Industrials

• As expected, all conditions to the Sinochem/China Hainan Rubber (601118 CH) SPA have now been satisfied, triggering a mandatory Offer for Halcyon Agri (HACL SP), conditional on a 50% tendering.
• Hainan Rubber holds 36%.  Sinochem has provided an undertaking notto tender its remaining 29.2% stake. Hainan needs 14% out of 34.8% available – or ~40% to tender. 
• The takeaway disappointment is the Offer Price of S$0.413/share, down from S$0.435 at the time of the initial announcement last November, due to SGD weakness. 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, Indonesia kicked-off bookbuild for what is likely to be one of its largest IPOs this year.
• On the placement front, Adani’s FPO continued to keep everyone busy with its twists and turns. 

• There are 45 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Four new deal was discussed on Smartkarma this past week: tender offers for Kanematsu Electronics (8096 JP), Kanematsu Sustech (7961 JP), Nissin Electric (6641 JP), and Techno Associe (8249 JP).
• Key updates took place for: Sembcorp Marine (SMM SP), Pushpay Holdings (PPH NZ), Nitro Software Ltd (NTO AU), Toshiba Corp (6502 JP), and O2Micro International (OIIM US).

• Stay away from Adani Enterprises (ADE IN). It has wrapped itself in a cloak of nationalistic righteous indignation. Do not buy the dip. Or even a larger one. 
• The timing of a Bendigo And Adelaide Bank (BEN AU) and Bank Of Queensland (BOQ AU) merger makes a lot of sense right now.
• This Renault SA (RNO FP) / Nissan Motor (7201 JP)‘s press release and “agreement”, as-is, is a Nothingburger. 

• Caterpillar delivered a mixed quarterly result as its revenues surpassed Wall Street expectations on account of a healthy demand over many end markets for the company’s products and services.
• Sales rose better than expected, and the adjusted operating profit margins also increased but the company failed to meet the earnings expectations of analysts.
• Despite the challenges of the supply chain, Caterpillar generated robust ME&T free cash flow and achieved double-digit top-line growth.

• As expected, all conditions to the Sinochem/China Hainan Rubber (601118 CH) SPA have now been satisfied, triggering a mandatory Offer for Halcyon Agri (HACL SP), conditional on a 50% tendering.
• Hainan Rubber holds 36%.  Sinochem has provided an undertaking notto tender its remaining 29.2% stake. Hainan needs 14% out of 34.8% available – or ~40% to tender. 
• The takeaway disappointment is the Offer Price of S$0.413/share, down from S$0.435 at the time of the initial announcement last November, due to SGD weakness. 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, Indonesia kicked-off bookbuild for what is likely to be one of its largest IPOs this year.
• On the placement front, Adani’s FPO continued to keep everyone busy with its twists and turns. 

• There are 45 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Four new deal was discussed on Smartkarma this past week: tender offers for Kanematsu Electronics (8096 JP), Kanematsu Sustech (7961 JP), Nissin Electric (6641 JP), and Techno Associe (8249 JP).
• Key updates took place for: Sembcorp Marine (SMM SP), Pushpay Holdings (PPH NZ), Nitro Software Ltd (NTO AU), Toshiba Corp (6502 JP), and O2Micro International (OIIM US).

• Stay away from Adani Enterprises (ADE IN). It has wrapped itself in a cloak of nationalistic righteous indignation. Do not buy the dip. Or even a larger one. 
• The timing of a Bendigo And Adelaide Bank (BEN AU) and Bank Of Queensland (BOQ AU) merger makes a lot of sense right now.
• This Renault SA (RNO FP) / Nissan Motor (7201 JP)‘s press release and “agreement”, as-is, is a Nothingburger. 

• Caterpillar delivered a mixed quarterly result as its revenues surpassed Wall Street expectations on account of a healthy demand over many end markets for the company’s products and services.
• Sales rose better than expected, and the adjusted operating profit margins also increased but the company failed to meet the earnings expectations of analysts.
• Despite the challenges of the supply chain, Caterpillar generated robust ME&T free cash flow and achieved double-digit top-line growth.

