Industrials

• WCP is a leading maker of separators which are key materials used in EV batteries.
• WCP is a wholly-owned subsidiary of W-Scope in Japan. At the end of 2021, W-Scope Corp (Japan) owned a 49.7% stake in WCP. 
• The company is expected to complete its IPO in 2022 and the valuation of WCP is expected to be about 3 trillion won to 4 trillion won.

• There are 46 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deals this week: Cooke’s rejected Offer for Tasmanian salmon producer Tassal (TGR AU)
• Key updates took place for: Link Administration (LNK AU), Link Net (LINK IJ), and Toshiba Corp (6502 JP)

• 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 inflow over the past week was ~US$3.9bn, split between Shanghai (+US$2.2bn) and Shenzhen (+US$1.7bn).
• The largest inflows were into Kweichow Moutai (600519 CH) and Hongfa Technology (600885 CH). The largest outflows were in Zijin Mining (601899 CH)and Zhejiang Sanhua Intellignt Controls (002050 CH).

• A double dose of StubWorld this week, as LG Corp (003550 KS)‘s NAV discount narrowing looks to have run its course.
• Preceding my comments on LG Copr are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• The market seems to be focusing more on the cost risk increase than on Hyundai E&C’s sales growth following the top-line expansion of the urban renewal market.
• Instead, the market is looking forward to the possibility that Hyundai E&C’s leap forward as a nuclear power solution provider will lead to a growth premium for the share price. 
• The trading point should be to target this risk when the price is peaking out from the nuclear power theme. Specifically, we need to consider a sector pair long/short setup.

• UK Secretary of State has said Parker-Hannifin has addressed competition and national security concerns over its takeover of Meggitt PLC. Public consultation is pending, after which clearance is almost sure.
• As in the case of Ultra Electronics, it would be hard to justify the UK blocking a defence deal from a company based in a key ally, in my view.
• The market believes there will be a deal. As of 29 June, gross spread is 1.25%, estimated annual return (assuming settlement on 26 October) is 3.98%.

• Every year, the yukashoken hokokusho shows a breakdown of share ownership by owner category. It only happens once a year for most companies. 
• It is a crucial input to knowing where the shares are and how people are positioned. It also shows who and how big is Real World Float.
• This year’s data shows a surprisingly small change year-on-year for Foreign Active Ownership, which is the biggest category. A little musical chairs, but no chairs removed. 

• HK reopening is debatable and seems to be very hard to predict as the Chinese government is keen to keep zero COVID stands although recent quarantine time reduction is positive. 
• The number of passengers remains weak although the shorter quarantine reduction could provide short-term relief to the share price. 
• Valuation looks undemanding compared to the peers although the outlook is more uncertain. Stay out for now. 

• Following the resignation of director Mariko Watahiki yesterday, the results for the shareholder votes are in for Toshiba. 
• Watahiki unsurprisingly had a low approval ratio of 65.87% but activist-linked directors also saw less than stellar approval ratios as did new CEO Taro Shimada. 
• Toshiba’s path forward looks increasingly murky and lofty valuations bid up on privatisation hopium look increasingly tenuous.

• The acceptance period runs until 2 September. HAL now controls 52.9% of Boskalis (Stichting Hyacinth will presumably keep buying at €32 or less). HAL will consolidate Boskalis from H2 2022.
• The Boards of Boskalis have concluded that the offer price is not sufficiently convincing to recommend it to Boskalis’ shareholders. Good try, but twisting HAL’s arm seems difficult. Premium is 0.06%.
• Considering the precedent of Orange/Orange Belgium, I would only open a position below the offer price. HAL will now consolidate Boskalis and does not need to sweeten the offer.

• We highlight the top five catalysts of why we believe Hyundai E&C is likely to outperform the market in the next 6-12 months. 
• Higher housing supply, surge in new orders, expansion in nuclear projects/inclusion in nuclear ETFs, Neom mega project, and shift to value stocks are likely to drive Hyundai E&C’s outperformance.
• Housing/Architecture accounted for 57.1% and 59.7% of total sales in 2021 and 1Q 2022, respectively. Plants/power plants accounted for 25.7% of total sales in 2021.

• Regarding the Nikkei article, “Mitsubishi Electric to Reform Strict Governance to Revamp Organization,” I would like to summarize the points and discussed the issues.
• This case proves that we cannot rely on the appearance of board practices alone. We can think of companies with similar organizational structures that have had repeated scandals.
• I will focus on the board diversity from the perspective of whether Mitsubishi Electric can seriously change its corporate culture to one that accepts different values and discusses issues head-on.

