Industrials

• The Adani Enterprises (ADE IN) FPO saw VERY muted demand (realtime available on NSE+BSE websites) on Day 1 Friday as the share price plummeted through the bottom of the range.
• The Adani Group responded to Hindenburg late Sunday with a 400-page rebuttal, cloaked in nationalistic terms. Hindenburg responded saying the company failed to answer 62 of 88 questions.
• This is not going away. They could lower the FPO price, or just pull the FPO. That won’t materially change the significant over-valuation of many Adani Group listco share prices.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Travis Lundy as he gives us a quick rundown about what is the current situation that is happening with Adani Enterprises and where they are headed from this point on.

The webinar will be hosted on Wednesday, 1 February 2023, 17:00 SGT/HKT.

Travis Lundy has 20+ years of experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies, with most of that time spent managing money.

• Shandong Xinjufeng Technology Packaging (301296 CH) is seeking to acquire Jardine Matheson Holdings (JM SP)‘s 28.22% stake in Greatview Aseptic Packaging (468 HK) at HK$2.65/share.
• Greatview is currently suspended “pending the release of an announcement which contains inside information“, suggesting there is no follow on Offer for remaining shares. 
• Elsewhere, Matheson has resumed its share repurchase program, providing near-term support. 

• KDB recently initiated the process of selecting an advisory firm to sell its stake in HMM, which will likely be the first to implement the mandatory offer rule.
• Potential bidders include Hyundai Glovis, LX Holdings, and Samsung SDS. As for POSCO Holdings, it recently said that it is not considering acquiring HMM.
• Given that HMM is the only national shipping company, there is a good chance that multiple bidders will appear, which will lead to a premium to the market price.

• We discuss how to use the OWL ESG Analytics (available on Smartkarma) to narrow down the list of companies that could be the next targets of corporate activism in Korea. 
• We go through in detail, step-by-step process of how to narrow down the list of companies, using the OWL ESG Analytics. 
• Corporate activism has been one of the most important, market moving factors moving the Korean stock market this year.

• Nihon M&A Center (2127 JP) reported 3QFY03/2022 results. Revenue declined 9.9% YoY to JPY9.8bn (vs consensus JPY13.6bn) while OP dropped 21.9% YoY to JPY3.2bn (vs consensus JPY6.1bn).
• Though there had been an increase in the no. of transactions completed during the quarter, revenue declined due to price pressures.
• Share price has declined 22.8% during today’s trade due to weaker-than-expected earnings and we think full-year FY03/2022E guidance is too hard to achieve.

• General Electric finished the year on a positive note with an all-around beat in Q4, improved cash generation, margin expansion, and revenue growth.
• Power delivery, within GE Vernova with continued stability at gas and took significant actions for positioning renewable energy for future profitability.
• The plans of GE to launch GE Aerospace and GE Vernova are progressing well.

• Raytheon delivered a mixed set of results in the face of significant macroeconomic challenges, including labor and supply chain constraints, managing record levels of inflation, and transitioning out of Russia.
• The company brought new technologies to market, and it drove further digitation and automation through product sustainment and manufacturing.
• Raytheon also completed the foremost engine test run for its provincial hybrid flight demonstrator.

• 3M delivered a mixed set of results amidst the challenging economic environment with supply chain disruptions, inflation, and slowing growth.
• Because of Covid-related disruptions, 3M saw a significant slowing in China and modernizing demand over industrial markets.
• With the supply chain stabilizing, 3M is focused on driving working capital and improving manufacturing operations.

• The Adani Enterprises (ADE IN) FPO saw VERY muted demand (realtime available on NSE+BSE websites) on Day 1 Friday as the share price plummeted through the bottom of the range.
• The Adani Group responded to Hindenburg late Sunday with a 400-page rebuttal, cloaked in nationalistic terms. Hindenburg responded saying the company failed to answer 62 of 88 questions.
• This is not going away. They could lower the FPO price, or just pull the FPO. That won’t materially change the significant over-valuation of many Adani Group listco share prices.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Travis Lundy as he gives us a quick rundown about what is the current situation that is happening with Adani Enterprises and where they are headed from this point on.

The webinar will be hosted on Wednesday, 1 February 2023, 17:00 SGT/HKT.

Travis Lundy has 20+ years of experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies, with most of that time spent managing money.

