Industrials

• On 24 May, Toyo Construction (1890 JP) (TC) came out fighting against Yamauchi No.10 Family Office (YFO), presenting a poison pill and accusing YFO of “extreme dishonesty” despite standstill agreement. 
• YFO presented hundreds of pages of defence, TC continued to accuse the YFO co-CIO and others of wrongdoing. To me, TC was clearly acting in bad faith. 
• After ISS and later Glass Lewis came out against TC’s proposal, YFO continued to ask for the PP to be pulled, TC has finally relented. Now we wait some more.

• Soosan Industries is getting ready for an IPO in Korea at end of July. The IPO offering range is from $155 million to $191 million.
• Soosan Industries provides comprehensive maintenance services for major nuclear, thermal, and renewable power plants in Korea. It is the only private maintenance company for main nuclear power plant equipment.
• In our view, this is the third most interesting IPO opportunity in Korea this year so far, after LG Energy Solution (373220 KS) and HPSP.

• In this insight, we take a look at the names leading the race to become ADDs/DELs for the DAX, MDAX, and SDAX Indices for the September 2022 Rebalance.
• Aareal Bank AG (ARL GR) and Deutsche Euroshop Ag (DEQ GR) are currently involved in takeover situations which might also have index change implications.
• Based on current data, Rheinmetall (RHM GR) is leading the race to become a DAX ADD and HelloFresh (HFG GR) is leading the race to become a DAX DEL.

• Korea Investment Management will be launching a new nuclear power related ETF called Kindex Nuclear Theme Deep Search ETF on 28 June. 
• NH-Amundi Asset Management will also be launching Hanaro Nuclear iSelect ETF on 28 June. Both ETFs are the first ones to focus on the nuclear power related stocks in Korea.
• The launch of these ETFs should have a positive impact on the major nuclear power related stocks including Doosan Enerbility (034020 KS) and Kepco Plant Service & Engineering (051600 KS).

• In this insight, we take a look at the names leading the race to become ADDs/DELs for the STOXX Europe 600 and EuroSTOXX Indices for the September 2022 Rebalance.
• Based on current rankings, I estimate there to be 10 ADDs/DELs for the STOXX Europe 600 Index including potential M&A-related deletions.
• In addition, I have discussed some LONG-SHORT pairs with interesting potential index flow dynamics.

• Nanya Technology has warned of a downturn that could last to the end of the year. This follows reports of procurement delays in response to excess inventory at Samsung.
• Inflation, the Fed’s attempt to kill it with higher interest rates, and the growing risk of recession now threaten not only Tokyo Electron but the entire semiconductor supply chain.
• Record capital spending plans should be fully discounted. Potential delays and cutbacks now put a burden of uncertainty on the sector.

• At the expiry of the initial offer period, a total of 87.38% of the share capital was tendered, just shy of 2.62% to implement a squeeze-out.
• The market believes the 90% threshold will be reached, thus enabling the squeeze-out procedure. This means that the additional €0.01/share price supplement should be paid.
• Gross spread is 0.24% (shares trade above the €0.5 offer price) and the estimated annual return is 4.82% (estimated settlement on 11 July). Recommendation is long and tender.

• Cashify, an India-based recommerce marketplace, has closed a US$90 million series E round, which saw participation from NewQuest Capital Partners, Prosus, and Paramark Ventures.
• The new funds will be used to further develop Cashify’s team, marketing efforts, technology infrastructure, and market expansion.
• Founded in 2013 by Mandeep Manocha, Siddhant Dhingra, Nakul Kumar, and Amit Sethi, Cashify provides aftersale services such as repairs and buybacks to extend the lifespan of gadgets

• Acquisitions and product price increases amid home-buying demand drove a dramatic increase in sales.  Product shortages and operating leverage enabled the company to push EBITDA margins 1000bps. 
• The macro environment for homebuilding is inflecting.  GDP posted a down since 2014.  Consumer sentiment is collapsing from the surge in inflation, political acrimony, crime and the war in Ukraine.  
• The stock is expensive on normalized margins.  After a dramatic run, the stock trades at high multiples of normalized earnings, but deceptively moderate multiples on inflated earnings.

