Industrials

• Media reported last night that JIP would bid ¥2.2trln for Toshiba. That’s about ¥5,000-5,100/share. 
• This morning, there is a bit more clarification. Funnily, that means there is less info here than people think.
• But it is not a great look for either JIP or Toshiba at this point.

• Kawasaki Kisen Kaisha (9107 JP) had a shareholder return program in place in May. Earnings forecasts on 3 Nov were slightly disappointing so the stock sold off but…
• The large buyback allowed investors to try to game the situation. Some may have, but this morning on the execution, VERY few Real World Float holders sold. 
• That leaves the stock squeezy going into a buyback to repurchase 20% of the Max Real World Float (including short-created longs). 

• Delhivery (DELHIVER IN) raised US$675m in its IPO and started trading on 24 May. The stock dropped below its IPO price a couple of weeks ago.
• Lock-Ups on pre-IPO investors expire on 20 November with 598m shares (US$2.89bn) becoming available for sale. Sell before then or hold off on buying.
• Delhivery (DELHIVER IN) is a potential inclusion to the MSCI Small Cap and FTSE All-World indices in the next month. Passive buying will be overshadowed by lock-up expiry.

• Archean Chemical Industries (0810406D IN) is looking to raise about US$176m in its India IPO. 
• Archean Chemical Industries (ACI) is a specialty marine chemical manufacturer in India focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world. 
• ACI has been growing on the back of increasing production capacity, sales volume and average selling prices in recent years. However, the firm had nearly defaulted previously. 

• An ideal timing of selling/shorting Sungeel Hitech would be after its stock is included in KOSDAQ 150 but before the end of the 6 months lock up period. 
• Sungeel Hitech is a likely candidate for an early entry in KOSDAQ 150 in December.
• Sungeel Hitech’s 6 months end of lock-up period is on 28 January 2023. There are 0.31 million shares (2.6% of total outstanding shares) that can be sold after this period.

Adani Ports and Special Economic Zone’s (APSEZ) H1/22-23 results were moderately strong. The company reported robust earnings growth and margin expansion, supported by organic growth in cargo volumes and improved pricing. Leverage improved, as the company applied positive FCF towards debt reduction. That said, we expect slightly negative FY 2022-23 FCF, owing to higher full-year capex and the Haifa port acquisition. 

We note APSEZ’s continued aggressive growth ambitions, which would keep Net Debt/EBITDA at a moderate 3-4x. The company’s intention to bid for the Container Corporation of India (valued at a hefty USD 5.8 bn) may present an event risk, though the impact on leverage would ultimately hinge on APSEZ’s funding plans.

• Media reported last night that JIP would bid ¥2.2trln for Toshiba. That’s about ¥5,000-5,100/share. 
• This morning, there is a bit more clarification. Funnily, that means there is less info here than people think.
• But it is not a great look for either JIP or Toshiba at this point.

• Kawasaki Kisen Kaisha (9107 JP) had a shareholder return program in place in May. Earnings forecasts on 3 Nov were slightly disappointing so the stock sold off but…
• The large buyback allowed investors to try to game the situation. Some may have, but this morning on the execution, VERY few Real World Float holders sold. 
• That leaves the stock squeezy going into a buyback to repurchase 20% of the Max Real World Float (including short-created longs). 

• Delhivery (DELHIVER IN) raised US$675m in its IPO and started trading on 24 May. The stock dropped below its IPO price a couple of weeks ago.
• Lock-Ups on pre-IPO investors expire on 20 November with 598m shares (US$2.89bn) becoming available for sale. Sell before then or hold off on buying.
• Delhivery (DELHIVER IN) is a potential inclusion to the MSCI Small Cap and FTSE All-World indices in the next month. Passive buying will be overshadowed by lock-up expiry.

• Archean Chemical Industries (0810406D IN) is looking to raise about US$176m in its India IPO. 
• Archean Chemical Industries (ACI) is a specialty marine chemical manufacturer in India focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world. 
• ACI has been growing on the back of increasing production capacity, sales volume and average selling prices in recent years. However, the firm had nearly defaulted previously. 

• An ideal timing of selling/shorting Sungeel Hitech would be after its stock is included in KOSDAQ 150 but before the end of the 6 months lock up period. 
• Sungeel Hitech is a likely candidate for an early entry in KOSDAQ 150 in December.
• Sungeel Hitech’s 6 months end of lock-up period is on 28 January 2023. There are 0.31 million shares (2.6% of total outstanding shares) that can be sold after this period.

Adani Ports and Special Economic Zone’s (APSEZ) H1/22-23 results were moderately strong. The company reported robust earnings growth and margin expansion, supported by organic growth in cargo volumes and improved pricing. Leverage improved, as the company applied positive FCF towards debt reduction. That said, we expect slightly negative FY 2022-23 FCF, owing to higher full-year capex and the Haifa port acquisition. 

We note APSEZ’s continued aggressive growth ambitions, which would keep Net Debt/EBITDA at a moderate 3-4x. The company’s intention to bid for the Container Corporation of India (valued at a hefty USD 5.8 bn) may present an event risk, though the impact on leverage would ultimately hinge on APSEZ’s funding plans.

