Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Brilliance China Automotive / Event-Driven

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Last September, Reuters <a href="https://www.reuters.com/article/brilliance-china-take-private-idUSKCN26F0FF" target="_blank" rel="noopener">reported</a> that state-controlled Liaoning Provincial Transportation Investment Group (LPTIG),  was planning to lead a consortium of Chinese investors to take PRC-automaker (&amp; BMW's main Chinese JV partner) <a href="https://www.smartkarma.com/entities/brilliance-china-automotive" target="_blank" data-smartkarma-citation="entities:469:1" rel="noopener">Brilliance China Automotive (1114 HK)</a> private. No deal transpired, allegedly due to "differences in valuations and financing difficulties".
A possible take-private transaction is <a href="https://www.reuters.com/article/us-faw-group-brilliance-china-m-a-exclus/exclusive-chinas-faw-considers-acquiring-bmw-partner-brilliance-for-about-7-2-billion-sources-idUSKBN2A30I5?il=0" target="_blank" rel="noopener">again in the press</a>, this time from state-owned <a href="https://www.smartkarma.com/entities/faw-car-company-limited-a" target="_blank" data-smartkarma-citation="entities:6497:1" rel="noopener">Faw Car Company Limited A (000800 CH)</a>, China’s No. 2 automaker.
Reportedly FAW will acquire the 30.43% stake held by Huachen Automotive Group, Liaoning’s state asset regulator, and 11.89% from LPTIG, triggering a Mandatory General Offer (MGO). The Offer price is rumoured to be HK$11/share, a 73% premium to the undisturbed price. 
The on-again, off-again, transaction comes amid HAG's <a href="https://www.scmp.com/business/companies/article/3107281/parent-bmws-chinese-partner-defaults-bond-declining-car-sales" target="_blank" rel="noopener">inability</a> to repay a corporate bond that matured in October last year, culminating in the group <a href="https://www.shine.cn/biz/auto/2011210271/" target="_blank" rel="noopener">entering</a> a bankruptcy restructuring the following month.
Brilliance has <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0203/2021020300609.pdf" target="_blank" rel="noopener">announced</a> it has no knowledge of the potential acquisition of shares and the privatisation of the company.
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As always, more below the fold.
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Concerning the title, one of the automotive world’s most distinctive features, that immediately identifies a BMW as being a BMW, is its ‘kidney grille’.
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Last September, Reuters reported that state-controlled Liaoning Provincial Transportation Investment Group (LPTIG),  was planning to lead a consortium of Chinese investors to take PRC-automaker (&amp; BMW's main Chinese JV partner) Brilliance China Automotive (1114 HK) private. No deal transpired, allegedly due to "differences in valuations and financing difficulties".
A possible take-private transaction is again in the press, this time from state-owned Faw Car Company Limited A (000800 CH), China’s No. 2 automaker.
Reportedly FAW will acquire the 30.43% stake held by Huachen Automotive Group, Liaoning’s state asset regulator, and 11.89% from LPTIG, triggering a Mandatory General Offer (MGO). The Offer price is rumoured to be HK$11/share, a 73% premium to the undisturbed price. 
The on-again, off-again, transaction comes amid HAG's inability to repay a corporate bond that matured in October last year, culminating in the group entering a bankruptcy restructuring the following month.
Brilliance has announced it has no knowledge of the potential acquisition of shares and the privatisation of the company.


As always, more below the fold.

Concerning the title, one of the automotive world’s most distinctive features, that immediately identifies a BMW as being a BMW, is its ‘kidney grille’.


Brilliance China (1114 HK): Grilling Kidneys

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

This is the first part of the two parts of the report detailing how DRB Hi Com is about to unlock its value in the next few months.  
With a low industry growth expectation due to a couple of reasons namely no-end-of-life policy, no scrap policy, combined with high car ownership in Malaysia, the prospect for Malaysia's automotive industry is not that exciting. However, Proton's resurgence in sales volume story thanks to its focus on the SUV segment is a silver lining.

This is the first part of the two parts of the report detailing how DRB Hi Com is about to unlock its value in the next few months.  
With a low industry growth expectation due to a couple of reasons namely no-end-of-life policy, no scrap policy, combined with high car ownership in Malaysia, the prospect for Malaysia's automotive industry is not that exciting. However, Proton's resurgence in sales volume story thanks to its focus on the SUV segment is a silver lining. 

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

We visited <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Seiki (7259 JP)</a> on Wednesday to assess conditions the companies were experience in China and the US as well as update on the progress of the numerous reforms ongoing within the Toyota Group.Our takeaway is that macro conditions remain relatively tough but that progress was continuing steadily with internal reforms. Overall, we believe Toyota should make some incremental progress raising profitability in the US and growing volume and profit in China in the face of macro headwinds and that investment costs for CASE could be controlled better than the market generally expects. Aisin's outlook for China has not worsened as such, but while the company was initially guiding conservatively but open to the possibility of a moderate recovery in 2H, current conditions look like the 2H will be relatively flat compared to the 1H.We discuss the details below.

