Industrials

• Three weeks ago, Yamauchi No 10 Family Office (YFO) announced its intentions to launch a Tender Offer by end-June. Toyo Construction (1890 JP) got upset and called YFO names.
• TC announced a Poison Pill, they talked, TC accused YFO in the AGM Convocation of “extreme dishonesty.” They have since met again, and finally signed a long standstill agreement. 
• But the Poison Pill will be put to shareholders (ISS recommends against), and shareholders have to decide from the public documents whether they believe Toyo Construction. 

• Share price of Lonking Holdings (3339 HK) has seen muted reaction to weak industry figures recently but it is still unexciting in near-term, based on our catch-up with the company. 
• It has underperformed industry sales volume in 5M22 across all product categories, with that for wheel loader behind 4pp and excavator by 10pp. Forklift sales were down 18% YoY. 
• Both gross margin and investment income are set to contract in this year, making it highly likely to see significant earnings downgrade after 1H22 result announcement in Aug. 

• Parent company sales in May were 16.401bn yen (+20.9% YoY), above the company’s monthly target
• The number of business days was 19, one day more than in May 2021. The sales growth rate per business day was +14.5% YoY (+23.4% for April)
• The negative impact of the Shanghai lockdown appears to be limited so far.

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.

• The Kito Corporation (6409 JP) take-private by KKR which is in process started with an interesting register. It has become interestinger.
• One possibly-strategic “pure investment” holder has gone 10+%. A “friendly activist” has gone below. Another large friendly holder sold 4%. Volume since it achieved near-deal-price has been 24.7% of votes. 
• The register has likely become more arb-y and possibly strategic, and less friendly to Kito, but it is up to the holders to follow up. And there is a warning.

• Last week saw the rebalance implementation of the KOSPI2 INDEX, KOSDAQ 150, HSI INDEX, HSCEI INDEX, HSTECH INDEX, CSI 300 Index, STAR50 INDEX and the SSE family of indices.
• The coming week has the rebalance implementation of the FTSE All-World/All-Cap, EPRA Nareit, FTSE China 50, FTSE China A50, FTSE TWSE Taiwan 50 and S&P/ASX indices.
• Big inflows to the Yuanta/P-shares Taiwan Top 50 ETF (0050 TT) as we enter dividend season. The trade looks bigger than usual this year.

• Infrastructure and E-commerce are core drivers of the MHCV recovery 
• The market for Retail fleet operators (1-5 trucks) has shrunk. 
• Ashok Leyland (AL IN) ‘s market share gain has been on the back of discounting and is unlikely to sustain. 

• Tokyo Electron has announced a new Medium-term Plan that shows what the company could probably do if the next five years were as good as the last five years.
• That seems unlikely. The plan ignores rising interest rates, the risk of recession, political risk, and the possibility of demand from South Korea, Taiwan and China maxing out. 
• It looks like FY Mar-23 guidance is intended to be conservative.  That cannot be take for granted.

• All of these additions experienced significant levels of short trading yesterday. In particular, those newly listed stocks saw harsher shorting attacks, similar to what we witnessed at the last rebalancing.
• A certain level of short selling trend for newly listed stocks will likely work the same this time, and the applicable period is expected to be 3-4 trading days.
• That is, we need to target the newly listed stocks again for this rebalancing: Iljin Hysolus (271940 KS), K Car (381970 KS), and SD Biosensor (137310 KS).

• Fresh from successfully taking out Sydney Airport (SYD AU) earlier this year, IFM is reportedly on the cusp of submitting a non-binding indicative proposal for Atlas Arteria (ALX AU) 
• A proposal is contingent on being granted limited due diligence. Meanwhile, IFM has accumulated an economic interest in ALX of 15%. 
• ALX said they have not received any information on a proposal. Expect that to occur shortly. 

