Industrials

• Toshiba EGM fails to provide a positive result as both Toshiba’s own Separation Plan and 3D Investment’s proposal to enhance privatisation bidder engagement and transparency fail. 
• Activists are stuck. Management is too. 3+ years since the last big buyback and 3 new CEOs and we are back to the drawing board for both management and activists. 
• But both have a head start. The Shareholder Return Plan, eventual disposition of Kioxia, and non-core asset sales would be a start. And Raymond Zage’s letter is worth a re-read.

• JD Logistics (JDL) aims to raise around US$1.1bn, with US$400m coming via an institutional placement. The balance will be funded by issuing shares at the same price to JD.com.
• We have covered the stock extensively, links to our previous notes are below.
• In this note, we will run the deal through our ECM framework and talk about the recent updates.

• Votes at Toshiba’s EGM ended up being cast in the most likely fashion with both management’s and 3D’s proposals being voted down. 
• There was nevertheless considerable uncertainty and it will be interesting to see what the voting breakdowns were. 
• For now, however, this just pushes out the prospect of any true resolution and we view that as negative.

• The latest announcement by the SG Multi-Task Force to further relax COVID-19 restrictions is a major positive catalyst.
• Its hybrid taxi accounted for more than 50% of its entire fleet as of end-December 2020. It remains on track to replace all diesel taxis with hybrid models by 2023.
• Investors will be paying a discounted valuation for the cash flow if they own Comfortdelgro Corp (CD SP) compared to its peers which trades at a much higher EV/EBITDA.

• Among many e-commerce names, MonotaRO Co Ltd (3064 JP) is one of the most promising with operating profitability predicted to improve by 200 bps to 14.0% by 2023.
• Unlike many e-commerce players, the company doesn’t strain itself financially while pursuing revenue growth through expansion.
• At 35.8x OP, MonotaRo is not cheap to be outright bullish. However, it is a reasonable long hedge to allow you to short a lot of other names in e-commerce.

• Sales of analytical and measuring instruments, medical systems and industrial machinery are all doing well. Aircraft equipment lags, but should improve next fiscal year.
• Guidance has been raised three times and now calls for an 8% increase in sales and a 23% increase in operating profit in FY Mar-22.
• Not compellingly cheap, but worth looking at from a long-term perspective.

• Cimc Enric Holdings (3899 HK) posted a set of encouraging result for FY21. It achieved a 37.4% YoY growth in 2H21 even after a 77.5% growth in 1H21. 
• Management suggests that gross margin will improve in this year as measures have been taken to cope with the factors that lead to the 2.3pp contraction in FY21.
• Hydrogen energy is a bright spot – though contribution is still small, it expects to at least double its revenue in FY22, and remains bullish on the long term prospects.

• Park Yong-maan, Park Seo-won and Park Jae-won are looking to sell down their stakes in Doosan Corp (000150 KS) . The share sale will be a cleanup.
• In our view, the deal should bode well for the current management, giving them free rein in management coupled with the share sale being a clean-up. 
• In this note, we will talk about the firm’s track record and run the deal through our ECM framework.

• The former Doosan Group Chairman Park Yong-Man and his sons will sell 1.296 million shares of Doosan Corp (000150 KS) in a block deal, representing 7.85% of outstanding shares.
• We have a positive view of this block deal sale and we would take the deal.
• Our NAV analysis of Doosan Corp suggests NAV per share of 188,511 won per share, representing a 61% upside from current levels. 

• The share price has bounced back from the Ukraine war sell-off. Attention should now shift to orders, sales and profits. 26% potential upside to our price target
• New SPE orders exceeded sales by 20% in the December quarter, taking the backlog to a new high and pointing to further sales and profit growth next fiscal year.
• Management’s FY Mar-22 guidance remains unchanged, with sales up 41% and operating profit up 2.2x. Upside potential of 26% to our price target.

