Industrials

• As discussed in the last insight, there was the possibility that YFO was jumping the gun. From the near 100+ pages released by Toyo Construction (1890 JP) today, they did.
• TC accused YFO of being “dishonest” in its attitude and actions, from the “reasons” stated in its Large Shareholder Report and market purchases to YFO’s Murakami-san’s previous interactions.
• What TC doesn’t yet understand is that when a company is in play, if a “market check” comes in, that’s OK. Investors are not hurt by a higher bid.

• Share price down 35% since last December,  probably because FY Mar-23 guidance seems over-optimistic. Gearing to falling demand and rising costs is high.
• Sales and profits should eventually rebound as 5G smart phone and data center related demand continue to grow, and after new capacity comes on line in 2024.
• First rate IC substrate and printed wiring board technology, and sound finances, make the company a candidate for long-term investment.

• Share price of Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) has rallied 55.7% over the last four months, and we believe it is now prudent to trim position.
• P/B valuation is almost at 5-year high and over 2SD above historical average, but ROE for FY22F is still shy of the peak level achieved in such period. 
• There is downgrade risk for FY22F consensus profit of Rmb1.6bn given 1Q22 profit of just Rmb25m, and near-term retreat in spot rate does not bode well for CSET. 

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.

• Three major positive factors for Samsung C&T include deep discount NAV, capital shifting to value/holdcos, and higher commodity prices boosting trading business earnings. 
• Shanghai lockdown remains a black box event and there are some increasing concerns that the China COVID induced lockdowns could result in a potential earnings miss for Samsung Electronics.
• Samsung C&T (028260 KS) has been outperforming Samsung Electronics (005930 KS). Samsung C&T is flat for the year versus Samsung Electronics which is down 13.6% YTD.

• Kubota’s stock declined in sympathy with agricultural major Deere following a quarterly earnings miss
• Kubota faces similar supply chain and cost pressures, but it is the US housing market that is a bigger concern
• We believe that the market is underestimating the earnings risk for Kubota should the housing market start to cool 

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.

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.

• FY Mar-22 sales and profits were well ahead of guidance. Management is forecasting further growth this year, but mostly in 1H.
• Margins are under pressure from rising production costs and depreciation, but cash flow and the balance sheet are strong.
• Gearing to vehicle electrification and should provide protection on the downside and support long-term growth. 

• While Orient Overseas International (316 HK) will welcome its inclusion in Hang Seng Index, there is risk that it will follow the pattern that new inclusions performed badly post entry.
• Globally, many container shipping stocks have retreated from their peaks in Mar this year, but OOIL is still hovering around its peak level, making is susceptible to a correction.
• Challenging factors include softening sequential momentum, peaking out of spot rates, weaker demand picture, increase in supply pressure and declining earnings trend are weighing on the industry and the company.

• Siemens Energy hasn’t expected to its CMD and instead announced on Saturday late evening an €18.05/share voluntary cash tender offer for the remaining 32.9% of Siemens Gamesa it doesn’t own.
• The consideration represents a 27.7% premium and 23.1x EV/Fwd EBITDA. It seems fair and higher than that initially expected. Siemens Energy is likely to issue a convertible.
• Upon market open on 23 May, expect the shares to close most of the gap with the offer price. Siemens Gamesa will likely exit the Ibex 35 in H2 2022.

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 downside to Woodside Petroleum (WPL AU) remains, but the reasoned downside is smaller than it was before.
• CVC walks, but it doesn’t stop Brambles Ltd (BXB AU) privatisation speculation. 
• If Tabcorp and The Lottery Corp are seen as low volatility growth properties, then the stability of cashflow puts it into rarified air among “growth bias” which has gotten trashed. 

• Management is guiding for single-digit sales and profit growth in FY Mar-23, but new orders fell 39% from Q2 to Q4 of last fiscal year.
• The Book-to-Bill Ratio fell from 1.66 in Q2 to 1.01 in 4Q, but quarterly orders and sales both remained far above the levels recorded in the three years to Sep-21.
• Even if the company does not drop into the red as it did in previous cycles, the downside risk to profits could be 50%. 