• Escorts Ltd (ESC IN) has been losing market share. As per management, “there are no “big” problems and they will regain the market share”, but we do not think so. 
• Some flash channel checks are suggesting issues with some of the company’s products. These issues still remain unaddressed as per some dealers and customers. 
• While the export opportunity and overall industry dynamics are positive unless the market share is regained, growth is likely to be slower than industry. 

• 58 Freight (GogoX) (1903638D HK) is looking to raise US$150m in its upcoming Hong Kong IPO.
• GogoX is an online intra-city logistics platform in Asia. The company operates in more than 30 cities across five countries and regions in Asia.
• GGX’s platform services segment continues to languish, even after the firm expended much higher incentives during the fiscal period. In this note, we look at GGX’s June 2022 PHIP updates.

• Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
• During a volatile quarter, the portfolio held up better than the Morningstar Global Markets ex-US Index by a decent margin.
• After a strong rebound in 2021, global GDP growth is expected to moderate in 2022.
• We expect to see varying states of economic growth aroundthe world in 2022 and believe persistent inflation will be one of the mostcritical risk factors economies face this year.

• 30 Jun targeted completion date; maintain BUY
• Checked: Govt’s approval, supplemental concessions
• Anticipated proceeds now 0.6% higher
• MYR1b for “capital management activities”

• Changes to the Northbound Stock Connect Buy and Sell list were announced yesterday with 35 SSE-listed stocks becoming sell-only, and 32 SZSE-listed stocks becoming sell-only.
• This will result in the deletion of 45 stocks from the FTSE All-World, All-Cap and Micro-cap indices, while there will be 9 deletions from the MSCI Standard Index.
• There are a few stocks with over 1 day of ADV to sell from passive trackers and these stocks could trade weaker than the market over the next few days.

• IFM Investors is seeking to amass a 15% interest in Atlas Arteria (ALX AU) through a combination of total return swaps and physical shares, according to AFR.
• If successful in securing its stake, IFM intends to request due diligence access to judge if it can lob a privatisation proposal. 
• Jarden, IFM’s broker, was buying shares at A$8.10 a share, a 14% premium to the last close but below the Australian takeover premium range of 20% to 40%.

• IFM bought around 67.1m shares (7% of shares out) of Atlas Arteria (ALX AU) at A$8.1/share last evening taking its total holding to around 15% of shares outstanding.
• IFM intends to request certain information that would help it assess whether it can submit a non-binding proposal to acquire all the shares in Atlas Arteria that it does not own.
• With the indicative offer floor set at A$8.1/share, Atlas Arteria still trades cheaper than Transurban Group and offers a 14% premium to last close and even higher premiums to longer-term VWAPs.

• Consumer sentiment and demand environment is stable in Rural India. 
• There is a bit of optimism and hope of breaching FY20 volumes in FY23, supported with some pricing action. 
• Technical/Product issues are leading to a loss of market share for Escorts Ltd (ESC IN) 

• Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
• During a volatile quarter, Diamond Hill Large Cap Concentrated Fund performed roughly in line with the Russell 1000 Index.
• The market environment in Q1 provided a meaningful opportunity for us to initiate positions in high-quality names.
• From current levels, equity market returns over the next five years are likely to be below historical averages.

• Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
• Amid a rocky market quarter overall, Diamond Hill Mid Cap Fund’s negative returns still outpaced the Russell Midcap Index by a healthy margin in Q1.
• After a strong rebound in 2021, global GDP growth is expected to moderate in 2022.
• From current levels, equity market returns over thenext five years are likely to be below historical averages.

• JDL’s stock price has declined from HK$40 at its IPO to HK$15.
• We believe JDL will recover from the lockdown in Shanghai in 3Q22.
• We also believe the stock has an upside of 46%.

• Kyokuto Kaihatsu Kogyo Co (7226 JP) has always been cash-rich. Recently there are better noises. Sold real estate. New Mid-Term Plan. Raised the payout ratio to 50%. Slowly selling crossholdings.
• But it isn’t fast enough, and activist Strategic Capital this spring announced a flurry of AGM agenda items to extract value for shareholders. 
• The company today announced a buyback – additive, but there is a lot to look at here. Shareholder structure is key. And forward cash-flows tell you more buybacks could come.

