Industrials

On 26 August, Jeju Air (089590 KS) announced a rights offering worth 320 billion won, representing 39% of its market cap.
The expected rights offering price is 11,750 won (29% lower than its current price of 16,550 won) and the expected rights offering shares are 27.23 million shares.
Overall, we are negative on this rights offering mainly because we believe it is likely to result in too much dilution for the existing shareholders.

CIMC Enric (3899 HK): Growth Outlook Supported by Multiple Engines

We see the positive share price reaction of CIMC Enric Holdings (3899 HK) after posting a 34.5% 1H22 core profit growth not yet enough to reflect its encouraging earnings outlook.
Good order backlog, recovery at clean energy and increase in liquid food demand will add to the strength at chemical and environment segment as CIMC Enric’s drivers.
Hydrogen energy business made impressive contribution growth and it should benefit from local governments’ hydrogen initiatives. The stock’s high PERs are just reflection of huge long-term potential.

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Aug 27

Daily Brief Industrials: MACA Ltd, Caterpillar Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

MACA’s Target Statement Responds To Thiess’ Offer
Caterpillar Inc: Cat MineStar Developments & Other Drivers

MACA’s Target Statement Responds To Thiess’ Offer

On the 26th July, diversified contractor MACA Ltd (MLD AU) announced a friendly off-market cash offer from fellow contractor Thiess, at A$1.025/share, a 28.1% premium to the previous close.
The Bidder’s Statement was dispatched on the 9 August. After rebuffing NRW Holdings (NWH AU)‘s non-binding proposal, MACA has now dispatched the Target Statement.
The IE deems the Offer, which remains subject to FIRB and ACCC approvals, to be fair. The first closing date is the 12 September.

Caterpillar Inc: Cat MineStar Developments & Other Drivers

Despite persistent supply chain difficulties, Caterpillar delivered another strong quarter with a double-digit top line growth though it did fail to meet Wall Street expectations on the revenue front.
Most of its end markets are experiencing strong demand and its strong margin profile did help deliver an earnings beat.
The management achieved stronger services revenue and better-than-anticipated price revenue, which were offset by lower-than-anticipated user sales.

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Aug 27

Daily Brief Industrials: MACA Ltd, Caterpillar Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

MACA’s Target Statement Responds To Thiess’ Offer
Caterpillar Inc: Cat MineStar Developments & Other Drivers

MACA’s Target Statement Responds To Thiess’ Offer

On the 26th July, diversified contractor MACA Ltd (MLD AU) announced a friendly off-market cash offer from fellow contractor Thiess, at A$1.025/share, a 28.1% premium to the previous close.
The Bidder’s Statement was dispatched on the 9 August. After rebuffing NRW Holdings (NWH AU)‘s non-binding proposal, MACA has now dispatched the Target Statement.
The IE deems the Offer, which remains subject to FIRB and ACCC approvals, to be fair. The first closing date is the 12 September.

Caterpillar Inc: Cat MineStar Developments & Other Drivers

Despite persistent supply chain difficulties, Caterpillar delivered another strong quarter with a double-digit top line growth though it did fail to meet Wall Street expectations on the revenue front.
Most of its end markets are experiencing strong demand and its strong margin profile did help deliver an earnings beat.
The management achieved stronger services revenue and better-than-anticipated price revenue, which were offset by lower-than-anticipated user sales.

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Aug 26

Daily Brief Industrials: Escorts Kubota, Firstgroup PLC, Sinotrans, Balaji Speciality Chemicals and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Escorts Kubota (ESCORTS IN) | Alarming Allegations by Dealers
I Squared/FirstGroup: Why Have the Negotiations Ended?
Sinotrans (598 HK): Still a Very Decent Performance
Balaji Speciality Chemicals Pre-IPO Tearsheet

Escorts Kubota (ESCORTS IN) | Alarming Allegations by Dealers

By Pranav Bhavsar

Escorts Kubota (ESCORTS IN) ‘s domestic market share as of FY22 stood at 10.3 % vs 12% in FY20 against the aspiration of 15% for FY22.
Our interactions with various dealers across key northern and eastern states suggest caution and structural inability to regain market share loss.
Post equity infusion, Kubota Corp (6326 JP) is probably in for more surprises than what it might have initially hoped for.

I Squared/FirstGroup: Why Have the Negotiations Ended?

By Jesus Rodriguez Aguilar

On 16 August, I Squared confirmed it did not intend to make an offer for FirstGroup thus will now be precluded from bidding for six months.
The 15 August offer implied almost no premium for the core business, significant value not reflected, and a difficult to grasp structure for most investors, in my view.
A SOTP approach gives a fair value of 183.4p. The board seems right in its refusal. Other bidders may appear or I Squared may return to the negotiating table. Long.