• The conditions precedent for China Hainan Rubber Industry (601118 CH) to acquire 36.00% of Halcyon Agri (HACL SP)’s outstanding shares from Sinochem International Corporation A (600500 CH) at US$0.315 is fulfilled. 
• This will trigger an MGO at US$0.315 or S$0.413. On the assumption that the offer document is despatched by 17 February, the earliest close of the offer is 17 March.
• The MGO has a 50%+ minimum acceptance condition which requires around 40% of minorities’ acceptance rate. We think that this is achievable as the offer is attractive. 

• We believe that Jeju Air is in a sweet spot right now. Jeju Air is one of the major beneficiaries of the travel resurgence in Asia.
• Jeju Air is a potential inclusion candidate in the KOSPI 200 index in 2023. There are 42 companies in KOSPI 200 which have lower market cap than Jeju Air. 
• Outbound travel from Korea recovered strongly with 6.6 million outbound tourists from South Korea in 2022, up 436% YoY. However, this is still 77% lower than the figure in 2019. 

• Shareholders caved in, the Despatures now hold 94.38% of SOMFY’s share capital and 96.31% of voting rights. They asked the AMF for the launch of a squeeze‐out procedure (9 February).
• SOMFY will be delisted from Euronext Paris on 9 February. Following the squeeze-out, SOMFY intends to distribute an extraordinary dividend up to €620 million 
• The total cost for the family is c. €1,285 million (plus investment banking and legal fees). Nearly half of that will be covered by a €620 million extraordinary dividend. Cool.

• The conditions precedent for China Hainan Rubber Industry (601118 CH) to acquire 36.00% of Halcyon Agri (HACL SP)’s outstanding shares from Sinochem International Corporation A (600500 CH) at US$0.315 is fulfilled. 
• This will trigger an MGO at US$0.315 or S$0.413. On the assumption that the offer document is despatched by 17 February, the earliest close of the offer is 17 March.
• The MGO has a 50%+ minimum acceptance condition which requires around 40% of minorities’ acceptance rate. We think that this is achievable as the offer is attractive. 

• We believe that Jeju Air is in a sweet spot right now. Jeju Air is one of the major beneficiaries of the travel resurgence in Asia.
• Jeju Air is a potential inclusion candidate in the KOSPI 200 index in 2023. There are 42 companies in KOSPI 200 which have lower market cap than Jeju Air. 
• Outbound travel from Korea recovered strongly with 6.6 million outbound tourists from South Korea in 2022, up 436% YoY. However, this is still 77% lower than the figure in 2019. 

• Shareholders caved in, the Despatures now hold 94.38% of SOMFY’s share capital and 96.31% of voting rights. They asked the AMF for the launch of a squeeze‐out procedure (9 February).
• SOMFY will be delisted from Euronext Paris on 9 February. Following the squeeze-out, SOMFY intends to distribute an extraordinary dividend up to €620 million 
• The total cost for the family is c. €1,285 million (plus investment banking and legal fees). Nearly half of that will be covered by a €620 million extraordinary dividend. Cool.

• Sumitomo Electric Industries (5802 JP) is taking over to subs through tender offers. Both are light. Both this one for Techno Associe (8249 JP) and the one for Nissin Electric.
• Both deals are light -slightly offensive, but in different ways. The Board decisions are more offensive than the actual prices, but it’s Sumi Elec buying, so those are offensive too.
• There’s a history here. Sumi Elec went to 51% at an offensively low price (EV/EBITDA below zero) in 2019. But this is probably a done deal anyway.

• Sumitomo Electric Industries (5802 JP) has announced a takeover of two of its subsidiaries today. The larger one is Nissin Electric (6641 JP). 
• This deal, done for governance purposes, hits an all-time high price. But, like others, it ignores synergies in pricing, has an inadequate premium, and process is just bad.
• But given the shareholder structure, this is highly likely to sail through un-molested. 

