIO.L, VALE.N, FMG.AX, BLT.L, RIO.AX, 1157.HK) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (CAT.N, TEX.N, DAIGn.DE, FCHA.MI, 6501.T, ETN.N, AAL.L, VED.L, NEM.N, GLEN.L, RIO.L, VALE.N, FMG.AX, RIO.AX) within the past 12 months

A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (AGCO.N, DE.N, TEX.N, ALSN.N, MTW.N, PH.N, OSK.N, RUSHA.OQ, DAIGn.DE, FCHA.MI, CNHI.MI, SAND.ST, ATCOa.ST, MEO1V.HE, 6301.T, REVG.N, AAL.L, KAZ.L, FM.TO, VED.L, ABX.N, FXPO.L, NEM.N, ANTO.L, KIOJ.J, 000157.SZ, 000425.SZ, BHP.AX, GLEN.L, VALE.N, FMG.AX, BLT.L, 1157.HK) within the past 12 months.

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (KAZ.L, FXPO.L).

Credit Suisse has a material conflict of interest with the subject company (6501.T) . Credit Suisse is acting as financial advisor to Hitachi Ltd. in relation to the announced sale of their stake of Hitachi Kokusai Electric Inc. to KKR Japan Ltd.

Credit Suisse has a material conflict of interest with the subject company (NEM.N) . Noreen Doyle, an employee of Credit Suisse, is a Non-Executive Director of Newmont Mining Corporation.

Credit Suisse has a material conflict of interest with the subject company (VALE.N) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report.

As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (FXPO.L). Credit Suisse Securities (Europe) Limited is acting as Dealer Manager to Ferrexpo on the announced exchange offer for its outstanding US$500,000,000 7.875% notes due 2016

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=229824&v=643rj0ggrl71gdvsic9ie6z3z .

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.

The following disclosed European company/ies have estimates that comply with IFRS: (DAIGn.DE, VOLVb.ST, FCHA.MI, SAND.ST, ATCOa.ST, MEO1V.HE, AAL.L, KAZ.L, VED.L, ANTO.L, BLT.L).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (DE.N, TEX.N, ALSN.N, DAIGn.DE, FCHA.MI, CNHI.MI, REVG.N, AAL.L, FM.TO, FXPO.L, GLEN.L, FMG.AX) within the past 3 years.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

This research report is authored by:

Credit Suisse Securities (USA) LLC ....................................................................................... Jamie Cook, CFA ; Themis Davris ; Jamie Anderson

Important disclosures regarding companies or other issuers that are the subject of this report are available on Credit Suisse’s disclosure website at https://rave.credit-suisse.com/disclosures or by calling +1 (877) 291-2683.

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