Sinotrans (598 HK): Still a Very Decent Performance

Recurring profit for Sinotrans (598 HK) increased 16.4% in 1H22 and improved to 16.6% in 2Q22. The declaration of an interim dividend also highlights management’s confidence.
We expect a pick-up in 2H22 as negative impact of the lockdowns faded. Also, contribution from DHL-Sinotrans should return to growth as international express regain momentum.
Strong financial position should allow for higher dividend payout, and currently it is already yielding 10.4%. Its 3.6x PER and 0.4x P/B are cheap, especially relative to ROE of 11.3%.

Balaji Speciality Chemicals Pre-IPO Tearsheet

By Ethan Aw

Balaji Speciality Chemicals (1742663D IN) is looking to raise about US$126m in its upcoming India IPO. The deal will be run by JM Financial and HDFC Bank.
Balaji Speciality Chemicals (BSC) is the sole manufacturer in India of niche chemicals such as Ethylenediamine, Piperazine (Anhydrous), Diethylenetriamine, Amino Ethyl Ethanol Amines and Amino Ethyl Piperazine, according to CRISIL.
The chemicals it manufactures are import substitutes and are used in end-use industries such as speciality chemicals. Its customer base grew from 45 in FY20 to 182 in FY22.

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Aug 26

Daily Brief Industrials: Escorts Kubota, Firstgroup PLC, Sinotrans, Balaji Speciality Chemicals and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Escorts Kubota (ESCORTS IN) | Alarming Allegations by Dealers
I Squared/FirstGroup: Why Have the Negotiations Ended?
Sinotrans (598 HK): Still a Very Decent Performance
Balaji Speciality Chemicals Pre-IPO Tearsheet

Escorts Kubota (ESCORTS IN) | Alarming Allegations by Dealers

By Pranav Bhavsar

Escorts Kubota (ESCORTS IN) ‘s domestic market share as of FY22 stood at 10.3 % vs 12% in FY20 against the aspiration of 15% for FY22.
Our interactions with various dealers across key northern and eastern states suggest caution and structural inability to regain market share loss.
Post equity infusion, Kubota Corp (6326 JP) is probably in for more surprises than what it might have initially hoped for.

I Squared/FirstGroup: Why Have the Negotiations Ended?

By Jesus Rodriguez Aguilar

On 16 August, I Squared confirmed it did not intend to make an offer for FirstGroup thus will now be precluded from bidding for six months.
The 15 August offer implied almost no premium for the core business, significant value not reflected, and a difficult to grasp structure for most investors, in my view.
A SOTP approach gives a fair value of 183.4p. The board seems right in its refusal. Other bidders may appear or I Squared may return to the negotiating table. Long.

Sinotrans (598 HK): Still a Very Decent Performance

Recurring profit for Sinotrans (598 HK) increased 16.4% in 1H22 and improved to 16.6% in 2Q22. The declaration of an interim dividend also highlights management’s confidence.
We expect a pick-up in 2H22 as negative impact of the lockdowns faded. Also, contribution from DHL-Sinotrans should return to growth as international express regain momentum.
Strong financial position should allow for higher dividend payout, and currently it is already yielding 10.4%. Its 3.6x PER and 0.4x P/B are cheap, especially relative to ROE of 11.3%.

Balaji Speciality Chemicals Pre-IPO Tearsheet

By Ethan Aw

Balaji Speciality Chemicals (1742663D IN) is looking to raise about US$126m in its upcoming India IPO. The deal will be run by JM Financial and HDFC Bank.
Balaji Speciality Chemicals (BSC) is the sole manufacturer in India of niche chemicals such as Ethylenediamine, Piperazine (Anhydrous), Diethylenetriamine, Amino Ethyl Ethanol Amines and Amino Ethyl Piperazine, according to CRISIL.
The chemicals it manufactures are import substitutes and are used in end-use industries such as speciality chemicals. Its customer base grew from 45 in FY20 to 182 in FY22.