• Shandong Xinjufeng Technology Packaging (301296 CH) is seeking to acquire Jardine Matheson Holdings (JM SP)‘s 28.22% stake in Greatview Aseptic Packaging (468 HK) at HK$2.65/share.
• Greatview is currently suspended “pending the release of an announcement which contains inside information“, suggesting there is no follow on Offer for remaining shares. 
• Elsewhere, Matheson has resumed its share repurchase program, providing near-term support. 

• KDB recently initiated the process of selecting an advisory firm to sell its stake in HMM, which will likely be the first to implement the mandatory offer rule.
• Potential bidders include Hyundai Glovis, LX Holdings, and Samsung SDS. As for POSCO Holdings, it recently said that it is not considering acquiring HMM.
• Given that HMM is the only national shipping company, there is a good chance that multiple bidders will appear, which will lead to a premium to the market price.

• We discuss how to use the OWL ESG Analytics (available on Smartkarma) to narrow down the list of companies that could be the next targets of corporate activism in Korea. 
• We go through in detail, step-by-step process of how to narrow down the list of companies, using the OWL ESG Analytics. 
• Corporate activism has been one of the most important, market moving factors moving the Korean stock market this year.

• Nihon M&A Center (2127 JP) reported 3QFY03/2022 results. Revenue declined 9.9% YoY to JPY9.8bn (vs consensus JPY13.6bn) while OP dropped 21.9% YoY to JPY3.2bn (vs consensus JPY6.1bn).
• Though there had been an increase in the no. of transactions completed during the quarter, revenue declined due to price pressures.
• Share price has declined 22.8% during today’s trade due to weaker-than-expected earnings and we think full-year FY03/2022E guidance is too hard to achieve.

• General Electric finished the year on a positive note with an all-around beat in Q4, improved cash generation, margin expansion, and revenue growth.
• Power delivery, within GE Vernova with continued stability at gas and took significant actions for positioning renewable energy for future profitability.
• The plans of GE to launch GE Aerospace and GE Vernova are progressing well.

• Raytheon delivered a mixed set of results in the face of significant macroeconomic challenges, including labor and supply chain constraints, managing record levels of inflation, and transitioning out of Russia.
• The company brought new technologies to market, and it drove further digitation and automation through product sustainment and manufacturing.
• Raytheon also completed the foremost engine test run for its provincial hybrid flight demonstrator.

• 3M delivered a mixed set of results amidst the challenging economic environment with supply chain disruptions, inflation, and slowing growth.
• Because of Covid-related disruptions, 3M saw a significant slowing in China and modernizing demand over industrial markets.
• With the supply chain stabilizing, 3M is focused on driving working capital and improving manufacturing operations.

• The Adani Group listcos have been on a wild ride for the last few years, rising from 10x TTM EV/EBITDA in March 2020 to 60x at end-September 2022. 
• Adani Group “business incubator’ Adani Enterprises (ADE IN) last fall indicated it might raise $2.4bn of equity and combined 6 co market cap is down $135bn since.
• A short seller report last week put the cat amongst the pigeons. Now MSCI is consulting investors about what it might do regarding Things.

• The Adani Group listcos have been on a wild ride for the last few years, rising from 10x TTM EV/EBITDA in March 2020 to 60x at end-September 2022. 
• Adani Group “business incubator’ Adani Enterprises (ADE IN) last fall indicated it might raise $2.4bn of equity and combined 6 co market cap is down $135bn since.
• A short seller report last week put the cat amongst the pigeons. Now MSCI is consulting investors about what it might do regarding Things.

• Posco International‘s recent merger with Posco Energy increased the share count. The distance from the float market cap borderline is catchable, given the current share price uptrend.
• Hanwha Aerospace will likely fail inclusion in this February review. The gap with the hurdle is not large, so it can aim for inclusion in the May review.
• Among Outside IMI, Korea Gas is tricky as it is a FOL stock. MSCI-concluded float is 30%, and the gap with the float market cap hurdle is still quite large.

• Kanematsu Corp (8020 JP) announced two tender offers late Friday to take out minorities in subsidiaries. One larger, safer deal. One smaller, illiquid, but potentially interesting one.
• This is the interesting one. It is being done at the wrong price, and it has investors who might care who have been long-time holders.
• This could get interesting. You have a buyer. A target. It’s pretty clean except for shareholder structure. And the buyer has room to pay up. 