• The inclusion of Orient Overseas International, Zhongsheng Group, Semiconductor Manufacturing International Corp (SMIC) and China Hongqiao plus the deletion of AAC Technologies Holdings takes us to 69 index stocks.
• Changes to the stocks, number of shares, float and capping result in an estimated one-way turnover is 3.43% and will result in a one-way trade of HK$7,444m.
• There is huge short interest on Zhongsheng Group (881 HK) and China Hongqiao (1378 HK) and there could be some short covering from now to implementation.

• HomeServe has reached an agreement on a 1,200p cash offer (vs. my 1,206 TP), 71% premium and an implied EV of £4,706 million; 13.3x EV/Fwd EBITDA, 25.7x Fwd P/E.
• While the deal is highly likely to close (15.3% IRR by year 8) and the founder will bag £490 million, HomeServe could still attract interest from other parties.
• Gross spread as of today’s close is 3.4% and the estimated annual return would be 7.9% assuming settlement on 30 October. Reiterate long HSV LN.

• Screen Holdings beat FY Mar-22 profit guidance by a wide margin. This year, management is aiming for 12% sales growth and a 22% increase in operating profit.
• New SPE orders have exceeded sales for seven straight quarters and the backlog is at a record high. But 1H of FY Mar-23 is expected to be weak.
• A new factory is scheduled to come on line in 4Q, raising total SPE capacity by 20%. The risk is that this will coincide with a downturn in demand.

• Siemens Energy is considering a cash offer for the 32.9% of Siemens Gamesa it does not own. Group simplification and major restructuring would make sense.
• Applying the 6-month VWAP rule, the offer price could reach c. €18.1/share. Takeover regulation says the offer must be in cash and the price equitable, allowing for other calculation methods.
• Siemens Energy does not need to offer a high premium and could make an announcement on 24 May (CMD). Recommendation is long.

• Yesterday analyst meeting came out with slightly positive tone. However, weak short-term performance from rising energy cost and lower consumer purchasing power and limited upside to our target price
• From management guidance, gross profit margin will be decline 50bps YoY in 2022 due to a rising energy cost and raw material in packaging business and consumer supply business. Meanwhile
• We have positive view on medium to long-term performance supported by better modern retail performance (BigC). Currently,BigC market share was at 21% (+1% to 2% YoY) and we expect BigC 

• As a major player in China’s defense sector with established franchise in combat aircraft, Avic Shenyang Aircraft (600760 CH) will enjoy earnings stability, reflecting positively on its defensiveness.
• We believe it will benefit from China’s efforts to narrow military gap against the US and the increase in military spending due to rising geopolitical tension globally. 
• AVIC Shenyang is less affected by pandemic lockdowns and has showed good capability to improve profitability, which are reflected in the solid 61% growth in 1Q22 recurring profit.

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.

• Yamauchi No.10 Family Office and Toyo Construction (1890 JP) have been going back and forth in the last few weeks, with TC trying to figure out if it accepts YFO.
• The Infroneer Tender Offer ends today, and with that – perhaps coincidental timing and perhaps not – YFO has formally announced an intention to launch a Tender Offer.
• That puts the ball back in Toyo Construction’s court. The deal would be at ¥1,000/share and would launch in late June… if TC is ready and willing.

• Daifuku’s 4QFY22 was strong with revenue of ¥143bn (+3.8% vs. consensus) and OP of ¥17.3bn (+8.2% vs. consensus). 
• Guidance was relatively strong at the top line, 1.1% above but margin assumptions were far too conservative resulting in a 4.1% miss vs. consensus. 
• One may think that creates upside potential but guidance for 2H to grow vs. 1H is optimistic and valuations are too stretched to withstand a deceleration in earnings momentum.

• Tactical U/G to BUY
• Core net profit up +123% YoY, +5% QoQ
• Optimistic on prospects
• Two deals pending completion

1Q22 core net profit of MYR72m was 37%/34% of our/consensus FY22E, with the beat coming from its cement, road maintenance and property ops, and strong assoc contribution. We make no change to our earnings forecasts pending completion of sale of its 25% stake in OMS. The stock now offers >10% upside (incl. div yld) to our unchanged MYR1.27 TP (based on 7x FY22E PER; -1SD of LT mean). Tactical U/G to BUY.

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.

• Harmonic Drive posted revenue that was a touch above guidance but just below consensus and rather weak OP of just ¥2.23bn. 
• While that was just below consensus it represented a deviation from typical gross margin and SG&A trends that is concerning. 
• More troubling however is the drop in orders and particularly the composition thereof.