• The Nikkei Asia reports that JIP has submitted a formal proposal to privatise Toshiba Corp (6502 JP) for about JPY2.2 trillion (US$15 billion) based on “Toshiba’s current share price.” 
• JIP’s offer is below expectations of around a JPY6,000 bid which is likely driven by the inability to secure sufficient debt financing. JIP remains in negotiations with banks. 
• While there is a risk that JIP will be unable to improve its offer to secure Board approval, the downside is low as Toshiba/peers’ current price ratio is attractive. 

• On Thursday, Kawasaki Kisen Kaisha (9107 JP) announced earnings, lower-than-consensus guidance and a ¥100bn buyback via ToSTNeT-3 this week, and on market if not filled via ToSTNeT-3.
• The stock fell 5+%. I wrote I thought it was a buy and that the buyback was “game-able.” It rose 10+% from then til now. 
• That was the fun. Now we get the games. Positioning strategy matters. 

• Sunwoda Electronic Co Ltd A (300207 CH) is looking to raise around US$300m in its Swiss GDR listing. Bookrunners on the deal are GS and UBS.
• The firm is offering 19.6m GDRs (1 GDR to 5 A-shares) for sale at a 12.3-16.1% discount to last close. 
• The deal would represent 3.4 days of three month ADV and 4.8% of the firm’s current mcap.

• The Nikkei Asia reports that JIP has submitted a formal proposal to privatise Toshiba Corp (6502 JP) for about JPY2.2 trillion (US$15 billion) based on “Toshiba’s current share price.” 
• JIP’s offer is below expectations of around a JPY6,000 bid which is likely driven by the inability to secure sufficient debt financing. JIP remains in negotiations with banks. 
• While there is a risk that JIP will be unable to improve its offer to secure Board approval, the downside is low as Toshiba/peers’ current price ratio is attractive. 

• On Thursday, Kawasaki Kisen Kaisha (9107 JP) announced earnings, lower-than-consensus guidance and a ¥100bn buyback via ToSTNeT-3 this week, and on market if not filled via ToSTNeT-3.
• The stock fell 5+%. I wrote I thought it was a buy and that the buyback was “game-able.” It rose 10+% from then til now. 
• That was the fun. Now we get the games. Positioning strategy matters. 

• Sunwoda Electronic Co Ltd A (300207 CH) is looking to raise around US$300m in its Swiss GDR listing. Bookrunners on the deal are GS and UBS.
• The firm is offering 19.6m GDRs (1 GDR to 5 A-shares) for sale at a 12.3-16.1% discount to last close. 
• The deal would represent 3.4 days of three month ADV and 4.8% of the firm’s current mcap.

• Mitsui & Co Ltd (8031 JP) on 1 November reported its results for H1 2022. H1 Revenue +37.1%yoy, OP+27.2%yoy, NP+33.2%yoy to ¥539bn. Full-year NP forecast +22.5% to ¥980bn.
• Mitsui raised its dividend forecast (previously scheduled to rise from ¥105/share to ¥120/share) to ¥130/share and announced a ¥140bn buyback, adding to the ¥100bn announced in May completed in September.
• The first ¥58.6bn was done in a ToSTNeT-3 buyback. Now there is another ¥79.4bn to go. There’s also a fair bit of index selling the next 6mos.

• There are several bits of news in the past few weeks indicating financing commitments might not meet the 7 Nov deadline. Principal among them the JIC/JIP split many weeks ago. 
• That suggested the 30 Sep and subsequent deadlines would be delayed. And it appears we now have the reason for it, and that is another cause of financing commitment delay.
• This development suggests activists have another quiver in their arrow should privatisation not succeed. Toshiba has cheapened in the meantime.

• Industrials have been quite resilient this year. Their stocks prices have run up as sector earnings fared better-than-expected, and as investors have looked for safety under the cover of ‘real economy’ stocks during a year in which tech is down big.
• You may think that the train has left the station already with blue chip industrials like Caterpillar and Deere.
• They’re certainly trading near all time highs! But hold on. There is one train which hasn’t left yet, and that is Komatsu.

• Mitsui & Co Ltd (8031 JP) on 1 November reported its results for H1 2022. H1 Revenue +37.1%yoy, OP+27.2%yoy, NP+33.2%yoy to ¥539bn. Full-year NP forecast +22.5% to ¥980bn.
• Mitsui raised its dividend forecast (previously scheduled to rise from ¥105/share to ¥120/share) to ¥130/share and announced a ¥140bn buyback, adding to the ¥100bn announced in May completed in September.
• The first ¥58.6bn was done in a ToSTNeT-3 buyback. Now there is another ¥79.4bn to go. There’s also a fair bit of index selling the next 6mos.

• There are several bits of news in the past few weeks indicating financing commitments might not meet the 7 Nov deadline. Principal among them the JIC/JIP split many weeks ago. 
• That suggested the 30 Sep and subsequent deadlines would be delayed. And it appears we now have the reason for it, and that is another cause of financing commitment delay.
• This development suggests activists have another quiver in their arrow should privatisation not succeed. Toshiba has cheapened in the meantime.