• We think there’s something fundamentally wrong with Keisei Electric Railway Co (9009 JP)’s current valuation.
• Its core business with an estimated fair value of ¥720bn, currently has an implied valuation of negative ¥942bn (stub value).
• If investors can convince the management to dispose its stake in Oriental Land (4661 JP), we think there’s more than a 200% upside to Keisei Electric’s valuation.

• Nissin Electric (6641 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,700 per share, an 22.7% premium to the undisturbed price (2 February).
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
• The tender offer is attractive in comparison to peer multiples and historical price ranges. Excluding the offeror, there are no substantial shareholders. This suggests a done deal. 

• Techno Associe (8249 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,695 per share, an 36.9% premium to the undisturbed price (2 February).
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
• The tender offer is attractive and represents an all-time share price high. This suggests a done deal. The tender offer period is from 3 February to 22 March.

• Kyocera cut FY Mar-23 operating profit guidance by more than 30% while leaving sales guidance unchanged. Draw your own conclusions about the reliability of company forecasts.
• Sales began to decline in 3Q and the rate of decline is likely to increase in 4Q. There is a large inventory overhang.
• The shares dropped 3% today. Wait for capitulation as the reality of recession sinks in.

• Robust medium-term earnings growth, softness in commodities to ease margin pressure.
• Beneficiary of new energy capex, likely blending of Compressed Biogas with CNG furthers capex outlook.
• Stock has corrected 45% from peak, valuations turn more reasonable.

• Sumitomo Electric Industries (5802 JP) is taking over to subs through tender offers. Both are light. Both this one for Techno Associe (8249 JP) and the one for Nissin Electric.
• Both deals are light -slightly offensive, but in different ways. The Board decisions are more offensive than the actual prices, but it’s Sumi Elec buying, so those are offensive too.
• There’s a history here. Sumi Elec went to 51% at an offensively low price (EV/EBITDA below zero) in 2019. But this is probably a done deal anyway.

• Sumitomo Electric Industries (5802 JP) has announced a takeover of two of its subsidiaries today. The larger one is Nissin Electric (6641 JP). 
• This deal, done for governance purposes, hits an all-time high price. But, like others, it ignores synergies in pricing, has an inadequate premium, and process is just bad.
• But given the shareholder structure, this is highly likely to sail through un-molested. 

• We think there’s something fundamentally wrong with Keisei Electric Railway Co (9009 JP)’s current valuation.
• Its core business with an estimated fair value of ¥720bn, currently has an implied valuation of negative ¥942bn (stub value).
• If investors can convince the management to dispose its stake in Oriental Land (4661 JP), we think there’s more than a 200% upside to Keisei Electric’s valuation.

• Nissin Electric (6641 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,700 per share, an 22.7% premium to the undisturbed price (2 February).
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
• The tender offer is attractive in comparison to peer multiples and historical price ranges. Excluding the offeror, there are no substantial shareholders. This suggests a done deal. 

• Techno Associe (8249 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,695 per share, an 36.9% premium to the undisturbed price (2 February).
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
• The tender offer is attractive and represents an all-time share price high. This suggests a done deal. The tender offer period is from 3 February to 22 March.

• Kyocera cut FY Mar-23 operating profit guidance by more than 30% while leaving sales guidance unchanged. Draw your own conclusions about the reliability of company forecasts.
• Sales began to decline in 3Q and the rate of decline is likely to increase in 4Q. There is a large inventory overhang.
• The shares dropped 3% today. Wait for capitulation as the reality of recession sinks in.

• Robust medium-term earnings growth, softness in commodities to ease margin pressure.
• Beneficiary of new energy capex, likely blending of Compressed Biogas with CNG furthers capex outlook.
• Stock has corrected 45% from peak, valuations turn more reasonable.