• I have considered the Nikkei article, “How to lead Toshiba, which has been split at the seams over security and the Corporate Governance Code, down the path of revitalization.”
• Toshiba may not have made serious business decisions on its own for many years because it’s been working in tandem with METI as a company responsible for METI’s key policies.
• Toshiba has adopted its Company with US-type 3-Committees for over 10-years, but provides a case of how board practices that are just for appearances don’t improve actual practices and performance.

• SMC 4QFY22 was in-line with consensus revenue estimates at ¥185bn, but missed at the OP level with ¥52.7bn (10% below consensus) in a now familiar pattern for the sector. 
• The company’s FY23 guidance was strong projecting revenue of ¥805bn (+4.5% vs. consensus) and OP of ¥265bn (+6.9% vs. consensus). 
• The problem is that this ignores the typical cyclicality for the company and we believe OP will in fact be down YoY.

• Sampyo Cement which is currently included in KOSDAQ150 is likely to be removed from this index in the coming months as the company wants to move to KOSPI.
• If Sampyo Cement is excluded from KOSDAQ150, we estimate there could be about 9 billion won worth of passive funds which could exit the stock. ADTV is 1.6 billion won.
• Therefore, we believe Sampyo Cement’s shares could face further weakness in the next several months. It will hold an EGM to vote on the move to KOSPI on 4 July.

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.

• Kito Corporation (6409 JP) was taken private in 2003. It was re-IPOed by Carlyle in 2007 but Konecranes stayed an investor until 2016. Then it unwound.
• Today, Kito announced the best results since pre-covid and forecasts for growth. They also announced KKR unit Crosby would launch a Tender to buy them out at a 62% premium.
• Shareholder structure is highly unusual, and interesting to boot, especially looking at the most recent arrival in the top two. The fact there is a break fee is… telling.

• After the market close today, Korea Shipbuilding & Offshore Engineering announced that will sell 1.7% of its shares (1.5 million shares) in Hyundai Heavy Industries in a block deal.
• The block deal sale is expected to take place on the morning of 17 May. The block deal price is expected to be 120,650 won.
• We would take this deal as we believe this sale is likely to have a short term positive impact on HHI and increase the free float of HHI.

• We are past the halfway mark in the review period for the September rebalance of the NIFTY100 Index. We see five potential changes which should be announced end August.
• There is a high probability of Tata Power (TPWR IN), Indian Railway Catering and Tourism (IRCTC IN), Bharat Electronics (BHE IN) and Mphasis Ltd (MPHL IN) being added to the index.
• High probability deletions are Lupin Ltd (LPC IN), Jubilant Foodworks (JUBI IN), Zydus Lifesciences Ltd (ZYDUSLIF IN), Punjab National Bank (PNB IN) and Steel Authority of India (SAIL IN).

• Brambles Ltd (BXB AU) has confirmed that it has had a preliminary engagement with Luxembourg-based CVC in regard to an unsolicited proposal to acquire all of its shares. 
• No formal proposal has yet been received. No price was made public although various media reports indicate a A$20bn bid, which may or may not hinge off an EV figure.
• In is 3Q22 trading update, Brambles upgraded its FY22 revenue and earnings guidance, despite ongoing cost inflation and pallet shortages.

• KSOE will sell 1.5M shares, equivalent to 1.70% of SO, at an expected discount rate of 5%. After the disposal, KSOE’s stake will fall to 78.02%.
• The need to increase float shares (and loan balance) due to the MSCI inclusion and the KOSPI 200 up-weight should be considered as the company’s pre-emptive response to the market.
• But even with today’s disposal, the MAXIMUM real-world float will be 11.29%. An additional passive inflow equivalent to 1.73% of SO will occur until June 9th, 5.13x ADTV. 

• Brambles Ltd (BXB AU) responded to press speculation by stating it had preliminary discussions with CVC Capital on a privatisation proposal. The shares rose 11.2% to close at A$11.60.
• The AFR’s rumour of “a bid valuing Brambles at more than $20 billion, including debt” would imply an offer price around A$11.50, a 10% premium to the undisturbed price.
• As the Australian takeover premium ranges from 20% to 40%, we think that a bid of around A$13 per share (25% takeover premium) will be necessary for due diligence access.

