Industrials

• China Communications Construction (1800 HK) targets for at least 6% growth in revenue with slight operating margin expansion for FY22; and these should sustain its stable growth trend. 
• It will increase focus on “big city” projects where there are more opportunities. We think its target of at least 11.8% new contract value growth in FY22 is conservative.
• Reduction in losses at concessionary projects, improvement in operating cash flow and lowering of gearing levels all indicate that CCCC is moving in the right direction.

• 10 days ago, Daiho Corp (1822 JP) announced an exit for Murakami-san who had gone from zero to 42% of voting rights buying 18% of volume over two years.
• They found a kind of white knight to buy the shares Murakami-san wanted to sell. The structure looks “fair” but is not. Almost all investors are now buying through terms.
• And the result looks expensive with a rather unfortunate forward flow profile. 

• Ravensource Fund’s NAV per unit increased by 11.9% over 2021, including distributions received by investors.
• There has been no changeduring 2021 in the Fund’sstated investment strategyor in the execution of the investment mandate that would materially affect the risk ofinvesting in Ravensource.

• In my last note, I thought China Conch Venture Holdings (586 HK) (CCV) appeared fully-priced. If I had been long CCV, I recommended getting out. 
• CCV shed HK$11.35/share after going ex- the China Conch Environment Protection Holdings (587 HK) (CCEP) water treatment in-specie spin-off. CCEP closed at HK$9.77/share on its first day of trading.
• CCV is trading back to around levels prior to the announcement of the spin-off. Separately, CCEP appears to be trading rich relative to waste treatment peers.

• Toyo Construction (1890 JP) situation changes day by day. In three days we have three Large Shareholder Report filings as The Expected Activist ducked out, replaced by A New Entrant.
• Now one has to consider what the rest of this week has looked like.
• And we wonder who it is, but reading between the lines can get you to a place where one might see what the aim is. 

• SK Shieldus is getting ready to complete its IPO in Korea in May. The IPO price range is from 31,000 won to 38,800 won.
• According to bankers’ valuation, the expected market cap of SK Shieldus is from 2.8 trillion won to 3.5 trillion won. The IPO size ranges from $694 million to $869 million.
• There has been a mini-drought of quality IPOs in Korea in recent months and the IPO of SK Shieldus would be the biggest IPO in Korea since LG Energy Solution. 

• Raymond Zage’s letter was super interesting in terms of its nuance, as discussed in Toshiba Board Ructions as Independent Director Goes Rogue. 
• In Toshiba Coin Toss Is Neither Heads Nor Tails as Both Proposals Fail, I discussed that this opens the door to exploring combinations of ideas. 
• Today Effissimo filed an amended LSR to say they’d sell their shares to a Bain Tender Offer if launched. The statement, and the break clause are informative, and more nuanced.

• After Murakami-san reported yesterday selling most of his shares on 23 March, the stock fell heavily today. From 6.7% above terms to 0.65% above terms. 
• 6.5 mm shares changed hands today at less than a 1% premium to terms.
• After the close, a Cayman company, “WK 1 Limited”, announced it had two affiliates owned 5.89% as of 24-March. Still funky. Still fun. Bet it pops now.

• Toyo Construction (1890 JP)‘s Independent Committee thought this deal was being done too cheaply, but they signed off on it. I thought it was cheap too. 
• I thought that a leading activist in the name would think so too, and try his hand because of his running start of 7+%. Huge volume Day1 sparked wider interest.
• It has traded every day so far above terms so far but on the first full day of trading, the activist Murakami-san bailed. That changes things, but… it’s still funky.

• Air New Zealand (AIR) aims to raise around US$827m (NZ$1.2bn) via a renounceable rights issue.
• The deal has been in the works for months and has been put off multiple times before owing to COVID-19 induced New Zealand (NZ) lockdowns.
• In this note, we will run the deal through our ECM framework and talk about the recent updates.

• On the 1 March, 51 Job Inc (JOBS US) said it had entered into a revised merger agreement at US$61.00/share, 22.8% down from the initial terms. 
• 51job has now announced that it has called an extraordinary general meeting of shareholders to be held on April 27.
• Despite regulatory opacity, this transaction appears done. Separately, 51job’s FY21 financials will be released tomorrow.

