Industrials

• Jardine Matheson Holdings (JM SP) (JMH) has shed ~8% since MSCI said it was cutting the conglomerate’s weighing in two indices.
• The reweighting follows the cancellation of the 59% shareholding in JMH held by Jardine Strategic Holdings (JS SP), which was privatised last year.
• I see the discount to NAV at ~40%, right at the 12-month -2 STD level. JMH bought back ~149mn shares in the 1Q22, paying ~US$59/share, 17% above the current price.

• On 12 August, Posco International stated that it plans to merge with one of POSCO Holdings’ energy affiliate called POSCO Energy which is a major LNG provider in Korea.
• We believe the merger between POSCO International and POSCO Energy is  value enhancing. The shareholders of POSCO International are getting a sweet deal in POSCO Energy at attractive valuations.
• This M&A deal is likely to boost the market cap of the combined companies and raise the rank of POSCO International in important indices such as KOSPI200. 

• Q2 22 result was healthy derived from both increase in ridership as well as ASP in both expressway and rail. 
• Cost increase but not as high as revenue increase therefore margin expanded while net profit went up 3x YoY. 2H 2022 will be even better. 
• Compared to AOT, BEM’s PBR is 63% cheaper while its share price still underperformed AOT this year by 11%. 

• Comfortdelgro Corp (CD SP) operating number has improved during COVID compared to before COVID such as fixed asset turnover from 0.4x to 0.8x. 
• Public transport and taxi operating numbers adjusted for government relief went through the roof.
• It is trading at 6x EV/EBITDA vs Singapore Airlines (SIA SP) at 13x EV/EBITDA. 

• Recruit Holdings (6098 JP)  reported 1QFY03/2023 results on Friday. Revenue grew 26.8% YoY to JPY843.2bn (vs consensus JPY784bn) while OP increased 14.0% YoY to JPY119.3bn (vs consensus JPY106.1bn).
• HR Tech segment’s earnings growth has started decelerating with recruitment markets normalising while matching & solutions’ earnings have not yet recovered to pre-pandemic levels.
• We think there is further downside as global recruitment markets face more challenges with slowdown in economic growth and uncertain outlook.

• Comfortdelgro Corp (CD SP) operating number has improved during COVID compared to before COVID such as fixed asset turnover from 0.4x to 0.8x. 
• Public transport and taxi operating numbers adjusted for government relief went through the roof.
• It is trading at 6x EV/EBITDA vs Singapore Airlines (SIA SP) at 13x EV/EBITDA. 

• Recruit Holdings (6098 JP)  reported 1QFY03/2023 results on Friday. Revenue grew 26.8% YoY to JPY843.2bn (vs consensus JPY784bn) while OP increased 14.0% YoY to JPY119.3bn (vs consensus JPY106.1bn).
• HR Tech segment’s earnings growth has started decelerating with recruitment markets normalising while matching & solutions’ earnings have not yet recovered to pre-pandemic levels.
• We think there is further downside as global recruitment markets face more challenges with slowdown in economic growth and uncertain outlook.

• MSCI announced the changes to its indices prior to market open on 12 August. Most changes were expected, while the non-inclusion of Gcl Poly Energy (3800 HK) was a surprise.
• There are a bunch of announcement on the coming Friday for the Hang Seng and FTSE indices. Plus the review cutoff for the S&P/ASX family of indices.
• Outflows from KraneShares CSI China Internet ETF (KWEB US) continued for yet another week, while there were inflows to iShares Core MSCI Pacific ETF (IPAC US).

• The MSCI’s November IR will hardly see any new addition from Outside IMI. Additions will mostly come from Small Cap→Standard migration.
• There are 12 candidates for Small Cap→Standard migration. They are all beating the float market cap hurdle. However, only Hyundai Mipo satisfies the full market cap requirement.
• At the current market cap, Hyundai Mipo will likely cause passive inflows equivalent to 5.89x ADTV, equal to US$160M or 1.9M shares.

• MSCI announced the changes to its indices prior to market open on 12 August. Most changes were expected, while the non-inclusion of Gcl Poly Energy (3800 HK) was a surprise.
• There are a bunch of announcement on the coming Friday for the Hang Seng and FTSE indices. Plus the review cutoff for the S&P/ASX family of indices.
• Outflows from KraneShares CSI China Internet ETF (KWEB US) continued for yet another week, while there were inflows to iShares Core MSCI Pacific ETF (IPAC US).

• The MSCI’s November IR will hardly see any new addition from Outside IMI. Additions will mostly come from Small Cap→Standard migration.
• There are 12 candidates for Small Cap→Standard migration. They are all beating the float market cap hurdle. However, only Hyundai Mipo satisfies the full market cap requirement.
• At the current market cap, Hyundai Mipo will likely cause passive inflows equivalent to 5.89x ADTV, equal to US$160M or 1.9M shares.

• We still have the chance to become eligible. We will still receive the rights if we buy Posco International next Tuesday. But we will exercise them at ₩20,590, NOT ₩27,801.
• Given that there is little cancellation risk, we can capitalize on the price falling below the appraisal price by opening both Long and Short at the same price.
• We close Short if the price goes under ₩20,590 and fix the arb spread by exercising the rights with Long.