• Recruit Holdings (6098 JP) reported 4Q and full-year FY03/2022 results today. Revenue grew 23.9% YoY to JPY759.9bn while OP more than doubled to JPY45.4bn during 4QFY03/2022.
• Full-Year revenues grew 26.5% YoY to JPY2,871.7bn which was about 3.0% above the upper range of guidance (JPY2,700-2,800bn) while OP of JPY378.9bn was within the guidance of JPY350-380bn.
• Though full-year results were strong, 4QFY03/2022 results show that the company’s earnings have begun to weaken with normalisation of recruitment and staffing markets with Covid conditions easing off.

• FY3/22 EBITDA rose 96% driven by the recovery in the global labour market. Macro conditions suggest the coming year will be less exciting 
• EBITDA is expected to rise just 2% this year, adjusting for changes in stock-based comp 
• However, the 32% decline in the stock price YTD suggests the market is on top of the weaker outlook. We see 40% upside to the stock price 

• Media reports that HomeServe and Brookfield are close to reaching an agreement. Since news of the approach broke, the share price of HomeServe has increased by c. 52%.
• My fair value estimate (DCF based) is 1,206p, which could presumably be enough for the founder to sell its 12.1% stake (enough to prevent a squeeze-out).
• At1,206p (71% premium to the price prior to disclosures), a financial buyer could obtain a 15.3% cumulative IRR by year 8. Long HSV LN.

• The US President Joe Biden is planning to visit South Korea on 20 to 22 May to meet the new South Korean President Yoon Suk-Yeol.
• Hyundai Motor is likely to announce investments of nearly $7 billion for building a mega EV facility in Georgia which was leaked in the media in the last few days.
• Hyundai Motor is aggressively penetrating the global EV markets and it is becoming an increasing threat against Tesla. Hyundai Motor has outperformed Tesla in the past 6 months.

• Japan Post Holdings (6178 JP) and its two main components Japan Post Insurance (7181 JP) and Japan Post Bank (7182 JP) reported excellent earnings for the year to March 2022…
• ….but not so excellent forecasts for the year to March 2023. Some of that is conservative. Some is “finger-in-the-air”, and some of it is the vagaries of insurance sales accounting.
• But they all pay high dividends and Japan Post Holdings announced a ¥200bn buyback. And remember, there will likely Never Be Another JPH Equity Offering, Ever Again. Ever. 

• We are past the halfway mark in the review period of the NIFTY Index (NIFTY INDEX) September rebalance. We see one potential change which should be announced end August.
• There is a high probability of Adani Enterprises (ADE IN) being included in the index, while either Shree Cement (SRCM IN) or Hero Motocorp (HMCL IN) will be deleted.
• The impact of passive fund trading on the stocks is high in terms of days of ADV, but very high in terms of delivery volume.

• Japan Post Holdings beat by 1.5% at the revenue line and 1% at the NP line with each of the three major businesses beating guidance slightly. 
• Guidance was, as usual, for NP to decline YoY and at ¥400bn was slightly below consensus at ¥428bn. 
• The more important news was a buyback for ¥200bn or 7.6% of outstanding shares.

• Kintetsu Group Holdings Co L (9041 JP) has announced a Tender Offer to acquire the shares in Kintetsu World Express (9375 JP) that it doesn’t hold (it controls 47%)
• This is not a done deal, but they only need about 20% of the remaining 53%. 
• At a 40% premium to last after a great year, this is still being done at the wrong price. But it will likely get done

• Brambles Ltd (BXB AU) is in preliminary discussions for CVC to acquire all shares in the company. Media speculation indicates the bid would be at an Enterprise Value > A$20bn.
• Brambles Ltd (BXB AU) trades cheaper than its peers and a bid at an EV/EBITDA of 9x would imply a buyout price of A$12.84/share, a 23.1% premium to last close.
• At the last traded price of A$11.58/share, there is upside. Especially if other private equity investors enter the fray. Buy on weakness; hedge market risk with ASX200 futures.

• Sales of semiconductor equipment are running ahead of guidance. Management now sees a considerably stronger 2H and 19% operating profit growth in FY Dec-22 as a whole.
• In the longer term, Japan – U.S. semiconductor cooperation should benefit Horiba and other companies in the Japanese semiconductor industry.
• Selling at 10.5x new EPS guidance for FY Dec-22. Not meaningfully cheap if a down-cycle is coming, but attractive if it is not imminent and security concerns support demand.