• Remains our preferred pick; BUY
• Property provided the lift
• MYR15.6b E&C orderbook + unbilled property sales
• Revising FY22E forecast; raising minimum wage

Gamuda’s earnings rebound in 2QFY22 was stronger than expected, with 1HFY22 net profit (+41% YoY) coming in at 55% of house/street’s full-year forecasts; the beat was due to margin expansion at its E&C ops. We raise FY22E net profit by 10%, maintain for FY23/FY24E. Our RNAV-TP is unchanged at MYR4.28. We continue to like Gamuda for its delivery track record, strong balance sheet and ESG initiatives. Maintain BUY.

• INFRONEER Holdings (5076 JP) is the new name of the holding company which was comprised of Maeda Corporation, Maeda Road Construction, and Maeda Seisakusho.
• Infroneer owns a 20% stake in smaller construction company Toyo Construction (1890 JP) through subsidiary Maeda Construction. It has launched a Tender Offer for the rest at a 28.5% premium.
• This could get complicated. If you own, I would not sell at terms.

• The Nikkei had an interesting article today on Toshiba’s new CEO and the company’s underlying culture. 
• It addresses some inconsistencies we have seen in terms of demonstrated competence at lower levels vs. a certain lack thereof at the top. 
• Ultimately though we suspect that what it reveals points to a lower chance of a privatisation

• Qube Holdings (QUB AU) saw a near 5% block sold Friday after the close at a small discount – likely the long-awaited CPPIB cleanup trade.
• This morning, the company announced a A$400mm off-market buyback, with record date 29 March, giving appropriate investors time to build a position.
• This should be something like 7.2-7.8% buyback, leading to 7.5-8.5% EPS accretion for 2023.

• My favorite stock by far in the present day is BJCORP, it had a minimum upside of 300% within 5 years with relatively little risk
• BJCORP’s new CEO Jalil was able to articulate the importance of optimal capital allocation in his 3-year turnaround strategy
• However, in a surprising turn of events, it was announced in yesterday’s local financial news that Jalil would be stepping down as CEO of BJCORP.

• Last week was a strong bounceback week for the S&P 500 index as it closed back over its 10WK moving average and finished the week up over 6%
• Technology and growth stocks were particularly strong on Thursday and Friday after Wednesday’s Fed meeting and closely followed yield curves already have inverted or are close to inverting
• In addition, many beaten down growth stocks saw strong moves higher as short covering occurred going into options expiration last week

• A winning resolution; maintain BUY
• “Sponge city” concept, with 22km of tunnels
• Over 2 phases, under PPP 3.0
• Rising to the occassion

Gamuda’s proposal for a SMART 2 flood mitigation system in western Klang Valley (downstream of the Klang River), if it materialises, should provide a winning resolution to the government and population there. For Gamuda, this project would further uplift its E&C profile, and bring it closer to its MYR20b orderbook target (MYR10.4b now) by mid-2023 (end-FY23). Our earnings forecasts have upside potential, depending on the project value and timeline. No change to our MYR4.28 RNAV-TP.

• It was a busy Friday with a whole lot of rebalance implementations – FTSE AW/AC, EPRA Nareit, China 50, China A50, Taiwan 50, S&P/ASX. This week is quieter.
• We take an early look at potential changes to the MSCI Standard Index in May, to the FTSE AW/AC in June, China ADRs that could list in Hong Kong.
• There were some big inflows to Tracker Fund of Hong Kong Ltd (2800 HK) and Hang Seng H Share Index ETF (2828 HK) during the week.

• We are value investors – business analysts with a long-term time horizon focused on purchasing publicly traded companies that are competitively entrenched at significant discounts to intrinsic worth.
• After very strong absolute and relative returns through the first nine months of the year, all of our investment strategies lagged their benchmarks during the fourth quarter.
• All of our portfolios are fully invested in world class businesses with stable values trading at a significant discount to intrinsic worth.

• Today (18 March) is the last day of dealing in China Conch Venture Holdings (586 HK) shares on a cum-entitlement basis for the Conch Environment Protection (CEEP) spin-off.
• CEEP is expected to commence trading on the 30 March. The Listing Document is expected to be issued on or around the 22 March.
• Separately, I see CCV trading at a 14% premium to its NAV, around its most extreme-ever level. 

