TOKYO/CHICAGO, Sept 28 Japan's Komatsu Ltd and Hitachi Construction Machinery Co Ltd are

TOKYO/CHICAGO, Sept 28 (Reuters) Japan's Komatsu Ltd and Hitachi Construction Machinery Co Ltd are outgunning Caterpillar Inc in high-growth emerging markets such as China, India and Russia, while their bigger U.S. rival's earnings disappoint.

Komatsu and Hitachi Construction have taken a lead in the vast Chinese market for earth-moving equipment, helped by their geographical proximity to the world's fourth-largest economy and as a shrinking domestic market in the 1990s pushed them to seek overseas growth.

Investors have taken note.

Since 2004, Caterpillar's shares have risen 85 percent, but Hitachi Construction's have nearly tripled and Komatsu's have jumped nearly six-fold. The Japanese firms trade at a little over 18 times expected earnings, versus 14 for Caterpillar.

Caterpillar , however, is not standing still. Its overseas sales are increasing and it is investing in production ventures in China, where it hopes to more than treble annual sales to $3-4 illion by 2010.

More than twice as big as Komatsu in revenue and profit terms, and twice as big again as Hitachi Construction, Caterpillar has focused more on the U.S. and other mature markets where its branding allows it to charge premium prices.

''Caterpillar hasn't necessarily had to export with the same sort of dynamism,'' said David Phillips, managing director at Off-Highway Research, noting Caterpillar has traditionally relied on North America for half its sales -- a market that was growing until the sub-prime mortgage crisis hit the building sector.

China's rapid urbanisation and big infrastructure projects have meant soaring demand for construction machinery, and its hunger for minerals has spurred a massive upturn for the global mining industry.

Analysts say the opportunities are so vast that all makers are growing and will keep growing - not just the more established players, but others such as Terex Corp , Volvo and South Korea's Doosan Infracore .

Komatsu CEO Kunio Noji says Japan has around 800,000 excavators, down from 1.2 million during the bubble years of the late 1980s, while China has only 200,000.

''This tiny island nation has 800,000. Think how much bigger China is and when you do, you realise that we're looking at 10-15 years of growth,'' he said in an interview.

India is also driving demand for excavators, wheel loaders and dump trucks as it modernises, while Russia is set to embark on major road-building projects. Demand in the Middle East too has gone from sporadic to constant.

In the latest quarter, Caterpillar's overseas sales made up 55 percent of revenue, up from 47 percent a year earlier, but the Japanese have grown faster, especially in hydraulic excavators, while Caterpillar has focused on larger machines.

Excavators, the Japanese say, are the fastest-growing part of the market, account for the most revenue in Asia and are the drivers for brand strength.

DIGGING UP PROFITS In China, mainly an excavator market, Komatsu has 18 percent of the crawler excavator segment, ahead of Hitachi Construction, Doosan Infracore and Hyundai Heavy Industries, according to Off-Highway Research. Caterpillar ranks fifth with 10 percent.

In India, Hitachi Construction commands half the market with local partner Tata Motors Ltd , while Komatsu has 30 percent. Caterpillar's share is put at around 5 percent.

Both Komatsu and Hitachi Construction increased April-June net profit by around 60 percent and revised up their annual earnings outlooks. Caterpillar, exposed to the U.S. market and beset with production woes, saw profits drop by a fifth.

Komatsu's ties with its suppliers helped it push up its April-June operating margins at its construction and machinery business to 16.2 percent, against 10.2 percent for Caterpillar's machinery division.

All are busy investing in plants to keep up with demand.

Caterpillar plans to build diesel engines in China and has invested in wheel loader maker Shandong SEM Machinery. Last year, it moved its Asia headquarters to Beijing from Tokyo.

''Komatsu and Hitachi Construction have a head start, but Caterpillar is steadily developing its dealer presence and product support,'' said John Kearney, an analyst at Morningstar said of the Asia market.

Caterpillar is also in talks with Mitsubishi Heavy Industries to raise its stake in a 50-50 venture, Shin Caterpillar Mitsubishi, to about two-thirds -- seen as crucial as the U.S. giant relies on the venture for hydraulic excavator technology.

''What's key is how well Caterpillar takes control of Shin Caterpillar Mitsubishi and how its excavator strategy progresses from there. That's going to be the crux of whether it gets increasingly stronger or not,'' said Komatsu's Noji.

Graeme McDonald, machinery sector analyst at KBC Securities, says that just taking control of the venture will not guarantee success as Shin Caterpillar Mitsubishi needs to be overhauled to improve profitability.

McDonald also reckons Caterpillar should yield a bit on price, saying high premiums may have worked in mature markets but risk losing buyers in more price-conscious emerging economies.

''Komatsu and Hitachi are clearly in a stronger position and Caterpillar has to do more. The ball's in their court,'' he said.

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