• Be long Kawasaki Kisen Kaisha (9107 JP) vs MOL and NYK. The shares are cheap on a forward basis. KLine is reducing the Real World Float, causing further potential squeeze.
• Sabana Industrial REIT (SSREIT SP)‘s Partial Offer at 0.88x book is not overwhelming, but it is also not a control stake. It is probably priced near-right.
• IF Osstem (048260 KS)‘s price were to go higher, it is conceivable there could be a bump, but don’t bet on it as long as the stock trades <KRW 190,000. 

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• Textron delivered a decent result in the last quarter with revenues of $3.6 billion which surpassed Wall Street expectations.
• The company faced a strong demand, a strong pricing net of inflation, and a higher aftermarket volume in this quarter.
• It was a quarter of strong customer demand and solid cash flow.

• Posco International‘s recent merger with Posco Energy increased the share count. The distance from the float market cap borderline is catchable, given the current share price uptrend.
• Hanwha Aerospace will likely fail inclusion in this February review. The gap with the hurdle is not large, so it can aim for inclusion in the May review.
• Among Outside IMI, Korea Gas is tricky as it is a FOL stock. MSCI-concluded float is 30%, and the gap with the float market cap hurdle is still quite large.

• Kanematsu Corp (8020 JP) announced two tender offers late Friday to take out minorities in subsidiaries. One larger, safer deal. One smaller, illiquid, but potentially interesting one.
• This is the interesting one. It is being done at the wrong price, and it has investors who might care who have been long-time holders.
• This could get interesting. You have a buyer. A target. It’s pretty clean except for shareholder structure. And the buyer has room to pay up. 

• Be long Kawasaki Kisen Kaisha (9107 JP) vs MOL and NYK. The shares are cheap on a forward basis. KLine is reducing the Real World Float, causing further potential squeeze.
• Sabana Industrial REIT (SSREIT SP)‘s Partial Offer at 0.88x book is not overwhelming, but it is also not a control stake. It is probably priced near-right.
• IF Osstem (048260 KS)‘s price were to go higher, it is conceivable there could be a bump, but don’t bet on it as long as the stock trades <KRW 190,000. 

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• Textron delivered a decent result in the last quarter with revenues of $3.6 billion which surpassed Wall Street expectations.
• The company faced a strong demand, a strong pricing net of inflation, and a higher aftermarket volume in this quarter.
• It was a quarter of strong customer demand and solid cash flow.

• We have a positive view of Luxshare Precision Industry (002475 CH) and we believe its shares are well poised to outperform the market this year. 
• The recent production halts and protests at Foxconn’s Zhengzhou facility due to the overly stringent COVID measures has benefited Luxshare since Apple has given more orders to the company.
• We believe Luxshare will continue to grab more market share for producing iPhones and other products of Apple in 2023.

• Fanuc’s Q3 sales and earnings beat analyst expectations. Sales rose 17% YoY and profit increased by 14%. 
• The bears will be able to point to the collapse in FA orders in Q3, but this just confirms what the Japan Machine Tool numbers have been signalling.
• Robot orders remain strong as Fanuc continues to benefit from de-globalization and the need to modernize global supply chains.

• On 25 January, the EGM of Siemens Gamesa approved the delisting of the shares, which the company requested to the CNMV.
• The standing purchase order for the shares, at €18.05/share (same as the offer price, sellers will bear the brokerage, trading and settlement fees) will last until 7 February.
• Gross spread is nil. Shortly after 7 February, Siemens Gamesa will be an unlisted illiquid share. Recommendation is sell into the sustained purchase order.

• FuelCell Energy had another disappointing result as it failed to meet Wall Street expectations in terms of revenues as well as earnings.
• FuelCell delivered 8 more modules of Ex Works to the Fuel Cell in Korea.
• It is worth highlighting that FuelCell has started accepting orders for its solid oxide platform for hydrogen electrolysis and power generation applications.

• We have a positive view of Luxshare Precision Industry (002475 CH) and we believe its shares are well poised to outperform the market this year. 
• The recent production halts and protests at Foxconn’s Zhengzhou facility due to the overly stringent COVID measures has benefited Luxshare since Apple has given more orders to the company.
• We believe Luxshare will continue to grab more market share for producing iPhones and other products of Apple in 2023.

• Fanuc’s Q3 sales and earnings beat analyst expectations. Sales rose 17% YoY and profit increased by 14%. 
• The bears will be able to point to the collapse in FA orders in Q3, but this just confirms what the Japan Machine Tool numbers have been signalling.
• Robot orders remain strong as Fanuc continues to benefit from de-globalization and the need to modernize global supply chains.

