Industrials

• In April, reportedly Renault (RNO FP) might sell Nissan (7201 JP) shares to support EV investments. We have news talks are coming to a head. The results won’t be pretty.
• The Nikkei says the JIP consortium is the “Preferred Bidder” for Toshiba Corp (6502 JP). That is a stalking horse. The proposed price of ¥2.5trn is also a stalking horse
• Reportedly the Widjaja Family may be looking to take Indonesian/Australian energy/met coal play Golden Energy & Resources (GER SP) private.

• In this insight, we highlight the pricing gap divergence of the major Korean holdcos and opcos amid market carnage.
• In general, more holdcos/quasi-holdcos have been outperforming the opcos in the past year, as compared to the previous years as more investors seek value-oriented, deep NAV discount stocks.
• We highlight 26 pair trades that involve Korean holdcos and opcos.

• On 20th September 2022, FTSE Russell commenced a market consultation with a goal of increasing the constituent count of the FTSE TWSE Taiwan Dividend+ Index from 30 to 50.
• On 13th October 2022, FTSE Russell confirmed that the number of constituents in the FTSE TWSE Taiwan Dividend+ Index will be increased from 30 to 50.
• In this insight, we take a look at the updated Ground Rules and Quiddity’s expectations for index flows during the December 2022 Rebalance.

• There are 49 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Three new (possible) deals discussed this week: KKR’s tilt for Elmo (ELO AU); Widjaja Family’s move on Golden Energy & Resources (GER SP), Chu’s bid for Kingston Financial (1031 HK)
• Key updates took place for Toshiba Corp (6502 JP), Pushpay Holdings (PPH NZ), True Corp Pcl (TRUE TB) / Total Access Communication (DTAC TB), and PTB Group (PTB AU).

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. However, such disclosures are by no means an absolute. 
• These insights may flag those companies where shares have been pledged. Stocks mentioned include Lion Rock (1127 HK), VCredit (2003 HK), Zhongsheng (881 HK), and Concord New Energy (182 HK).

• In this insight, we take a look at the names leading the race to become ADDITIONs/DELETIONs for the Taiwan 50 and Taiwan Mid-Cap 100 Indices for the December 2022 Rebalance.
• There could be one change in the Taiwan 50 Index and three changes in the Taiwan Mid-Cap 100 index.
• There are multiple names close to the borders and there could be more ranking changes before the base date for review (21st November 2022).

• Ashok Leyland (AL IN) ‘s expectation of a more rational pricing environment may not materialise. While there has been a moderation in discounts, it may not last long.  
• Wholesales have been high in anticipation of a good festive season, however, the gap between Wholesale and Retail is showing signs of widening.  
• Macros are not conducive. Sept PMI hit a 3M low, and August IIP at an 18M low can build a case for cooling volumes ahead. 

• 20th National Congress of the Communist Party is due to kick off this week
• Will economic growth be top of the agenda and is there any scope to adjust the Covid strategy?
• With many potential growth factors, use derivatives to gain delta exposure

• Yunsung F&C is a leading maker of materials mixing equipment that are used in the rechargeable battery production.
• The IPO price range is from 53,000 won to 62,000 won and offering amount is from 106 billion won to 124 billion won. The book building starts on 26 October. 
• According to the bankers’ valuation, the expected IPO market cap range is from 423 billion won to 495 billion won. 

• In our Sept.27 Compass, with the S&P 500 down 11.5% during the prior two weeks, we discussed our belief that the market indexes could see a bounce/pause pause in selling.
• The SPX and IWM have paused, and we cannot rule out a bear market rally if the 200-week MA (3590-3600) holds on the SPX, and if $162-163 holds on IWM.
• Longer-Term, this is still a bear market until the S&P 500 and Russell 2000 can break above their respective 200-day MAs.

• Micro Irrigation firms > reeling under commodity stress > cut in Govt budgets > long wcap cycle
• Long term outlook, however is robust > revival in spends likely
• Negative sentiments > low earnings visibility > low valuation offers entry opportunity  

• In our Sept.27 Compass, with the S&P 500 down 11.5% during the prior two weeks, we discussed our belief that the market indexes could see a bounce/pause pause in selling.
• The SPX and IWM have paused, and we cannot rule out a bear market rally if the 200-week MA (3590-3600) holds on the SPX, and if $162-163 holds on IWM.
• Longer-Term, this is still a bear market until the S&P 500 and Russell 2000 can break above their respective 200-day MAs.