• An article this morning in the Yomiuri suggested JIC was bidding, even though they have not been in any “lists of 8 bidders” I have seen. The market yawned. 
• An article this evening says bidders are offering “up to ¥7,000/share” but there is a range of pricing and conditions. Not surprising, but we know little. 
• Shareholder structure matters. This has been event-y for a long time so I expect not many new buyers are ready to come in. This just shifts the range. And risk.

• Since KEPCO announced the sale of its stake in KEPCO E&C, this will happen. But the question is when, and the market was betting that it would not happen immediately.
• But these bets collapsed yesterday. It is because Choo Kyung-ho, Deputy Prime Minister of Economy, publicly made remarks yesterday that seemed to pressure KEPCO to make additional self-rescue efforts.
• KEPCO may aim at the level of ₩60,000 by applying a 5-7% discount rate from the mid-₩60,000 price. With this price in mind, we need to time this block deal.

• Recruit Holdings (6098 JP) shares have declined 44.35% YTD as the company’s earnings have started normalising following easing off of Covid-19 conditions.
• 4QFY03/2022 results showed that the strong growth in earnings that the company experienced in FY03/2022 has started to weaken with normalisation of recruitment and staffing markets.
• With weakening earnings, we think there is further downside and Recruit will be a good short over the next few weeks.

• Neom is the largest construction project in the world with total project size of nearly $500 billion. 
• Neom has started to provide construction project awards for key projects in 1H 2022. Hyundai E&C and Samsung C&T consortium recently won a project estimated at $1 billion for Neom. 
• Samsung C&T and Hyundai E&C are two key companies in Korea that will be long-term beneficiaries of the Neom futuristic city construction in Saudi Arabia. 

• Share price of Beijing Capital International Airport (BCIA) (694 HK) underperformed that for Air China Ltd (753 HK) by wide margin in this year, which we believe is not justified.
• Removal of lockdowns in various districts in Beijing and the revival of international passengers will be the major driver for BCIA to close the valuation gap.
• The gradual relaxation of inbound international passengers at Beijing and the potential for a full border opening in early next years are the catalysts for BCIA’s performance.

• We see 28 potential inclusions to the HSCI in September, plus another 9 stocks that are close to the inclusion cutoff. Some stocks are already a part of Stock Connect.
• There could be 22 deletions from the index on market cap, liquidity and prolonged suspension. Most of the deletions would be moved to the ‘sell-only’ Southbound Stock Connect list.
• Some of the stocks that remain in the HSCI could move to the ‘sell-only’ Southbound Stock Connect list since their average market cap drops below HKD 5bn.

• Toshiba Corp (6502 JP) sees its AGM next week with new directors and a possible privatisation process ongoing. But the AGM is a done deal and privatisation is not.
• The event-i-ness of Toshiba keeps it “supported” while its better-valued and higher-growth peers fall harder in the face of recent overall market weakness. 
• Toshiba promised transparency on its privatisation process, and so far, it has delivered everything it promised. The next “transparency” likely comes in November. 

• There has been increased speculation about a potential block deal sale of Kepco Engineering & Construction (052690 KS), driving its share price lower in the past several days.
• KEPCO owns a 65.77% stake in Kepco Engineering & Construction (052690 KS). 
• We believe that there could be a further 10-20% downside risk for KEPCO E&C in the coming weeks.

• Ashok Leyland (AL IN) ‘s volumes recovered in FY22 thanks to a much milder than expected omicron wave and market share gains.
• Discounting lead gains, the absence of retail fleet owners in the market, and little excitement around the scrappage policy all warrant caution. 
• While the stock is currently outperforming, channel feedback and valuations point to caution. 

• FirstGroup’s Board rejected a 118p + up to 45.6p contingent payment. PUSU deadline is 23 June, and can be extended with the consent of the Panel. 
• Infrastructure funds have put their sight on UK buses due to predictable revenues and a friendlier regulatory framework. The Board of FirstGroup is aware and should seek higher value.
• I Square could bid a more palatable 166.8p/share: 144p/share (8.2x EV/Fwd EBIT, average of StageCoach and Go-Ahead transactions), plus 22.8p/share (50% discount to the maximum contingent payout). Long.

