Industrials

• 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

• A sudden decline in sales led to a 30% sequential decline in operating profit in the three months to June. Year-on-year, operating profit was down 17%.
• Nevertheless, management left sales and profit guidance unchanged – despite cutting their semiconductor equipment demand forecast – and R&D and capital spending continue to rise. 
• FY Mar-23 EPS guidance puts the shares on 13x earnings, but potential downside risk is considerable. Stand back while the economic recession unfolds.

• A sudden decline in sales led to a 30% sequential decline in operating profit in the three months to June. Year-on-year, operating profit was down 17%.
• Nevertheless, management left sales and profit guidance unchanged – despite cutting their semiconductor equipment demand forecast – and R&D and capital spending continue to rise. 
• FY Mar-23 EPS guidance puts the shares on 13x earnings, but potential downside risk is considerable. Stand back while the economic recession unfolds.

• Stocks that migrated from the JASDAQ and Mothers Boards to the Standard Market in April will be eligible for inclusion in the FTSE All-World/All-Cap indices at the March 2023 SAIR.
• Currently, we see 4 potential inclusions to the All-World Index and 12 potential inclusions to the All-Cap Index. There are some close adds on market cap and liquidity.
• The potential adds underperformed the TOPIX Index from April to June, but there has been a significant outperformance since then.

• The correlation and sensitivity between passive flow and price impact have been significantly high for adds/deletes. So, we need a basket-trade setup focusing on potential adds/deletes.
• We will see 12 changes for Semicon and 6 for Autos. Bank won’t present any change.
• SK Square and Iljin Hysolus are the most prominent names to join the KRX Sector Indices this time. They will have a passive impact of 2.03x and 3.97x ADTVs, respectively.

• Stocks that migrated from the JASDAQ and Mothers Boards to the Standard Market in April will be eligible for inclusion in the FTSE All-World/All-Cap indices at the March 2023 SAIR.
• Currently, we see 4 potential inclusions to the All-World Index and 12 potential inclusions to the All-Cap Index. There are some close adds on market cap and liquidity.
• The potential adds underperformed the TOPIX Index from April to June, but there has been a significant outperformance since then.

• The correlation and sensitivity between passive flow and price impact have been significantly high for adds/deletes. So, we need a basket-trade setup focusing on potential adds/deletes.
• We will see 12 changes for Semicon and 6 for Autos. Bank won’t present any change.
• SK Square and Iljin Hysolus are the most prominent names to join the KRX Sector Indices this time. They will have a passive impact of 2.03x and 3.97x ADTVs, respectively.

• After beating guidance every quarter last fiscal year, Disco fell short in the three months to June.
• Management is guiding for the usual seasonal rebound in 2Q, but year-on-year growth rates are forecast to drop sharply – most likely on their way to negative territory in 2H.
• Disco has stopped disclosing orders data, reducing visibility for investors. 2Q results are likely to be the next catalyst. We see no reason to jump in now.

• Since our first bullish note on  GrafTech International Ltd (EAF US) the stock is down -31% due to softer ASP’s and cost inflation. We believe these headwinds will persist.
• Deleveraging continues with net debt declining from 1.1 bn to 865 mn USD YoY, but the pace has slowed due to negative working capital changes resulting in lower OCF. 
• Factoring in a 12% drop in ASP YoY, the stock trades at 6.3x FY23 and 4.7x EV-EBITDA, pushing our thesis of debt deleveraging/capital return further out.

• At 1.1x PB, Komatsu’s stock price has already discounted a severe recession 
• Our back test suggests a 56% return over 12-months from this level (100% hit rate) 
• We see little risk of balance sheet impairment and believe the stock is trading at attractive valuations for long-term investors  

• At 0.71x 12-month forward P/B multiple, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) has overly discounted the earnings recovery for FY22 and FY23.
• VLCC rate has rebounded since end-Jun but are still at unexciting US$10,000/day level only. This is below an estimated cash breakeven level of US$25,000/day for its fleet.
• Tanker demand-supply balance looks to be at equilibrium over the next 12 months, leaving limited potential for significant surge in rate. This opens room for earnings disappointment, in our view. 

• On 4 August, the consortium sweetened the offer by 50p, 3.3%, to 1,550p/share, comprising 1,450p+100p special dividend (conditional upon Scheme becoming Effective); 13.3x Fwd P/E and 7.9x EV/Fwd EBIT.
• Still below below the 8.6x EV/Fwd EBIT offered by DWS for Stagecoach, but the market believes that the deal will complete. Irrevocable undertakings plus letters of intent represent 26.86%.
• Gross spread is 1.04%, 8.66% estimated annual return (assuming settlement and paying of the special dividend on 22 September). Reiterate long GOG LN.