• The Sembcorp Marine (SMM) EGM is scheduled for 16 February. If approved by shareholders, the Asset Co transaction and completion of the KOM restructuring will be done by 28 February.
• We expect no market trade from FTSE trackers, buying from MSCI trackers, while there is a question mark over treatment in the FTSE Straits Times Index (STI) (STI INDEX). 
• There could be selling in Sembcorp Marine (SMM SP) from active Keppel Corp (KEP SP) shareholders and that could have a bigger impact on the stock.

• Cosco Shipping Energy Transportation (1138 HK) rallied 12.5% in the last two trading days after issuing a FY22 positive profit alert, but we are concerned that momentum is peaking. 
• Its P/B of 0.92x is 4SD above average since 2016, more than sufficient to reflect rebound in FY23-24F profitability. Meanwhile, VLCC rate has plunged 80% in the last 3 months.  
• We believe CSET is already midway in the upcycle which normally lasts for 2-3 years. With high 4Q22 profit difficult to sustain for long, there is downside risk on earnings.  

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Ports & Special Economic Zone

• The investment case revolves around Siemens’ high backlog converting to sales in FY 2023. 
• Demand is driven by the need of customers to digitalize their businesses and reach their sustainability goals, which Siemens can provide given its optimized portfolio
• As per the CEO, Siemens keeps reinventing itself from a position of strength by anticipating new trends and developing new technologies

• Boeing had another weak quarter and failed to meet Wall Street expectations with respect to revenues as well as earnings.
• The company managed over $3 billion in free cash flow driven by the progress in its performance and continued demand.
• Boeing has a strong pipeline of development programs, and it has been preparing itself for the next generation of products.

• The Sembcorp Marine (SMM) EGM is scheduled for 16 February. If approved by shareholders, the Asset Co transaction and completion of the KOM restructuring will be done by 28 February.
• We expect no market trade from FTSE trackers, buying from MSCI trackers, while there is a question mark over treatment in the FTSE Straits Times Index (STI) (STI INDEX). 
• There could be selling in Sembcorp Marine (SMM SP) from active Keppel Corp (KEP SP) shareholders and that could have a bigger impact on the stock.

• Cosco Shipping Energy Transportation (1138 HK) rallied 12.5% in the last two trading days after issuing a FY22 positive profit alert, but we are concerned that momentum is peaking. 
• Its P/B of 0.92x is 4SD above average since 2016, more than sufficient to reflect rebound in FY23-24F profitability. Meanwhile, VLCC rate has plunged 80% in the last 3 months.  
• We believe CSET is already midway in the upcycle which normally lasts for 2-3 years. With high 4Q22 profit difficult to sustain for long, there is downside risk on earnings.  

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Ports & Special Economic Zone

• The investment case revolves around Siemens’ high backlog converting to sales in FY 2023. 
• Demand is driven by the need of customers to digitalize their businesses and reach their sustainability goals, which Siemens can provide given its optimized portfolio
• As per the CEO, Siemens keeps reinventing itself from a position of strength by anticipating new trends and developing new technologies

• Boeing had another weak quarter and failed to meet Wall Street expectations with respect to revenues as well as earnings.
• The company managed over $3 billion in free cash flow driven by the progress in its performance and continued demand.
• Boeing has a strong pipeline of development programs, and it has been preparing itself for the next generation of products.

• Keisei Electric Railway Co (9009 JP) is trading “cheap” as Oriental Land (4661 JP) enjoys a zero-Covid revival.
• Preceding my comments on Keisei/Oriental Land, are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• The review period for the February Quarterly Comprehensive Index Review (QCIR) of the MSCI indices ended yesterday. There will be a number of changes in the Asia Pacific region.
• Most of the inclusions are in China and the country weight in the MSCI Emerging Markets Index should increase leading to outflows from other markets.
• On average, the potential adds have outperformed the potential deletes over the last few weeks. At a glance, pre-positioning appears to be lighter than in the past.