• Jetblue Airways (JBLU US) is going all out to acquire Spirit Airlines (SAVE US) with an increased $33.5/share cash offer, 68% above Frontier Airlines (UCLL US) agreed bid worth $19.99
• Antitrust risk is a substantial obstacle to both transactional options available to SAVE, but JBLU’s stronger commitment to remedial solutions should be enough to make SAVE board reconsider its position
• Deal momentum now seems to be moving in favor of JBLU’s vigorous pursuit of SAVE which is starting to make the target’s risk-reward profile look compelling 

• The KAL event is almost over. But we still have Asiana Airlines. The KDB’s Asiana CB conversion should also be considered a foregone conclusion.
• Applying the case of KAL, the KDB will likely file conversion when 30 days have elapsed since receiving the repayment notice. For this, the prevailing local consensus is June 10.
• Conversion filing on July 8 and listing on July 29 with the 15-day delay rule applied is a likely scenario. Hence, our entry point should be from July 4.

• The number of visitors arriving in Singapore went up by almost 8x YoY and rail and bus ridership already hit 78% of the pre-pandemic level.
• Won a bid to provide public transport in Darwin, Australia for the next 6 years, transporting approximately 5.7 million passengers annually (similar to Singapore’s population). 
• As COE > SGD 100,000, the incentive to own a car in Singapore is even less and is a positive for public transport operators like Comfortdelgro Corp (CD SP) .

• This ETF’s AUM has stayed flat over the past three months, sitting at ₩1.3T. It has 28 constituents, and it is unlikely that there will be any addition/deletion.
• SKIET is expected to have the most inflow relative to ADTV. Then, we have Ecopro BM, which will increase the number of shares through a rights offering.
• On the other hand, among the top-tier stocks, SK Innovation, SKC, and Ecopro Co Ltd deserve our attention for shorting.

• Sinotrans (598 HK) has confirmed its plan to issue infrastructure REIT using six warehouse logistics assets as underlying assets, and they represents 7.6% of its total warehouse area.
• The proposed issuance may boost its value by HK$0.16/share, or 7.3% of share price. Should all 4m sq.m. of warehouse assets are securitised, this may nearly double the stock’s price.
• Since Jun, Sinotrans has repurchased 14m H-shares, suggesting positive view on outlook. There will be more to come, and as the shares will be cancelled, EPS will be enhanced. 

• Toshiba bull trend remains intact with buy support at 5,200/300 above the 5,000 bull/bear pivot. Macro PT remains at 6,500.
• RSI buy support to gel with the price buy zone. Sell volumes on the pullback have been tepid in line with a correction.
• 5,000 breakout point is the bull/bear inflection point and the more aggressive buy zone (low odds of being met).

• Sungeel Hitech is getting ready to complete its IPO in Korea in July. This is one of the market leaders in the recycling of rechargeable battery materials in Korea. 
• It has experienced excellent growth in sales and profits. It had revenue of 147.3 billion won (up 123.3% YoY) and operating profit of 16.9 billion won in 2021.
• The IPO price range is from 40,700 won to 47,500 won. The IPO base deal size ranges from $86 million to $100 million.

• Although Gerrard Bidco offers a 1500p package (likely settlement on 2 September), the shares are trading c. 6% above in the expectation of a counteroffer.
• At 7.7x EV/Fwd EBIT, consideration is below the 8.6x EV/Fwd EBIT offered by DWS for struggling rival Stagecoach. FirstGroup is trading at 11.9x EV/Fwd EBIT after rebuffing I Squared Capital Advisors’ approach.
• I do not believe shareholders will accept the current offer. Kelsian could counterbid up to 1715p (Stagecoach takeout multiple), 14% above current offer (c. 7.3% spread, 42% estimated annual return).

• The ETF operator’s room to play around in index weighting is relatively minimal. Rebalancing is completed in one trading day. So, the actual passive impact was more intense and substantial.
• The rebalancing result based on the average float-adjusted MC from May 2 to yesterday: Additions Iljin Hysolus, Halla Holdings, & DTR Automotive / Deletions Nexen Tire, Kumho HT, & Seoyon
• Their estimated passive impact is more significant than that of the previous rebalancing. It is substantial enough to consider a preemptive position build-up for them.

• Sequential passenger traffic improvement makes us believe that the worst was over for Air China (753 HK). We expect it continues the YTD outperformance vs. Air China Ltd (753 HK). 
• With the pandemic under control and government’s focus on the economy, the release of pent-up demand will be a major driver. We have also seen relaxation in pandemic control measures.
• Increase in flight destinations and loosening of travel restrictions and quarantine requirements in Hong Kong should benefit Cathay Pacific Airways (293 HK) which now anticipates lower losses YoY in 1H22.