• WSP agreed to acquire RPS Group at a (generous) 206/share (+0.45p interim), in a well-timed transaction at 76% premium, 17.2x EV/Fwd EBIT and 24x Fwd P/E. Irrevocable undertakings are 18%.
• The offer represents a 43% premium to mean consensus TP. My fair value estimate DCF (WACC 9%, 1.6% terminal growth) is 190.5p/share, 1.5% below the offer price.
• The shares trade just below the offer. This seems a low risk/low return deal. Gross spread is 0.7% and the estimated annual return is 2.2% assuming settlement by 8 December.

• Honeywell has successfully maintained a particularly high level of resilience despite persistent supply chain restrictions, inflationary headwinds, and geopolitical upheaval.
• Despite the inflationary challenges, Honeywell continued with margin expansion and this helped the management surpass the earnings expectations of Wall Street.
• It is also increasing technology investments in sustainability through Honeywell Ventures and a classic example was the investment in Electric Hydrogen.

• We still have the chance to become eligible. We will still receive the rights if we buy Posco International next Tuesday. But we will exercise them at ₩20,590, NOT ₩27,801.
• Given that there is little cancellation risk, we can capitalize on the price falling below the appraisal price by opening both Long and Short at the same price.
• We close Short if the price goes under ₩20,590 and fix the arb spread by exercising the rights with Long.

• WSP agreed to acquire RPS Group at a (generous) 206/share (+0.45p interim), in a well-timed transaction at 76% premium, 17.2x EV/Fwd EBIT and 24x Fwd P/E. Irrevocable undertakings are 18%.
• The offer represents a 43% premium to mean consensus TP. My fair value estimate DCF (WACC 9%, 1.6% terminal growth) is 190.5p/share, 1.5% below the offer price.
• The shares trade just below the offer. This seems a low risk/low return deal. Gross spread is 0.7% and the estimated annual return is 2.2% assuming settlement by 8 December.

• Honeywell has successfully maintained a particularly high level of resilience despite persistent supply chain restrictions, inflationary headwinds, and geopolitical upheaval.
• Despite the inflationary challenges, Honeywell continued with margin expansion and this helped the management surpass the earnings expectations of Wall Street.
• It is also increasing technology investments in sustainability through Honeywell Ventures and a classic example was the investment in Electric Hydrogen.

• It is a recovery play yet its has lagged to SIA. 3 year basis, Comfortdelgro is -46% yet SIA has recovered to only -15% despite the former having better numbers.
• SIA Free Cash Flow is often in red while Comfortdelgro’s has been consistently on the green. 2021 Comfortdelgro’s FCF was SGD +433 million while SIA was SGD -83 million.
• Taxi demand has gone up through the roof judging from the price you have to pay. 

• It is a recovery play yet its has lagged to SIA. 3 year basis, Comfortdelgro is -46% yet SIA has recovered to only -15% despite the former having better numbers.
• SIA Free Cash Flow is often in red while Comfortdelgro’s has been consistently on the green. 2021 Comfortdelgro’s FCF was SGD +433 million while SIA was SGD -83 million.
• Taxi demand has gone up through the roof judging from the price you have to pay. 

• Toshiba reported 1Q results today missing at both the revenue and OP lines. 
• While revenue was barely above consensus the company generate a ¥4.8bn operating loss rather than the ¥22bn OP consensus was projecting. 
• 1Q is seasonally weak so the loss itself would not be concerning except for how widespread deterioration was.

• Q3 2022 results were received as weak by the market. Guidance was (again) revised downwards. Otherwise, the takeover bid continues in the process of authorization by the CNMV.
• I don’t expect any relevant changes in the offer: Siemens Energy already has control, operating problems persist and the financial position continues to deteriorate. Downwards risks to consensus estimates persist.
• Gross spread is 0.33%. The estimated annual return is 1.63% (assuming settlement on 24 October). Sell on strength/tender during the offer in case there’s a (low probability) improvement in the offer.

We view Zoomlion as “High Risk” on the LARA scale, mainly due to its moderate financial profile. The company has concentrated exposure to China’s construction machinery segment, which is in turn reliant on infrastructure and construction spending in the country. Furthermore, a downturn in the property sector has had an indirect impact on Zoomlion. Globally, the industry is dominated by a few MNCs.

Zoomlion has a strong domestic market position, and is the world’s seventh-largest heavy machinery manufacturer. The company enjoys a close affiliation with the Chinese government, with its largest shareholder being a SOE. This improves Zoomlion’s access to refinancing capital. We expect the construction machinery industry to benefit from rising replacement demand and infrastructure development.

Our Credit Bias on Zoomlion is “Stable”, reflecting the company’s stable revenue. That said, we remain cautious about the likelihood of overdue risks resulting from the tough economic conditions. Additionally, capex has increased significantly and is expected to remain high, given the need to construct relocated plants and upgrade the company’s products. Overall investor sentiment is supported by Zoomlion’s operating track record and its largest shareholder, Hunan Xing Xiang Investment (a SOE). This may facilitate continued access to domestic debt markets.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• Strong back to school sell-in was not enough to offset the impact of a weaker Euro and slowdown in video game spending
• The weaker Euro to the US Dollar was expected in our numbers when we revised them in July. However, the drop off was more meaningful than expected
• The decline in video game accessory sales also put pressure on the quarter with ACCO now expecting a “reset” in the segment’s performance