• The days since Toshiba’s last briefing session have been eventful with METI expressing concern about foreign investor control and a split emerging in the board over director nominations. 
• These developments create significant risk of activist-friendly director candidates being vetoed in our view. 
• Toshiba stock has been trading in line with Hitachi’s strong performance of late despite being more expensive and thus risk has increased.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• This week, the highest spreads are Xiamen International Port H (3378 HK), Sezzle Inc (SZL AU), 21Vianet Group (VNET US), Link Administration Holdings (LNK AU), Alliance Aviation Services (AQZ AU)
• Lowest gross spreads are Yancoal Australia (YAL AU), Hwa Hong Corp (HWAH SP), Virtus Health (VRT AU), Irongate Group (IAP AU), Uniti Group Ltd (UWL AU), AKM Industrial (1639 HK). 

• The index changes for DAX, MDAX, SDAX, and TecDAX were announced yesterday.
• Beiersdorf AG (BEI GR) will move from MDAX to DAX while Delivery Hero SE (DHER GR) will move from DAX to MDAX.
• Below is a closer look at the excess volume expectations and historical price and volume performance of the names involved in this Rebalance Event.

• Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
• Amid a rocky market quarter overall, our portfolio’s negative returns still outpaced the Russell 2500 Index by a healthy margin in Q1.
• From current levels, equity market returns over the next five years are likely to be below historical averages.
• We believe we can achieve better-than-market returns over the next five years through active portfolio management.

• Eight proposals seem a lot for Toshiba Corp (6502 JP). However, if you are a PE fund on the radar of private equity LP investors, you have to get involved.
• The size of the trade is apparently 38 million shares. If you have been in the Woodside Petroleum (WPL AU) / Santos Ltd (STO AU) trade, take the deal, tactically.
• Perhaps a big pharma could make a splashy bid for Genting Bhd (GENT MK)‘sTauRx, but we’re not there yet.

• We believe Havells India (HAVL IN) has chosen the route of instant gratification by not increasing prices and gaining market share for Lloyd this AC Season. 
• After-Sales Service and aspirational value for the Lloyd brand is poor, there is no brand loyalty in the segments Lloyd operates in and is price sensitive. 
• Increased prices and course correction by  Voltas Ltd (VOLT IN) could result in HAVL giving up some of its recent market share gains building a stronger Bear case for HAVL. 

• Longleaf Partners Funds is a suite of mutual funds and UCITS funds that Southeastern Asset Management, the investment advisor to the Longleaf Partners Funds, created in 1987 as a way for Southeastern employees to invest alongside their clients.
• Longleaf Partners Asia Pacific UCITS Fund returned -7.48% in the first quarter, trailing the MSCI AC Asia Pacific Index.
• There is an immense opportunity to be in the right companies as they close that massive discount to a more reasonable discount versus global peers.

• Longleaf Partners Funds is a suite of mutual funds and UCITS funds that Southeastern Asset Management, the investment advisor to the Longleaf Partners Funds, created in 1987 as a way for Southeastern employees to invest alongside their clients.
• Longleaf Partners Global UCITS Fund declined 5.02% in the first quarter, roughly in line with the MSCI World’s 5.15% decline.
• The Fund saw a continuation of China/Hong Kong exposure weighing on absolute and relative returns.
• We are close to fully invested with approximately 8% cash, and our on-decklist is growing longer amid market volatility.
• We believe our companies in Asia and Europe are well positioned to navigatethe challenges facing each region today.

• In mid-May 2022, Kito Corporation (6409 JP) announced KKR would launch a Tender Offer to buy out the company at a big premium. I warned about the register.
• Two large shareholders were there prior to the bid – one “engagement-style” activist and one private company in a similar industry. Both had a 9+% holding visible.
• Both have now lifted their stakes above 10% post-announcement, at a small spread to terms. This makes things more interesting.