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Aug 25

Daily Brief Industrials: Iljin Hysolus, JD Logistics, APM, Samsung C&T, Ametek Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

ESOP Lockup Releases: Iljin HySolus & Hyundai Heavy Industries
JD Logistics (2618 HK): Surged After 2Q22 Result, Still an Upside of 39%
APM Human Services IPO Lock-Up – PE with a US$620m Stake Comes Free
Samsung C&T: Closing the NAV Discount Gap
Ametek Inc: Value Proposition

ESOP Lockup Releases: Iljin HySolus & Hyundai Heavy Industries

By Sanghyun Park

Iljin HySolus and Hyundai Heavy Industries will release the ESOP volumes, 0.82% and 3.93% of SO, on September 1st and 17th. They have risen 2.3% and 145.8% from the listings.
Despite the small profit, it seems more probable that the Iljin HySolus ESOP will attempt to dispose of its shares immediately after the release, potentially leading to another price correction.
On the other hand, I would seek a hedge for the HHI ESOP lockup release. I would look at KSOE as a hedge for my short position on HHI.

JD Logistics (2618 HK): Surged After 2Q22 Result, Still an Upside of 39%

By Ming Lu

Revenue grew by 20% YoY in 2Q22 with supply chain revenue up by 11% YoY and other revenue up by 42% YoY.
The company was not impacted by lockdown, because the main business is to provide solution to delivery companies.
We still believe the stock will has an upside of 39% after the surge on the day next to the result day.

APM Human Services IPO Lock-Up – PE with a US$620m Stake Comes Free

By Sumeet Singh

APM Human Services (APM) raised about US$730m by selling a mix of primary and secondary shares in Nov 21. Its IPO linked lockup is set to expire later this month.
APM is an international human services provider, it runs 800 sites spanning 10 countries with its largest market being Australia.
In this note, we will talk about the lock-up dynamics and updates since our last note.

Samsung C&T: Closing the NAV Discount Gap

Our base case NAV valuation of Samsung C&T is 147,095 won per share, representing 20% higher than current share price.
Samsung C&T is up 4.7% YTD, significantly outperforming the market and its major affiliates including Samsung Electronics (down 24.9% YTD).
We mention four major factors leading Samsung C&T to outperform Samsung Electronics’ shares this year including shift to value stocks, Neom project, higher commodity prices, and downturn in semiconductor sector.

Ametek Inc: Value Proposition

Ametek was able to surpass Wall Street expectations on all fronts in the previous quarter as a result of stronger-than-anticipated organic sales growth and impressive margin improvement.
The demand in the company’s many specialty markets is very strong and broad-based, which has resulted in exceptional organic order growth and a robust backlog of $3.1 billion.
Furthermore, the management continues to be committed to promoting higher rates of organic growth by recurrently making investments in new technologies to support their long-term growth plans.

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Aug 25

Daily Brief Industrials: Iljin Hysolus, JD Logistics, APM, Samsung C&T, Ametek Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

ESOP Lockup Releases: Iljin HySolus & Hyundai Heavy Industries
JD Logistics (2618 HK): Surged After 2Q22 Result, Still an Upside of 39%
APM Human Services IPO Lock-Up – PE with a US$620m Stake Comes Free
Samsung C&T: Closing the NAV Discount Gap
Ametek Inc: Value Proposition

ESOP Lockup Releases: Iljin HySolus & Hyundai Heavy Industries

By Sanghyun Park

Iljin HySolus and Hyundai Heavy Industries will release the ESOP volumes, 0.82% and 3.93% of SO, on September 1st and 17th. They have risen 2.3% and 145.8% from the listings.
Despite the small profit, it seems more probable that the Iljin HySolus ESOP will attempt to dispose of its shares immediately after the release, potentially leading to another price correction.
On the other hand, I would seek a hedge for the HHI ESOP lockup release. I would look at KSOE as a hedge for my short position on HHI.

JD Logistics (2618 HK): Surged After 2Q22 Result, Still an Upside of 39%

By Ming Lu

Revenue grew by 20% YoY in 2Q22 with supply chain revenue up by 11% YoY and other revenue up by 42% YoY.
The company was not impacted by lockdown, because the main business is to provide solution to delivery companies.
We still believe the stock will has an upside of 39% after the surge on the day next to the result day.

APM Human Services IPO Lock-Up – PE with a US$620m Stake Comes Free

By Sumeet Singh

APM Human Services (APM) raised about US$730m by selling a mix of primary and secondary shares in Nov 21. Its IPO linked lockup is set to expire later this month.
APM is an international human services provider, it runs 800 sites spanning 10 countries with its largest market being Australia.
In this note, we will talk about the lock-up dynamics and updates since our last note.

Samsung C&T: Closing the NAV Discount Gap

Our base case NAV valuation of Samsung C&T is 147,095 won per share, representing 20% higher than current share price.
Samsung C&T is up 4.7% YTD, significantly outperforming the market and its major affiliates including Samsung Electronics (down 24.9% YTD).
We mention four major factors leading Samsung C&T to outperform Samsung Electronics’ shares this year including shift to value stocks, Neom project, higher commodity prices, and downturn in semiconductor sector.

