Japan's 20 trillion Japanese yen National Resilience Infrastructure Plan is effectively a 5-year construction order stamped by Tokyo, and every power tool company in the supply chain just got a guaranteed demand floor.

The government approved a record JPY 122.3tn budget for FY 26, a 6.2% rise y/y and the largest in the country's history. Within that, the directive to spend over JPY 20 trillion on disaster-resilient infrastructure between FY 26 and FY 30, locks in multi-year demand for everything from excavators to impact wrenches.

More importantly, Mordor Intelligence, a market research and intelligence firm, projects Japan's construction sector to swell to JPY 709bn by FY 31, growing at a CAGR of 5.1%, fueled by semiconductors, energy-efficient retrofits and resilience projects.

For Makita, Japan's dominant power-tool manufacturer exporting cordless drills, impact drivers, and outdoor power equipment to over 50 countries, this infrastructure mandate is a structural tailwind baked into the next half-decade of order books.

Yen masks slump

Makita raked in JPY 777.6bn in revenue for FY 26, a 3.2% y/y increase from JPY 753.1bn the previous year.

However, look deeper and the headline growth looks increasingly hollow. Strip out the yen's 3.7% depreciation (which translated to JPY 23.3bn in gains) and consolidated revenue crawled up just 0.2% in local-currency terms. In addition, unit sales fell 2.7% to 29.8 million units from 30.6 million units in the previous period. That's a company selling fewer tools at higher prices to a shrinking buyer pool, dressed up by a cooperative currency.

Operating profit slipped 2.2% y/y to JPY 104.7bn from JPY 107bn, revealing margin pressure despite top-line growth. The operating margin compression from 14.2% to 13.5% showed that rising costs, particularly selling, general and administrative expenses which rose from JPY 164.4bn to JPY 179.3bn (+9.1% y/y), are outpacing the company's ability to drive efficiencies.

The company's net attributable profit was all but flat at JPY 79.4bn, up just 0.1% y/y, suggesting operational challenges offsetting revenue gains.

Whether Makita can convert its FY 27 guidance of JPY 820bn in revenue (+5.5% y/y) into real volume growth, not just yen arithmetic, will be the test that separates a genuine recovery from a currency illusion.

Valuation losing charge

At JPY 5,741, Makita has sprinted 34.4% over the past 12 months, yet still sits 6.3% below its 52-week peak of JPY 6,130. The rally has been impressive, although the stock's inability to remain high suggests that the market isn't fully convinced that the earnings story has legs beyond the yen tailwind.

Its forward P/E stands at 18.5x, based on FY 27 estimated earnings, a mild discount to its 3-year historical average of 20x. That 1.5-turn gap suggests that  the market is giving partial credit for the margin recovery but withholding full marks until volume growth returns in hard currency terms.

Despite carrying a JPY 1.5tn ($9.4bn) market cap, the stock's re-rating potential now looks modest.

9 out of 13 analysts have "Buy" ratings on the stock, with the other four on "Hold", with an average target of JPY 6,179.3, implying just 7.6% upside potential from current levels. Indeed, this 7.6% upside, even though most analysts say “Buy”, is not really over-enthusiastic.

In other words, the quick gains from the stock being revalued are now already behind us. From here, analysts are really saying that investors could well  earn an average market return while they wait for higher volumes to justify gains that the weaker yen has already delivered upfront.

Running on fumes?

Makita's growth engine is running on currency and not combustion. The yen's depreciation gifted the company a flattering translation boost - take that out and revenue has barely moved. The moment the yen strengthens, the entire top-line narrative evaporates, and management is left holding a business that actually shrank in volume terms.

Then there's the cost creep, expenses ballooning faster than revenue while margins compress. From here, returns depend less on Tokyo's construction mandate and more on whether Makita can sell more tools - not just pricier ones - to buyers who are currently walking away.