• On 25 January, the EGM of Siemens Gamesa approved the delisting of the shares, which the company requested to the CNMV.
• The standing purchase order for the shares, at €18.05/share (same as the offer price, sellers will bear the brokerage, trading and settlement fees) will last until 7 February.
• Gross spread is nil. Shortly after 7 February, Siemens Gamesa will be an unlisted illiquid share. Recommendation is sell into the sustained purchase order.

• FuelCell Energy had another disappointing result as it failed to meet Wall Street expectations in terms of revenues as well as earnings.
• FuelCell delivered 8 more modules of Ex Works to the Fuel Cell in Korea.
• It is worth highlighting that FuelCell has started accepting orders for its solid oxide platform for hydrogen electrolysis and power generation applications.

• The Adani Enterprises (ADE IN) Further Public Offering (“FPO”) expected to raise Rs 200bn has its first leg publicly complete with anchor investors taking Rs 59.849bn. 
• Noted shortseller Hindenburg Research published a long report suggesting Adani Enterprises and indeed the Adani Group were over-priced according to fundamentals and were the result of  a “con.”
• Now the book build starts. Deal structure and Adani Group CFO comments continue to suggest that Liquidity is a Bug, not a Feature.

• In this insight, we take a look at the potential index changes for the FTSE Straits Times Index (STI) (STI INDEX) between now and the March 2023 index review.
• Previously, I expected the Sembcorp Marine (SMM SP) – Keppel Corp (KEP SP) deal to complete in time for SMM to be added to STI during the March 2023 review.
• However, that is looking less likely. SMM’s addition could get delayed to June 2023 and there might be a longer-period overhang in SMM once the deal completes.

• The Bain’s consortium announced an agreed sweetened offer (Alternative Consideration, shares exchanged for a zero-coupon debt instrument redeemable at €8.5 by mid-December), 6.25% premium to Triton’s offer.
• The Alternative Consideration (illiquid) corresponds to 16.3x EV/Fwd EBIT and 19.3x Fwd P/E. There are high chances that the bidding process will stop, but would still be long the shares.
• The Bain’s consortium has now all regulatory approvals. Gross spread is 0.82%, with an estimated annual return of 0.90% assuming settlement of the Alternative Consideration Instrument by 29 December.

• As air traffic improves, the combination of increased production rates and strong price increases should partly offset supply related costs.
• The Company’s FCF levels further improve as margins recover, inventory delivered, and pre-payments received
• The share buyback program will resume once €10bn of free cash flow is generated. Airbus is a high-quality Company with a strong management team in place.

• The Adani Enterprises (ADE IN) Further Public Offering (“FPO”) expected to raise Rs 200bn has its first leg publicly complete with anchor investors taking Rs 59.849bn. 
• Noted shortseller Hindenburg Research published a long report suggesting Adani Enterprises and indeed the Adani Group were over-priced according to fundamentals and were the result of  a “con.”
• Now the book build starts. Deal structure and Adani Group CFO comments continue to suggest that Liquidity is a Bug, not a Feature.

• In this insight, we take a look at the potential index changes for the FTSE Straits Times Index (STI) (STI INDEX) between now and the March 2023 index review.
• Previously, I expected the Sembcorp Marine (SMM SP) – Keppel Corp (KEP SP) deal to complete in time for SMM to be added to STI during the March 2023 review.
• However, that is looking less likely. SMM’s addition could get delayed to June 2023 and there might be a longer-period overhang in SMM once the deal completes.

• The Bain’s consortium announced an agreed sweetened offer (Alternative Consideration, shares exchanged for a zero-coupon debt instrument redeemable at €8.5 by mid-December), 6.25% premium to Triton’s offer.
• The Alternative Consideration (illiquid) corresponds to 16.3x EV/Fwd EBIT and 19.3x Fwd P/E. There are high chances that the bidding process will stop, but would still be long the shares.
• The Bain’s consortium has now all regulatory approvals. Gross spread is 0.82%, with an estimated annual return of 0.90% assuming settlement of the Alternative Consideration Instrument by 29 December.

• As air traffic improves, the combination of increased production rates and strong price increases should partly offset supply related costs.
• The Company’s FCF levels further improve as margins recover, inventory delivered, and pre-payments received
• The share buyback program will resume once €10bn of free cash flow is generated. Airbus is a high-quality Company with a strong management team in place.