• The original bid was supposed to be presented fully-funded by 30 September 2022. Then it was early November, then late November, then early December, late Dec, early Jan, end Jan. 
• Today we find out that The Banks and The Preferred JIP Bidding Consortium will aim to reach agreement by 3 Feb. The Bloomberg article details are newish, and odd. 
• Shares have deteriorated and vs Peers, they are at their lowest point in many months. And the details do not make me confident this deal is clean yet. 

• Last Friday, Sembcorp Marine (SMM SP) announced it had Approval-In-Principle for its Proposed Combination with Keppel Corp (KEP SP), contingent on the Circular being despatched by 31 January 2023.  
• At 6:50pm local time on 31 January, Sembcorp Marine released its 679-page Circular (and EGM Announcement (16 Feb EGM)). Phew! 
• Now we have a deal in sight, we have to think about next steps. SMM NEWCO needs a story vs flow. Orderbook is nice but may not cut it near-term.

• Bloomberg reports that Japan Industrial Partners (JIP), the preferred bidder, has again extended the deadline for securing bank financing of around JPY1.2 trillion (US$8.8 billion).
• A new issue has pushed the deadline to 3 February. If JIP manages to secure financing for an offer of around JPY5,100, the next challenge is securing Board support.
• The 3QFY2022 update on 14 February needs to avoid further downgrades to keep the deal alive. Toshiba’s multiples are unattractive to peers. Remain on the sidelines for now.

• Komatsu Q3 operating profit rose 54% YoY, beating analyst estimates by around 12%
• Construction and Mining Equipment sales rose 31% in the quarter, or ~10% on a constant currency basis versus industry volume of -6%
• Komatsu shares have sharply lagged the recovery at CAT. We still see significant upside with current P/B of 1.2x

• Keisei Electric Railway Co (9009 JP) is trading “cheap” as Oriental Land (4661 JP) enjoys a zero-Covid revival.
• Preceding my comments on Keisei/Oriental Land, are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• The review period for the February Quarterly Comprehensive Index Review (QCIR) of the MSCI indices ended yesterday. There will be a number of changes in the Asia Pacific region.
• Most of the inclusions are in China and the country weight in the MSCI Emerging Markets Index should increase leading to outflows from other markets.
• On average, the potential adds have outperformed the potential deletes over the last few weeks. At a glance, pre-positioning appears to be lighter than in the past.

• The original bid was supposed to be presented fully-funded by 30 September 2022. Then it was early November, then late November, then early December, late Dec, early Jan, end Jan. 
• Today we find out that The Banks and The Preferred JIP Bidding Consortium will aim to reach agreement by 3 Feb. The Bloomberg article details are newish, and odd. 
• Shares have deteriorated and vs Peers, they are at their lowest point in many months. And the details do not make me confident this deal is clean yet. 

• Last Friday, Sembcorp Marine (SMM SP) announced it had Approval-In-Principle for its Proposed Combination with Keppel Corp (KEP SP), contingent on the Circular being despatched by 31 January 2023.  
• At 6:50pm local time on 31 January, Sembcorp Marine released its 679-page Circular (and EGM Announcement (16 Feb EGM)). Phew! 
• Now we have a deal in sight, we have to think about next steps. SMM NEWCO needs a story vs flow. Orderbook is nice but may not cut it near-term.

• Bloomberg reports that Japan Industrial Partners (JIP), the preferred bidder, has again extended the deadline for securing bank financing of around JPY1.2 trillion (US$8.8 billion).
• A new issue has pushed the deadline to 3 February. If JIP manages to secure financing for an offer of around JPY5,100, the next challenge is securing Board support.
• The 3QFY2022 update on 14 February needs to avoid further downgrades to keep the deal alive. Toshiba’s multiples are unattractive to peers. Remain on the sidelines for now.

• Komatsu Q3 operating profit rose 54% YoY, beating analyst estimates by around 12%
• Construction and Mining Equipment sales rose 31% in the quarter, or ~10% on a constant currency basis versus industry volume of -6%
• Komatsu shares have sharply lagged the recovery at CAT. We still see significant upside with current P/B of 1.2x