Ametek Inc: Value Proposition

Ametek was able to surpass Wall Street expectations on all fronts in the previous quarter as a result of stronger-than-anticipated organic sales growth and impressive margin improvement.
The demand in the company’s many specialty markets is very strong and broad-based, which has resulted in exceptional organic order growth and a robust backlog of $3.1 billion.
Furthermore, the management continues to be committed to promoting higher rates of organic growth by recurrently making investments in new technologies to support their long-term growth plans.

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Aug 24

Daily Brief Industrials: Toshiba Corp, Xiamen International Port H, Fanuc Corp, Japan Airlines, Canvest Environmental Protection Group and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Toshiba (6502) Update – No Longer Worthwhile to Be Short Toshiba Vs Peers
Xiamen Port (3378 HK)’s Composite Doc Out; Shareholders To Vote On 16 Sept
Fanuc (6954 JP) | Lights Out in China
Japan Transport: Japan Airlines (Long) Vs ANA Holdings (Short)
Xiamen Port’s H Share Class Meeting on 16 September
Canvest Env (1381 HK): Streaming Ahead Despite Tough Time

Toshiba (6502) Update – No Longer Worthwhile to Be Short Toshiba Vs Peers

By Travis Lundy

Since late June when I recommended to not be long Toshiba vs Peers, Toshiba has fallen 9.5% vs Peers (-6% on its own and an equal-weighted Peer Basket is +3.9%).
If one assumes the likelihood of a privatisation has not gone down, and the likely takeout price is the same, back-end adjusted, probability-adjusted IRRs are up 6-8%, to decent levels.
This changes my recommendation from Bearish to Probability-Adjusted Bullish, but it is nuanced, and it is still a range trade.

Xiamen Port (3378 HK)’s Composite Doc Out; Shareholders To Vote On 16 Sept

Back on 2 June, SOE terminal operator Xiamen International Port (3378 HK) announced a pre-conditional Offer of $2.25/share from Xiamen Port Holding, a Fujian SASAC-controlled entity.
The pre-conditions – NDRC, MoC, SAFE, and CSRC – were fulfilled on the 16 August.
The Composite Doc is now out. The H-class meeting will be held on the 16 September. There is no tendering condition. Payment should be the 6 October.

Fanuc (6954 JP) | Lights Out in China

By Mark Chadwick

Machine tool orders have recorded 20 consecutive months of growth – we expect a turn in cycle and remain bearish
Expectations for gradual recovery as China recovers from lockdowns, but power-saving measures are a new risk
Weak end demand for mobile, PC, and consumer electronics are likely to foreshadow capex cuts in 2023

Japan Transport: Japan Airlines (Long) Vs ANA Holdings (Short)

Momentum has favored Japan Airlines’ share price vs ANA Holdings this year and we expect this outperformance to continue in the short term (next 3-6 months).
So our pair trade involves going long Japan Airlines (9201 JP) and going short on Ana Holdings (9202 JP).
Four major reasons why we like Japan Airlines vs ANA Holdings include: a) better valuations, b) higher EBITDA margins, c) stronger leverage ratios, and d) higher proportion of overseas business.

Xiamen Port’s H Share Class Meeting on 16 September

By Arun George

Xiamen International Port H (3378 HK)‘s composite document is out with the H Shareholders’ class meeting scheduled for 16 September. The IFA considers the offer to be fair and reasonable.
The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders’ rejection). There is no minimum acceptance condition.
This is a done deal. At last close and for a 6 October payment, the gross and annualised spread to the offer is 0.9% and 7.6%, respectively.

Canvest Env (1381 HK): Streaming Ahead Despite Tough Time

The 25.6% increase in net profit for Canvest Environmental Protection Group (1381 HK) in 1H22 is a resilient show given cost inflation and pandemic/lockdowns in the period.
Good pipeline should support growth for the next two years as projects under construction/planning accounted for 54% of the existing capacity in Aug.
Canvest’s expectation that gearing has peaked suggests that it will start deleverage in next year. This is a positive message in an industry traditionally with weak cashflow.