• Hazama Ando spent a long time coming out of its doldrums. In February 2020, it started to improve. It started a buyback, scarfing up 22% of volume in 6 weeks.
• Later in 2020, another, and in 2021, another still, now with the last one finished in a hurry, they announced another. They’ve bought back stock 17 months in a row.
• It’s not clear the master rules of the buyback, but historically they have been reasonably aggressive. I expect that continues.

• JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
• A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
• Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-March 2022.

• Sinotrans (598 HK) has a record year in FY21 with recurring earnings increased 44% YoY. Margin for 4Q21 has shown some improvements against 9M21. 
• Management is generally cautiously optimistic for this year, but also highlighted weaker visibility for the outlook given high base, sporadic COVID-19 outbreak and geopolitical uncertainties. 
• We expect slower earnings growth in FY22, with e-commerce segment being the best-performing. We see lesser credit and asset impairments, and it is cheap at 3.7x PER and 10% yield. 

• Shenzhen International (152 HK) posted 11% profit decline for FY21, with Shenzhen Airlines the main drag. Stripping this and one-off items out, its bottom line would have grown by 46.6%.
• Logistics growth pipeline is highly visible, and this adds to potential gains from logistics park transformation and strategic offload of matured and suitable projects through REIT or private fund.
• The stock remains a deeply undervalued asset play at just 0.48x P/B. Its willingness to share gains with investors has put its dividend yield at 10.4% on current share price.

• We speak to channels of Kajaria Ceramics (KJC IN) , Indigo Paints (INDIGOPN IN) & Finolex Industries (FNXP IN) to understand the current operating environment.
• For Kajaria Ceramics (KJC IN) volume outlook is cloudy.  Paint customers are opting for some down trading but within organised players only. 
• Improved product quality at competitive price is aiding Finolex Industries (FNXP IN) to gain some market share.

• On 29 March, Hanwha Asset Management launched the first local stocks-focused, aerospace & UAM (Urban Air Mobility) themed ETF named ‘ARIRANG iSelect Aerospace & UAM ETF’.
• The share prices of the 18 stocks included in this ETF are up on average 6% YTD, outperforming KOSPI which is down 7.8% in the same period.
• As of 30 March, iSelect Aerospace & UAM ETF had a market cap of 10.1 billion won which is likely to increase much higher in the coming months. 

• Maintain BUY and MYR11.15 TP
• 4QFY1/22 core NP: Fell 29% QoQ
• Revised FY23 earnings; positive on outlook
• FPSO market: Strong bids and tenders

FY1/22 core results came in below our expectation, on weaker QoQ performance in 4QFY1/22, dragged down by higher: (i) OPEX, (ii) finance costs, (iii) taxes and (iv) losses at its associate. Correspondingly, we cut FY23 earnings by 6%. That aside, we remain positive on its prospects. Yinson has the best of both worlds: (i) strongest FPSO prospects, which it is well-entrenched to capitalise on in this upcycle and (ii) the clearest carbon reduction footprint strategy to-date. Our TP is SOP-based.

• Given the market volatility, there have been quite a few changes to the potential inclusions and exclusions at the MSCI May SAIR, especially for China.
• There are now three weeks to the start of the review period and we see 40 potential inclusions and 49 potential deletions. Most of the expected changes are in China.
• The largest potential inclusions are Powerchip Semiconductor Manufacturing, Orient Overseas International, Pop Mart International, Eva Airways, China Airlines, Emtek, KT Corp, Sumber Alfaria Trijaya, Hyundai Heavy Industries and Xtep International.

• On the 23 February, Actividades de Construcción y Servicios (ACS SM), via 52.3%-held Hochtief AG (HOT GR) offered $22/share for all CIMIC (CIM AU) shares it does not own. 
• The Independent Expert (Grant Thornton) has assessed the Offer and concluded it to be fair and reasonable.
• The Offer is unconditional. The close of the Offer, unless extended, is the 11 April.

• On 28 March, it was reported that Hoban Construction will acquire a 17.43% stake in Hanjin KAL Corp (180640 KS) from KCGI becoming the second largest shareholder of the company. 
• There are some further possibilities of Hoban Construction forming an alliance with Bando Construction later on which could make the shareholding structure of HanjinKal very interesting. 
• There has been an increased increase in the travel/leisure related plays (including HanjinKal) with the opening up of travel and fewer COVID restrictions in some countries including in South Korea.