We visited Toyota Motor (7203 JP) and Aisin Seiki (7259 JP) on Wednesday to assess conditions the companies were experience in China and the US as well as update on the progress of the numerous reforms ongoing within the Toyota Group.Our takeaway is that macro conditions remain relatively tough but that progress was continuing steadily with internal reforms. Overall, we believe Toyota should make some incremental progress raising profitability in the US and growing volume and profit in China in the face of macro headwinds and that investment costs for CASE could be controlled better than the market generally expects. Aisin's outlook for China has not worsened as such, but while the company was initially guiding conservatively but open to the possibility of a moderate recovery in 2H, current conditions look like the 2H will be relatively flat compared to the 1H.We discuss the details below.

Toyota: Visit to Toyota City/Aisin Points to Fading Optimism for a China Recovery

Equity Analyst, LightStream Research

Chacko Jacob

Equity Analyst

<a href="https://www.smartkarma.com/entities/4130" target="_blank" data-smartkarma-citation="entities:4130:1">Ntn Corp (6472 JP)</a> is a leading manufacturer of precision mechanical parts and components, especially hub bearings for which the company is a global market leader. The company’s overseas business accounted for 72% of its total sales in FY2016.  This year marks the beginning of the company’s second century of existence. To remain relevant for the next 100 years, the company has forayed into four new businesses namely, green energy, EV, robotics and service and solutions. By shifting its focus to new areas, NTN aims to double its revenues by 2025 to about JPY 1.3tn while increasing its operating margin to 10-15% from the current 5.1%.In April 2018, NTN<a href="https://asia.nikkei.com/Business/Companies/Japan-s-NTN-to-supply-in-wheel-motor-tech-to-Chinese-startup" target="_blank"> concluded</a> a licensing contract with Chinese EV startup Changchun Fawsn Auto Tech (FSAT) to provide air cooled in-wheel motors and vehicle motion control systems. This partnership marks the first time that EVs with in-wheel motors will be mass produced. While the deal is still on paper, it is likely to serve as a significant growth trigger in the next 2-3 years. However, in the short to medium-term we are sceptical on the company's growth prospects, largely due to its exposure to business cycles in regions that it operates in:<ul><li>FY2017 could mark the growth peak of its latest cycle and we expect revenue to remain flat in the coming two years.</li><li>Bottlenecks in its industrial machinery segment have prevented the company from keeping up with demand.</li><li>Japanese PMI has hit its highest point in four years and FY2018 could see a period of cooling.</li><li>The stronger yen, which has already pared export growth in March-April, could make the company’s products more expensive to end-users, mainly in Asia.</li><li>Lastly, the company has blamed the shrinking market in Japan for its falling aftermarket revenue. The company’s plan to increase market share in other regions could take time to materialise.</li></ul>

Ntn Corp (6472 JP) is a leading manufacturer of precision mechanical parts and components, especially hub bearings for which the company is a global market leader. The company’s overseas business accounted for 72% of its total sales in FY2016.  This year marks the beginning of the company’s second century of existence. To remain relevant for the next 100 years, the company has forayed into four new businesses namely, green energy, EV, robotics and service and solutions. By shifting its focus to new areas, NTN aims to double its revenues by 2025 to about JPY 1.3tn while increasing its operating margin to 10-15% from the current 5.1%.In April 2018, NTN concluded a licensing contract with Chinese EV startup Changchun Fawsn Auto Tech (FSAT) to provide air cooled in-wheel motors and vehicle motion control systems. This partnership marks the first time that EVs with in-wheel motors will be mass produced. While the deal is still on paper, it is likely to serve as a significant growth trigger in the next 2-3 years. However, in the short to medium-term we are sceptical on the company's growth prospects, largely due to its exposure to business cycles in regions that it operates in:FY2017 could mark the growth peak of its latest cycle and we expect revenue to remain flat in the coming two years.Bottlenecks in its industrial machinery segment have prevented the company from keeping up with demand.Japanese PMI has hit its highest point in four years and FY2018 could see a period of cooling.The stronger yen, which has already pared export growth in March-April, could make the company’s products more expensive to end-users, mainly in Asia.Lastly, the company has blamed the shrinking market in Japan for its falling aftermarket revenue. The company’s plan to increase market share in other regions could take time to materialise.