• Discounts have generally widened across our liquid universe, in line with the recent market losses. 
• Recommendations long ords / short prefs: BMW, Fuchs Petrolub, Investor AB, SSAB.
• Recommendations long prefs / short ords: Sixt, VW, Danieli, MFE, Grifols, Atlas Copco, Ericsson Handelsbanken, Roche, Schroders.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

• Kito Corporation (6409 JP) is under offer by KKR unit Crosby, which announced a takeover in mid-May.
• Anti-Trust and foreign review will take a few months, and so we wait. In the meantime, the shareholder register has changed significantly. This remains an interesting option.
• And now, global market ructions offer arbitrageurs a meaningful opportunity.

• China United Lines (CUL HK) is looking to raise around US$300m in its upcoming Hong Kong IPO.
• China United Lines (CUL) is a container shipping company in China. CUL has grown rapidly and its large proportion of vessels being chartered-in, has allowed it to scale its capacity.
• Shipping volume growth was accompanied by topline growth, and margins have been on the uptrend. However, the firm is only a small player in a concentrated market.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

• GoAir (Go First) is looking to raise up to US$500m in its upcoming India IPO. The company is owned by the Wadia family, who also own Britannia Industries (BRIT IN).
• Go Air is an ultra-low-cost carrier (ULCC) primarily operating in India. It had a market share of 10.8% in FY20 in the domestic market.
• In this note, we will talk about the positive aspects of the deal.

• OOIL’s (316 HK) macro uptrend remains intact but does exhibit some weak tactical signals for a pullback to the 200 support zone. 270 is the near sell zone.
• Buy volumes on the rise in late May showed a slowing pace and the recent sell down saw sell volumes pick up. Wedge support is due to come under pressure.
• RSI shows support pressure to break post uptick. WTI key levels to hold/break are 115 and 105 as pressure release valves.

• ECP offers 445p/share (37% premium, implied equity value is €1,361 million, implied EV is €1,939 million), subject to satisfactory due diligence. PUSU deadline is 5 July.
• The offer represents 1.3x EV/Fwd revenue, 8.8x EV/Fwd EBITDA and 28.4x Fwd P/E. Suez was taken at similar multiples: 1.5x, 8.1x and 27.4x respectively. My fair value estimate (DCF-based) is 426p.
• The equity value prior to approach was undemanding, and the shares are escaping the market sell-off. Gross spread as of 13 June is 8.9%. Recommendation is long BIFF LN.

• ZTO Express Cayman Inc (2057 HK) has outperformed industry volume growth in 1Q22 and such trend continues into 2Q22 with good ASP improvement and cost control. 
• Its strong operating cash flow and declining capex will lead to an accumulation of cash over the next few years, adding to the 1Q22 net cash position of Rmb4.1bn. 
• We think the stock’s underperformance against peers not warranted. With a below-sector earnings multiple, leadership position and successful business model, we consider ZTO a “Growth at a reasonable price”.

• GoAir (Go First) is looking to raise up to US$500m in its upcoming India IPO. The company is owned by the Wadia family, who also own Britannia.
• Go Air is an ultra-low-cost carrier (ULCC) primarily operating in India. It had a market share of 10.8% in FY20 in the domestic market.
• In this note, we talk about the not so positive aspects of the deal.

• Tactical BUY maintained
• Deal completion by 4Q22
• No distribution to shareholders
• An opportune exit, in our view

CMS had, on 14 Jun, entered into a conditional share sale agreement (SSA) with OM Materials (S) for the disposal of its 25%-stake in both OM Materials (Sarawak) and OM Materials (Samalaju). The entire disposal proceed has been earmarked for future acquisitions/investments, capex and working capital. We make no change to our earnings forecasts and MYR1.27 TP (on 7x FY22E PER; -1SD of mean) pending deal completion.

• LRT Capital is a fundamental investment hedge fund. We invest only in companies with durable competitive advantages, i.e. “moats.”.
• May’s results for the LRT Economic Moat Strategy were below expectations.
• The effectiveness of our hedging strategy has been limited due to the extremely strong performance of energy and commodity related stocks.
• The wealth of tomorrow will be in the hands of the net buyers of today.

• D/G to HOLD on limited upside
• Checked: Govt’s approval, supplemental concessions
• Special dividend and capital repayment
• Trimming earnings; DCF valuation unchanged