• GreenWood Investors is a mostly-long, deep value investment firm focused on areas of extreme pessimism, structural inefficiencies and low competition.
• Performance of our funds was down 5.3% USD-based and 5.7% EUR-based for the first quarter, in line with global market indices down 5.5% USD-based.
• More than ever, we need street-fighting CEOs with skin in the game to navigate these turbulent market conditions.
• We remain patient in deploying capital to new longs, and remain balanced with our increased short exposure.

• At last year’s Toshiba AGM we had an elected director resign because the sitting chairman was rejected. 
• This year we have another director resigning because two other directors weren’t rejected. 
• Now all we are really waiting for in this drama is for Kurumatani’s hitherto unknown identical twin, separated at birth, to show up with a plot for revenge or something…

• Nuclear power is a landmark policy that Korea’s current administration heavily pushes. In response, the local market has quickly launched nuclear thematic ETFs: KINDEX & HANARO, which got listed today.
• Nuclear power is likely to become the next big thing, AUM-wise, similar to the secondary battery-themed ETFs under the former administration.
• Since most of these nuclear stocks have significantly smaller market caps than those battery ones, the actual flow impact is likely to be more significant.

• Kei Industries (KEII IN) has become a well known player in the cable industry.
• However, if we look at the financials, there are several areas which catch attention as far as forensic checks are concerned.
• Some of the key forensic takeaways include effect of mis-statement of cash flows, increase in receivables, change in inventory valuation, significant contingent liabilities etc.

• The recent correction in the share price offers a good chance for long-term bulls to get into the stock
• MHI is the core play on Japan’s energy security given its portfolio of gas and nuclear power plant assets
• The unseasonably HOT weather and potential power cuts, at the same time as soaring energy costs, could be the catalyst for the government to push for nuclear restarts

• In an interesting turn of things, a leaked internal memo from Amazon dated back to the mid of 2021 showed that the company could run out of warehouse workers by 2024.
• Amazon, along with Walmart and Target, continues to suffer from high staff turnover across logistics & warehousing (the industry average stands at 49%, but is higher at the big three).
• This has resulted in companies offering incentives, wage increases, and flexible working hours to retain top talent, with margins shrinking as a result.

• Deere’s share price underperformed the broader market, in spite of the company’s strong results.
• The expectations for the next half year are still highly optimistic and valuation seems to reflect that.
• Unfortunately, these results are unlikely to be sustained over the medium-term and valuation is at risk.

• Nidec’s share price jumped 6.5% on Friday, June 24, suggesting support near ¥8,000.
• Reconsider the company’s future as CEO Nagamori leads the turnaround of OKK and makes machine tools and industrial robots into a new product division.
• Nagamori, who will turn 78 in August, is still the Key Man at Nidec.

• The £2.55 billion takeover of Ultra by Advent looks set to be waved on by the UK government after the Business Secretary said he was minded to accept the deal.
• Cobham was itself taken over and broken up by Advent over the course of 2019 and 2020, amidst some controversy. As in that case, Advent will bag its prey. 
• The 3500p offer price represents 15.4x EV/Fwd EBITDA (same as at the time of deal announcement). Gross spread is 1.49%, estimated annual return is 8.8% (assuming settlement by 30 August).

• Frontier Airlines (ULCC US)’s improved terms for Spirit Airlines (SAVE US)  still falls well short of the Jetblue Airways (JBLU US) offer
• ULCC’s enhanced downside protection matching JBLU’s reverse termination fee and bettering its prepayment proposal is the key swing factor where the regulatory path to approval is challenging for either transaction
• Given its vigorous pursuit of SAVE so far, we expect JBLU will quickly respond with another counter offer in order to regain the initiative which should keep arbs interested 

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• There are 49 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals this week: Giordano International (709 HK)‘s low-balled Offer; and Uniden Holdings (6815 JP)‘s MBO. Rumours on Toshiba Corp (6502 JP) also.
• Key updates took place for: Resapp Health (RAP AU), Infomedia Ltd (IFM AU), Link Net (LINK IJ), Toyo Construction (1890 JP), & SPH REIT (SPHREIT SP) 

• 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 inflow over the past week was ~US$1.7bn, split between Shanghai (+US$1.8bn) and Shenzhen (-US$0.1bn).
• The largest inflows were into NARI Technology (600406 CH) and Kweichow Moutai (600519 CH). The largest outflows were in CATL (300750 CH) and Wuliangye Yibin Co Ltd (000858 CH).