• Micro Irrigation firms > reeling under commodity stress > cut in Govt budgets > long wcap cycle
• Long term outlook, however is robust > revival in spends likely
• Negative sentiments > low earnings visibility > low valuation offers entry opportunity  

• Back on the 18 August, aviation engine repair play PTB Group (PTB AU) entered into a Scheme Implementation Deed with PAG Holding, at $1.595/share, a 40.5% premium to last close.
• The Scheme Booklet has now been lodged with ASIC. The Independent Expert reckons the Offer is fair and reasonable. 
• The Scheme Meeting will be held on the 16 November, as previously flagged in August’s SID, with an expected implementation on the 9 December. 

• Golden Energy & Resources (GER SP), an Indonesian/Australian energy/met coal play, may be subject to an acquisition from its controlling shoulder, the Widjaja Family.
• GEAR reported 1H22 (to June) earnings of US$279mn, an 859% gain yoy, as contributions from the newly acquired stake in an Australian coal mine from BHP (BHP AU) kicked in.
• The family is potentially betting on one to two more years of outsized cashflow as the world’s coal habit remains healthy.

• With a week to the start of the review period, we forecast one inclusion and a lot more deletions for the MSCI Korea Index at the November SAIR.
• The impact from passive fund trading is pretty large on the potential and close deletes while the impact is a lot more muted on the sole potential add.
• There will be pre-positioning on most of the names already and part of that shows up in sharply higher short interest on a few stocks.

• We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (10 November) that are being highlighted by the locals.
• The potential inclusion candidates in the MSCI Korea Index emphasized by the locals in November 2022 include Hyundai Mipo Dockyard (010620 KS) and Hanwha Aerospace (012450 KS).
• Potential exclusion candidates include Seegene Inc (096530 KS), Meritz Financial Group (138040 KS), and Green Cross (006280 KS). 

• Overnight, a few news outlets are running with the story that Toshiba Corp (6502 JP) has granted “preferred bidder” status to the Japan Industrial Partners (JIP)-led consortium bid.
• JIP had originally signed up with public-private fund JIC, forming one of the four bids (the other three being CVC, Bain, and Brookfield) but JIP and JIC split last month.
• “Preferred Bidder status” is just that. It’s not exclusive, but one can read between the lines. But the articles have interesting details, including the first trial ballon price leak.

• PTB Group Ltd (PTB AU)‘s scheme meeting is on 16 November. The IE considers the offer of A$1.595 + dividend up to A$0.03 per share (total of A$1.625) fair.  
• The key condition is approval from shareholders – headcount test and approval by at least 75% of the votes cast on the resolution. The two largest shareholders will vote YES.
• We continue to think that offer is attractive. At the last close price and for the 9 December payment, the gross and annualised spread is 2.2% and 13.8%, respectively.

• Maintain BUY recommendation for BEM with a new target price of Bt11.40 (Previous TP: Bt9.90) after we incorporate value from orange line project into our valuation. We expect the company 
• Expect solid profit recovery in 3Q22 and onwards Expect BEM’ revenue in 3Q22 to touch Bt3.6bn (+69%YoY +12%QoQ) supported by solid rebound in daily average MRT ridership to 313k trips 
• Gross profit margin is assumed to expand to three-quarter high at 42% thanks to benefit from high operating leverage,which should help absorb the impact from an increase in MRT revenue 

• This is our first report on Fortive Corporation, a leading provider of provider of essential technologies for connected workflow solutions.
• Fortive delivered an all-around beat as software ARR and hardware orders both increased, reflecting a more diversified and resilient product portfolio.
• In the quarter, orders and demand remained strong despite the rising FX headwinds and higher inflation.

• Golden Energy & Resources (GER SP), an Indonesian/Australian energy/met coal play, may be subject to an acquisition from its controlling shoulder, the Widjaja Family.
• GEAR reported 1H22 (to June) earnings of US$279mn, an 859% gain yoy, as contributions from the newly acquired stake in an Australian coal mine from BHP (BHP AU) kicked in.
• The family is potentially betting on one to two more years of outsized cashflow as the world’s coal habit remains healthy.

• With a week to the start of the review period, we forecast one inclusion and a lot more deletions for the MSCI Korea Index at the November SAIR.
• The impact from passive fund trading is pretty large on the potential and close deletes while the impact is a lot more muted on the sole potential add.
• There will be pre-positioning on most of the names already and part of that shows up in sharply higher short interest on a few stocks.

• We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (10 November) that are being highlighted by the locals.
• The potential inclusion candidates in the MSCI Korea Index emphasized by the locals in November 2022 include Hyundai Mipo Dockyard (010620 KS) and Hanwha Aerospace (012450 KS).
• Potential exclusion candidates include Seegene Inc (096530 KS), Meritz Financial Group (138040 KS), and Green Cross (006280 KS). 