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Aug 24

Daily Brief Industrials: Toshiba Corp, Xiamen International Port H, Fanuc Corp, Japan Airlines, Canvest Environmental Protection Group and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Toshiba (6502) Update – No Longer Worthwhile to Be Short Toshiba Vs Peers
Xiamen Port (3378 HK)’s Composite Doc Out; Shareholders To Vote On 16 Sept
Fanuc (6954 JP) | Lights Out in China
Japan Transport: Japan Airlines (Long) Vs ANA Holdings (Short)
Xiamen Port’s H Share Class Meeting on 16 September
Canvest Env (1381 HK): Streaming Ahead Despite Tough Time

Toshiba (6502) Update – No Longer Worthwhile to Be Short Toshiba Vs Peers

By Travis Lundy

Since late June when I recommended to not be long Toshiba vs Peers, Toshiba has fallen 9.5% vs Peers (-6% on its own and an equal-weighted Peer Basket is +3.9%).
If one assumes the likelihood of a privatisation has not gone down, and the likely takeout price is the same, back-end adjusted, probability-adjusted IRRs are up 6-8%, to decent levels.
This changes my recommendation from Bearish to Probability-Adjusted Bullish, but it is nuanced, and it is still a range trade.

Xiamen Port (3378 HK)’s Composite Doc Out; Shareholders To Vote On 16 Sept

Back on 2 June, SOE terminal operator Xiamen International Port (3378 HK) announced a pre-conditional Offer of $2.25/share from Xiamen Port Holding, a Fujian SASAC-controlled entity.
The pre-conditions – NDRC, MoC, SAFE, and CSRC – were fulfilled on the 16 August.
The Composite Doc is now out. The H-class meeting will be held on the 16 September. There is no tendering condition. Payment should be the 6 October.

Fanuc (6954 JP) | Lights Out in China

By Mark Chadwick

Machine tool orders have recorded 20 consecutive months of growth – we expect a turn in cycle and remain bearish
Expectations for gradual recovery as China recovers from lockdowns, but power-saving measures are a new risk
Weak end demand for mobile, PC, and consumer electronics are likely to foreshadow capex cuts in 2023

Japan Transport: Japan Airlines (Long) Vs ANA Holdings (Short)

Momentum has favored Japan Airlines’ share price vs ANA Holdings this year and we expect this outperformance to continue in the short term (next 3-6 months).
So our pair trade involves going long Japan Airlines (9201 JP) and going short on Ana Holdings (9202 JP).
Four major reasons why we like Japan Airlines vs ANA Holdings include: a) better valuations, b) higher EBITDA margins, c) stronger leverage ratios, and d) higher proportion of overseas business.

Xiamen Port’s H Share Class Meeting on 16 September

By Arun George

Xiamen International Port H (3378 HK)‘s composite document is out with the H Shareholders’ class meeting scheduled for 16 September. The IFA considers the offer to be fair and reasonable.
The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders’ rejection). There is no minimum acceptance condition.
This is a done deal. At last close and for a 6 October payment, the gross and annualised spread to the offer is 0.9% and 7.6%, respectively.

Canvest Env (1381 HK): Streaming Ahead Despite Tough Time

The 25.6% increase in net profit for Canvest Environmental Protection Group (1381 HK) in 1H22 is a resilient show given cost inflation and pandemic/lockdowns in the period.
Good pipeline should support growth for the next two years as projects under construction/planning accounted for 54% of the existing capacity in Aug.
Canvest’s expectation that gearing has peaked suggests that it will start deleverage in next year. This is a positive message in an industry traditionally with weak cashflow.

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✓ Company Data and News
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Aug 23

Daily Brief Industrials: Yang Ming Marine Transport, PTB Group Ltd, Orient Overseas International and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: HUGE Turnover as Review Period Ends
PTB Group Enters Scheme With PAG
Orient Overseas Intl (316 HK): Don’t Overlook the Downhill Risks

FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: HUGE Turnover as Review Period Ends

By Brian Freitas

We do not forecast any deletions from the FTSE TWSE Taiwan Dividend+ Index in September. There will be a lot of flow from dividend yield changes and capping changes.
Based on the closing prices from 22 August, we estimate one-way turnover of 13.6% at the September rebalance resulting in a one-way trade of TWD 19,664m (US$653m).
Passive inflows will be focused (for the most part) on stocks that have underperformed and outflows will mainly be on recent outperformers.

PTB Group Enters Scheme With PAG

Late last week aviation engine repair play PTB Group Ltd (PTB AU) entered into a Scheme Implementation Deed (SID) with PAG Holding Corp.
PAG is offering $1.595/share, a 40.5% premium to last close.
Apart from PTB shareholder approval, PAG’s Offer requires FIRB. This looks done. PTB’s board unanimously recommends the Scheme.

Orient Overseas Intl (316 HK): Don’t Overlook the Downhill Risks