NTN's FY2018 Forecast Likely to Be Muted; Plays First-Mover Card with In-Wheel Motors for EVs

Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Thematic (Sector/Industry)

In 2M 2018 (January and February), retail, wholesale and production of Chinese auto market grew by 5%, 3% and -3% in unit volume, respectively.  <a href="https://www.smartkarma.com/entities/127" target="_blank" data-smartkarma-citation="entities:127:1">Geely Automobile Holdings Ltd (175 HK)</a>Geely, <a href="https://www.smartkarma.com/entities/6497" target="_blank" data-smartkarma-citation="entities:6497:1">Faw Car Company Limited A (000800 CH)</a> Audi and <a href="https://www.smartkarma.com/entities/20962" target="_blank" data-smartkarma-citation="entities:20962:1">BYD Co Ltd (H) (1211 HK)</a> grew 38%, 32% and 30% year-over-year respectively, representing the fastest growers among the major Chinese OEMs.  DF Kia, Changan Ford, and BAIC Hyundai were the market share losers, declining 16%, 29% and 32% year-over-year in unit sales respectively. Luxury JV brands <a href="https://www.smartkarma.com/entities/21738" target="_blank" data-smartkarma-citation="entities:21738:1">Volkswagen AG (VOW GR)</a> Audi, <a href="https://www.smartkarma.com/entities/21602" target="_blank" data-smartkarma-citation="entities:21602:1">Daimler AG (DAI GR)</a>Benz, <a href="https://www.smartkarma.com/entities/21591" target="_blank" data-smartkarma-citation="entities:21591:1">Bayerische Motoren Werke AG (BMW GR)</a> all outperformed the overall market by delivering strong double digits growth.An amended EV policy was announced on February 11 and it states that the subsidies for PHEV (plug-in hybrid electric vehicles) and low mileage pure EVs by central and local governments are to be abolished, while the subsidies to high mileage EVs are to be raised by 14%.  Consumers are pushing back the purchase of high quality EVs till June to benefit from the proposed subsidy increase and pushing forward the purchase of low quality EVs before the subsidy is cut/abolished.   That explains the soaring demand for BYD Song DM (PHEV) and Qin PHEV during 2M 2018.

In 2M 2018 (January and February), retail, wholesale and production of Chinese auto market grew by 5%, 3% and -3% in unit volume, respectively.  Geely Automobile Holdings Ltd (175 HK)Geely, Faw Car Company Limited A (000800 CH) Audi and BYD Co Ltd (H) (1211 HK) grew 38%, 32% and 30% year-over-year respectively, representing the fastest growers among the major Chinese OEMs.  DF Kia, Changan Ford, and BAIC Hyundai were the market share losers, declining 16%, 29% and 32% year-over-year in unit sales respectively. Luxury JV brands Volkswagen AG (VOW GR) Audi, Daimler AG (DAI GR)Benz, Bayerische Motoren Werke AG (BMW GR) all outperformed the overall market by delivering strong double digits growth.An amended EV policy was announced on February 11 and it states that the subsidies for PHEV (plug-in hybrid electric vehicles) and low mileage pure EVs by central and local governments are to be abolished, while the subsidies to high mileage EVs are to be raised by 14%.  Consumers are pushing back the purchase of high quality EVs till June to benefit from the proposed subsidy increase and pushing forward the purchase of low quality EVs before the subsidy is cut/abolished.   That explains the soaring demand for BYD Song DM (PHEV) and Qin PHEV during 2M 2018. 

China Auto 2M 2018: Amended EV Policy, Geely, Tesla, and Auto Tariff Reduction

China

FAW Jiefang Group Co., Ltd, through joint ventures, manufactures and markets cars and auto parts.  The Company produces automobiles, transmission systems, and engines.  FAW Car also provides auto repair and customizing services.

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FAW Jiefang Group Co., Ltd A (000800 CH)

Brilliance China (1114 HK): Grilling Kidneys

Brilliance is cheap with respect to peers, ostensibly held back by HAG's financial concerns. Brilliance is even cheaper when taking into account...

David Blennerhassett

DRB Hi Com (DRB): Value Unlocking-Part I

This is the first part of the two parts of the report detailing how DRB Hi Com is about to unlock its value in the next few months. With a low...

Henry Soediarko

Toyota: Visit to Toyota City/Aisin Points to Fading Optimism for a China Recovery

We visited Toyota Motor (7203 JP) and Aisin Seiki (7259 JP) on Wednesday to assess conditions the companies were experience in China and the US as...

Mio Kato

NTN's FY2018 Forecast Likely to Be Muted; Plays First-Mover Card with In-Wheel Motors for EVs

Ntn Corp (6472 JP) is a leading manufacturer of precision mechanical parts and components, especially hub bearings for which the company is a...

Chacko Jacob

China Auto 2M 2018: Amended EV Policy, Geely, Tesla, and Auto Tariff Reduction

In 2M 2018 (January and February), retail, wholesale and production of Chinese auto market grew by 5%, 3% and -3% in unit volume, respectively. ...

JL Warren Capital

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