• Overnight, a few news outlets are running with the story that Toshiba Corp (6502 JP) has granted “preferred bidder” status to the Japan Industrial Partners (JIP)-led consortium bid.
• JIP had originally signed up with public-private fund JIC, forming one of the four bids (the other three being CVC, Bain, and Brookfield) but JIP and JIC split last month.
• “Preferred Bidder status” is just that. It’s not exclusive, but one can read between the lines. But the articles have interesting details, including the first trial ballon price leak.

• PTB Group Ltd (PTB AU)‘s scheme meeting is on 16 November. The IE considers the offer of A$1.595 + dividend up to A$0.03 per share (total of A$1.625) fair.  
• The key condition is approval from shareholders – headcount test and approval by at least 75% of the votes cast on the resolution. The two largest shareholders will vote YES.
• We continue to think that offer is attractive. At the last close price and for the 9 December payment, the gross and annualised spread is 2.2% and 13.8%, respectively.

• Maintain BUY recommendation for BEM with a new target price of Bt11.40 (Previous TP: Bt9.90) after we incorporate value from orange line project into our valuation. We expect the company 
• Expect solid profit recovery in 3Q22 and onwards Expect BEM’ revenue in 3Q22 to touch Bt3.6bn (+69%YoY +12%QoQ) supported by solid rebound in daily average MRT ridership to 313k trips 
• Gross profit margin is assumed to expand to three-quarter high at 42% thanks to benefit from high operating leverage,which should help absorb the impact from an increase in MRT revenue 

• This is our first report on Fortive Corporation, a leading provider of provider of essential technologies for connected workflow solutions.
• Fortive delivered an all-around beat as software ARR and hardware orders both increased, reflecting a more diversified and resilient product portfolio.
• In the quarter, orders and demand remained strong despite the rising FX headwinds and higher inflation.

• Nearing the end of the review period for the December rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 9 December.
• There is a big sector skew in the potential changes. We estimate a one-way turnover of 13.67% at the December rebalance leading to a one-way trade of CNY 7.53bn.
• The potential adds have outperformed over the last 6 months but have given up some of the gains recently as market turned volatile. Expect outperformance as the review period ends.

Our latest Webinar looks at news updates on Shinsei, Toa Oil, and Toyo Construction. To help us explore the implications for investors, we welcome Insight Provider Travis Lundy of Quiddity Advisors. 

The webinar will be hosted on Wednesday, 12 October 2022, 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.

• Lohia Corp (1638860D IN) is looking to raise about US$183m in its upcoming India IPO. The deal will be run by ICICI Securities, HSBC, IIFL Securities and Motilal Oswal.
• Lohia Corp is the market leader in India for end-to-end manufacturing solutions within the machine segment for the Raffia industry in Fiscal 2022, according to Frost & Sullivan. 
• In addition to machines for the Raffia industry, it also manufactures spin-draw-wind machines (LOFIL) for polypropylene (PP) multifilament yarn that is used in upholstery, among others.

• Nearing the end of the review period for the December rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 9 December.
• There is a big sector skew in the potential changes. We estimate a one-way turnover of 13.67% at the December rebalance leading to a one-way trade of CNY 7.53bn.
• The potential adds have outperformed over the last 6 months but have given up some of the gains recently as market turned volatile. Expect outperformance as the review period ends.

Our latest Webinar looks at news updates on Shinsei, Toa Oil, and Toyo Construction. To help us explore the implications for investors, we welcome Insight Provider Travis Lundy of Quiddity Advisors. 

The webinar will be hosted on Wednesday, 12 October 2022, 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.

• Lohia Corp (1638860D IN) is looking to raise about US$183m in its upcoming India IPO. The deal will be run by ICICI Securities, HSBC, IIFL Securities and Motilal Oswal.
• Lohia Corp is the market leader in India for end-to-end manufacturing solutions within the machine segment for the Raffia industry in Fiscal 2022, according to Frost & Sullivan. 
• In addition to machines for the Raffia industry, it also manufactures spin-draw-wind machines (LOFIL) for polypropylene (PP) multifilament yarn that is used in upholstery, among others.

• Diversified across sectors and regions, Hitachi Ltd. is a proxy for the global economy going into recession.
• Restructuring nearly complete, but little margin expansion so far. DX revenues growing rapidly, but more profit supporter than driver. 
• Weak 1Q and worsening economic situation casts doubt on FY Mar-23 guidance.

• With share price of Jiangsu Expressway (H) (177 HK) now back to the 2013-2014 level, the stock is very attractive on secured yield of 8.6% based on its dividend record. 
• Fundamentally, we expect sequential recovery in earnings in 2H22. Its diversification into clean energy will provide a quality earnings stream. Longer-term, new projects will add to earnings. 
• It has a healthy gearing level and the Rmb denominated borrowings means it will benefit from lower interest rate and lack of exposure to Rmb depreciation.