• Things have gone from bad to worse at Nikola over the past year.
• The Commercial Battery and Hydrogen Truck maker, once considered the SPAC poster child, has been shrouded in controversy after defrauding investors and delaying production on several occasions.
• After seeing its stock crushed, Nikola has strung together a succession of wins to stage a comeback in recent months. Can the company maintain its momentum and deliver on its original vision?

• After beating guidance every quarter last fiscal year, Disco fell short in the three months to June.
• Management is guiding for the usual seasonal rebound in 2Q, but year-on-year growth rates are forecast to drop sharply – most likely on their way to negative territory in 2H.
• Disco has stopped disclosing orders data, reducing visibility for investors. 2Q results are likely to be the next catalyst. We see no reason to jump in now.

• Since our first bullish note on  GrafTech International Ltd (EAF US) the stock is down -31% due to softer ASP’s and cost inflation. We believe these headwinds will persist.
• Deleveraging continues with net debt declining from 1.1 bn to 865 mn USD YoY, but the pace has slowed due to negative working capital changes resulting in lower OCF. 
• Factoring in a 12% drop in ASP YoY, the stock trades at 6.3x FY23 and 4.7x EV-EBITDA, pushing our thesis of debt deleveraging/capital return further out.

• At 1.1x PB, Komatsu’s stock price has already discounted a severe recession 
• Our back test suggests a 56% return over 12-months from this level (100% hit rate) 
• We see little risk of balance sheet impairment and believe the stock is trading at attractive valuations for long-term investors  

• At 0.71x 12-month forward P/B multiple, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) has overly discounted the earnings recovery for FY22 and FY23.
• VLCC rate has rebounded since end-Jun but are still at unexciting US$10,000/day level only. This is below an estimated cash breakeven level of US$25,000/day for its fleet.
• Tanker demand-supply balance looks to be at equilibrium over the next 12 months, leaving limited potential for significant surge in rate. This opens room for earnings disappointment, in our view. 

• On 4 August, the consortium sweetened the offer by 50p, 3.3%, to 1,550p/share, comprising 1,450p+100p special dividend (conditional upon Scheme becoming Effective); 13.3x Fwd P/E and 7.9x EV/Fwd EBIT.
• Still below below the 8.6x EV/Fwd EBIT offered by DWS for Stagecoach, but the market believes that the deal will complete. Irrevocable undertakings plus letters of intent represent 26.86%.
• Gross spread is 1.04%, 8.66% estimated annual return (assuming settlement and paying of the special dividend on 22 September). Reiterate long GOG LN.

• Things have gone from bad to worse at Nikola over the past year.
• The Commercial Battery and Hydrogen Truck maker, once considered the SPAC poster child, has been shrouded in controversy after defrauding investors and delaying production on several occasions.
• After seeing its stock crushed, Nikola has strung together a succession of wins to stage a comeback in recent months. Can the company maintain its momentum and deliver on its original vision?

• Hyundai Oilbank, this year’s biggest fish, dropped the IPO. Another big fish, CJ Olive Young, also officially announced that it would give up its listing.
• The bookbuilding results of SOCAR turned out to be disastrous, suggesting an increased possibility that a higher-than-typical flow level will likely be seen in WCP and K Bank. 
• In particular, despite the valuation issues, we should pay attention to the possibility of an unexpected level of local institutional flows flocking to WCP, which has less schedule risk.

• Hyundai Oilbank, this year’s biggest fish, dropped the IPO. Another big fish, CJ Olive Young, also officially announced that it would give up its listing.
• The bookbuilding results of SOCAR turned out to be disastrous, suggesting an increased possibility that a higher-than-typical flow level will likely be seen in WCP and K Bank. 
• In particular, despite the valuation issues, we should pay attention to the possibility of an unexpected level of local institutional flows flocking to WCP, which has less schedule risk.

• Today Bunka Shutter (5930 JP) reported iffy, if predictably seasonal Q1 earnings, and FY22 forecasts. They also announced a big buyback which caused the stock to pop, then come back.
• It came back because the stock has a decently large slightly in-the-money CB with 13 months to maturity. A big pop will get a big re-hedge.
• Over the next year, despite the large buyback, EPS accretion and net buyback flow impact should be minimal. And the stock isn’t as cheap as it “looks.”

• General Electric has started seeing a solid recovery in its aerospeace business which has become an important growth driver for the company.
• Macro pressures and supply chain have affected the revenue adversely by approximately 5%.
• The company has recently unveiled the innovative branding of its new companies, GE Vernova, GE Healthcare, and GE Aerospace.