• FY21 result of Xinjiang Goldwind (2208 HK) is healthy, though behind expectations due to impairments. We see them not recurrent into FY22, and this should be positive to earnings.  
• Management sees some margin decline for WTG segment but the expectation of over 30% volume growth should offset the impact. Orderbook is secured at 16,874.4MW.
• Growth in power servicing is the bright sport with target revenue growth for 50%. Goldwind also plans to also add 0.5-1GW of generating capacity annually at wind farm development segment.

• On 28 January, the government (Ministry of Land, Infrastructure and Transport) announced that it has recommended the heaviest punishment of the cancellation of the construction license for HDC Hyundai Development.
• Seoul city government said it will make a decision on the fate of HDC Hyundai Development within six months.
• Rather than a complete, permanent cancellation of the company’s business license, a more likely scenario is about 6 to 12 months of temporary business operation suspension, in our view. 

• Daiho Corp (1822 JP) has announced a deal which is not quite what it looks like. 
• And despite a buyback of more than 50% of shares outstanding, and an “accretive” sale to another party at a higher price, it is a governance disaster.
• And existing shareholders have an out, but it is complicated. If you own the stock, or you look at risk arb, or activism, this may be worth a read.

• Toshiba possesses technologies of vital importance to Japan’s economic competitiveness and national security: nuclear power, quantum cryptography and discrete semiconductors.
• Any changes in ownership or management that would undermine or leak these technologies would probably not be tolerated.
• LightStream’s Mio Kato writes that Toshiba itself is attractive but the drama surrounding it is decidedly looking bad for business. He remains negative on the stock.

• Toshiba (6502 JP)‘s activists are stuck. So are management. 3+ years since the last big buyback, 3 new CEOs and we are back to the drawing board for both management/activists. 
• Quarz and Mapletree North Asia Commercial Trust (MAGIC SP) holders “win” to get a Cash-Only Consideration bump to 1.0x Price/Sep2021 NAV at S$1.1949/unit. This gets them out at NAV.
• Regulatory overhang sees Link Administration Holdings (LNK AU)‘s spread to terms trading wide. 

• A Nikkei article overnight displays the first buds of “spring” around Toshiba management’s tilt towards trying to get shareholders what they want after the Separation Plan failed at the EGM.
• The article doesn’t say much, but it is a sign the Toshiba Board are not “lying flat.”
• However it doesn’t mean a deal is coming much less anywhere near doable. This is a long road. But it encourages more proactive portfolio resconstruction. 

• Consideration: 0.3277 VALMT FH x 1 NELES FH plus a €2/share before the merger (record date 24 March). Upon announcement: 11.9x EV/Fwd EBITDA, 19.3x Fwd P/E.
• All conditions have been cleared and approvals obtained. Completion is expected to take place on 1 April. Valmet seems to be the big winner in this merger.
• Gross spread is currently -0.4%, so I would recommend monitoring the spread in case it turns positive.

For our next Corporate Webinar with Meta Health Limited (MCOM SP), we are glad to welcome Dr. Vas Metupalle, Chief Medical Officer and Dr. Bernard Ng, Executive Director at 5Digital, Meta Health’s fully-owned healthcare platform company.

In the upcoming Webinar, Dr Vas and Dr Bernard will share a short company presentation, after which they will engage in a fireside chat with Smartkarma Analyst, Sameer Taneja. A live Q&A session will follow.

The Corporate Webinar will be hosted on Tuesday, 5 April 2022, 17:00 SGT.

Meta Health was previously known as Metal Component Engineering and was founded in 1987 in Singapore. With consistent focus on quality and engineering innovation, the company has expanded its customer base by serving MNC, EMS, and SME globally. Meta Health recently diversified into the healthcare technology and services industry with investment into GainHealth Pte. Ltd., a direct-to-consumer and high-growth omni-channel health and wellness platform. The Company is vertically integrated with licensed clinics with pharmacy, online self-branded ecommerce portals, and product placements on regional ecommerce portals.

Corporate Webinars by Smartkarma Corporate Solutions feature discussions with IROs and Executives, discussing their companies, the challenges they face, and the opportunities in their sectors and markets.