• SOE terminal operator Xiamen International Port (3378 HK) has announced a pre-conditional Offer from Xiamen Port Holding, a Fujian SASAC-controlled entity.
• The Offer price is HK$2.25 per H-share, a 55% premium to last close. The Offer price will NOT be increased. The final dividend will be added to the cancellation price. 
• Pre-Conditions include approvals from NDRC, MoC, SAFE, and CSRC. There is no tendering condition. This deal mirrors Guodian Technology (1296 HK), BCL (2868 HK), and Jin Jiang Capital (2006 HK).

• Voltas Ltd (VOLT IN) had a brutal Q4FY24 especially for its UPC segment where it lost market share to rival Havells India (HAVL IN).  
• There is a possibility of regaining some of the lost market share with some pricing interventions and high brand equity, however, it will be at cost of margins. 
• The sector view remains bearish, however, relative to HAVL, the downside would be limited with market share gains in Air-Conditioners (ACs) as key monitorable. 

• The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).
• Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it’s a start.
• We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.

• We discuss a pair trade among the major Japanese trading companies. We propose going long on Marubeni Corp and going short on Itochu. 
• We believe Marubeni has one of the most attractive valuations among the five major Japanese trading companies in terms of ROE vs. P/B and Itochu is the least attractive.
• We like Marubeni’s strength in food and agri businesses. Itochu is more dependent on metals, minerals and energy sectors which tend to be more volatile. 

• Longleaf Partners Funds is a suite of mutual funds and UCITS funds that Southeastern Asset Management, the investment advisor to the Longleaf Partners Funds, created in 1987 as a way for Southeastern employees to invest alongside their clients.
• Longleaf Partners Fund declined 0.53% in the first quarter, holding up better than the S&P 500, which fell 4.60%.
• New investments have a high hurdle to qualify given our conviction in our current holdings and the steep discount of the portfolio.

• Since Toshiba reported lacklustre earnings and guidance, there has been a steady flow of articles in the press about the privatisation process going on behind the scenes.
• On 25 March, Toshiba let it be known a privatisation process would start. On 31 March, Bain gave notice it would participate. Toshiba has been in talks since 21 April
• First round bids were due 30 May, and 10 total submissions were made, with 8 privatisation proposals proffered. Now we wait…

• Toshiba provided an update today on its management policy and the status of discussions with potential investors. 
• The management targets unveiled looked plausible but rather optimistic while the only real new information on the potential privatisation was that 8 bids had been submitted. 
• In the end the most interesting takeaway for us was that Toshiba Tec would play a key role in Toshiba’s data business.

• Xiamen International Port H (3378 HK) announced a pre-conditional privatisation offer from Xiamen Port Holding at HK$2.25 per H share + final dividend of RMB0.021 per share (ex-div: 15 June). 
• 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.  
• The offer is attractive in comparison to historical share prices and multiples. We think that the privatisation proposal will likely succeed. At the last close, the gross spread is 55.2%.

• National flag carrier Air China Ltd. (601111.SH) is planning to take control of Shandong Airlines as part of a bailout of the debt-ridden regional airline, it said this week.
• The state-owned giant is stepping in as its smaller peer suffers along with the rest of the country’s civil aviation industry, with companies racking up huge losses due to the Covid-19 pandemic.
• Air China is already the second-largest shareholder of Shandong Airlines Group Co. Ltd. with a 49.4% stake

• Maintain BUY recommendation for BAFS with a target price of Bt34.0. Business performance are expected to turn profit by 3Q22, driven by recovery in aviation fuel services volume along
• BAFS report 1Q22 net loss at Bt77m, the smallest loss in the past eight quarters. The result came out slightly above our expectation.
• The least loss in the past eight quarters supported by dividend income recognition worth Bt50m from power plant business in Japan (acquired in 4Q21)and an increase in aviation fuel volume

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.