• Industrials have been quite resilient this year. Their stocks prices have run up as sector earnings fared better-than-expected, and as investors have looked for safety under the cover of ‘real economy’ stocks during a year in which tech is down big.
• You may think that the train has left the station already with blue chip industrials like Caterpillar and Deere.
• They’re certainly trading near all time highs! But hold on. There is one train which hasn’t left yet, and that is Komatsu.

• MSCI announces the changes at the November SAIR pre-market open (Asia time) on 11 November. That day is also the market cap cutoff for the FTSE December QIR.
• There are some pretty big changes to the flows for the FTSE TWSE Taiwan Div+ Index following changes to forward dividend estimates and stock prices.
• Quiet week for ETF flows with large inflows to Huatai-PB CSI 300 ETF (510300 CH) and Tracker Fund of Hong Kong Ltd (2800 HK). 

• There is potentially a premium of about 20-25% being assessed for the possibility of a deal for Toshiba Corp (6502 JP), but there is also fundamental risk beyond this.
• Perpetual Ltd (PPT AU) rejects EQT/BPEA/Regal’s Offer, a proposal that is contingent on PPT ceasing its Scheme with Pendal Group (PDL AU) 
• News Corp (NWS AU) is trading rich. The net EV/EBITDA for the stub ops trades closely matches to Fox (FOXA US). And Fox is preferable over NWS’ print media business. 

• MSCI announces the changes at the November SAIR pre-market open (Asia time) on 11 November. That day is also the market cap cutoff for the FTSE December QIR.
• There are some pretty big changes to the flows for the FTSE TWSE Taiwan Div+ Index following changes to forward dividend estimates and stock prices.
• Quiet week for ETF flows with large inflows to Huatai-PB CSI 300 ETF (510300 CH) and Tracker Fund of Hong Kong Ltd (2800 HK). 

• There is potentially a premium of about 20-25% being assessed for the possibility of a deal for Toshiba Corp (6502 JP), but there is also fundamental risk beyond this.
• Perpetual Ltd (PPT AU) rejects EQT/BPEA/Regal’s Offer, a proposal that is contingent on PPT ceasing its Scheme with Pendal Group (PDL AU) 
• News Corp (NWS AU) is trading rich. The net EV/EBITDA for the stub ops trades closely matches to Fox (FOXA US). And Fox is preferable over NWS’ print media business. 

• Strong but slightly disappointing Q2 earnings from Kawasaki Kisen Kaisha (9107 JP), and full-year forecasts are higher, but not as high as consensus. 
• The company has announced a buyback, to be executed on ToSTNeT-3. Effissimo and Mizuho Bank will participate. Other crossholders could too. 
• Strategy depends on whether you think they will. If they do not, post-buyback float drops sharply.

• The share price is at the top of its trading range, but management sees YoY sales and profit growth dropping to single digits this quarter.
• On a QoQ basis, guidance is for double-digit declines, but that is partly seasonal.
• The shares have been in a trading range for almost two years. As interest rates rise, economies slow and the semiconductor down-cycle continues, watch out.

• Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry.
• Overall, net outflow over the past week was ~US$2.4bn, split between Shanghai (-US$1.15bn) and Shenzhen (-US$1.25bn).
• The largest inflows were into CATL (300750 CH) and Pylon Technologies (688063 CH). The largest outflows were in Kweichow Moutai (600519 CH) and Inner Mongolia Yili Industrial Group (600887 CH).

• American Rebel is a manufacturer a high-tech safes and vaults provider for the modern American consumer.
• The American Rebel brand has been known for its distinctly American flavor and a strong level of patriotism associated with its practices.
• Over the past months, the management has been extremely active in terms of executing its inorganic growth strategy and also diversifying its offerings.

• This is our first research note on Laser Photonics and we look to provide an overview of the company operations before diving deeper into its valuation with a full-fledged valuation report which will be released soon.
• The automotive, building and metalworking industries’ strong need for these technologies and the growing interest in robotic cleaning technologies all support the market’s growth.
• Laser Photonics is one of the very few American players in the laser blasting space and offers a cutting-edge solution to the significant rust issue that plagues various industries.

• Apparently, China Communications Construction (1800 HK) has an uninspiring 3Q22, but this is mainly due to losses at concession projects and heavy credit and asset impairments.
• We estimate outstanding backlog at Rmb3.28trn, enough to cover 4.5x FY22F revenue. Expansion in 3Q22 gross margin, against declines in 1Q22 and 2Q22, is a positive development.
• Despite outperformance against major indexes YTD, CCCC still trades on 2.3x and 2.1x PERs for FY22-23. Its 0.16x P/B has overly discounted the value of underlying assets.

• The company is overearning due to an unusual confluence of events that increased demand for and limited supply of transportation, especially intermodal, services.  
• HUB’s sales and margins surged on a 40%+ intermodal pricing increase.  EBITDA margins increased 400bps
• Import volumes and port congestion are falling.  Pricing is easing.  Transportation could end up in a glut quickly.   The weakening macro picture could take additional pressure off transportation demand.