• After some purchases in the market (at offer price), HAL Holding and concert parties have a 50.5% stake. HAL will not use the additional 4.3% voting rights before offer clearance.
• If acceptances are below the squeeze-out threshold (95%), the target will usually co-operate so that the offeror will take full control and delist. Possible measures involve diluting the holdouts.
• There are grounds for a sweetening of the offer. The market thinks so and the shares are trading 0.3% above the offer price, but HAL has a strong hand.

• There is a Toshiba Corp (6502 JP) EGM next week for shareholders to vote on the company’s Separation Plan, with a shareholder proposal to re-engage take-private buyers.
• Four+ weeks ago, the Board unanimously supported the first, and unanimously opposed the second, and shareholders and major proxy advisors came out against the first.
• Now Independent Director Raymond Zage, originally from one of the dissenting shareholders, has written a letter stating he has voted FOR the shareholder proposal the board rejected. OOPS! 🤭

• The announcement from Raymond Zage that he would vote for 3D’s proposal at next week’s EGM is a curious development.
• It suggests that pressure on Toshiba’s directors could be ramping up significantly. 
• Whether that is a good thing or not is a serious question though.

• Liquidity shorts can be great short candidates.  The key characteristic is that the company may not be viable, economically, given their cash flows and cash requirements. 
• Liquidity shorts have built-in catalysts, have moderate to higher betas,  and can have strong down moves if a crisis develops.  They can go bankrupt, pushing the stock price near zero.
• Today we are flagging Rivian, Nikola, ChargePoint, Domo & Enviva.

• China’s environmental watchdog has named and shamed four firms for faking carbon emission reports, in the latest sign that data fraud continues to threaten the nation’s green ambitions.
• The Ministry of Ecology and Environment (MEE) said the data verification agencies manipulated reports and falsified testing dates, emissions data and carbon footprint results
• Such agencies are crucial to the measurement, reporting, and verification system used to keep a lid on carbon emissions and allocate quotas to high-emission sectors such as power and chemicals

• Imputing for earnings risk; D/G to HOLD
• A smallish MYR15.75m outlay, but …
• In the RED and in Net Liability
• No synergy nor value accretion for now

CMS’ proposed acquisition of Scomi Oilfield Ltd plus 12 other companies and assets within the Oilfield Group of Companies for a total MYR15.75m cash (its 75% share) comes with earnings risk as the acquiree coys have been loss-making. Plans to turn-around were not disclosed. Also, we see no synergy & value accretion for now. We switch valuation methodology to PER (from RNAV), using 7x (-1SD) on FY22E net profit (earnings unchanged for now); the -1SD reflecting earnings risk concern. Our new TP is MYR1.27 (previously MYR1.84 on 0.7x RNAV). D/G from tactical BUY.

• The review period runs from 18-29 April for the May SAIR, the results will be announced on 13 May (Asia-time) with the changes implemented after the close on 31 May.
• Most of the potential changes are in China with few changes spread across the other Asian markets. China loses the most number of index members, followed by Japan.
• There are over 4 weeks to the start of the review period and there will be changes over that time as stock prices move around.

• Hyundai Heavy Industries will face significant volatility this week. First, on March 17, IPO 6-month lockup will be released. The next day, March 18, rebalancing trading of FTSE GEIS occurs.
• If half of the lockup release hits the market, it will be about 3.0x ADTV. At 30%, it is 1.8x ADTV. Then, we should see an inflow of 1.04x ADTV.
• The short position exit timing is crucial. Some of the volumes scheduled for release are likely to sell on the 18th or early next week, targeting Friday’s FTSE GEIS event.

• Share price was off 23% in the last two days, yet we think China Everbright Environment (257 HK) has posted a set of healthy result, though somewhat behind expectations.
• Good new project momentum, further increase in operation revenue and collection of national subsidies are key factors backing earnings growth and improvement in cash flow over the next 2 years.
• Longer term, management stays bullish on the industry growth opportunities. Its 14.5% ROE and mid-teens earnings growth both suggest the stock’s 3.3x PER, 0.45x P/B and 9.4% yield inexpensive.

• Here are the top 30 most shorted stocks on KOSPI 200 over the last five trading days, by short-selling volume as a % of the accumulated trade volume.
• I then sorted out those with a short-selling volume exceeding 10% of the accumulated trade volume during these five trading days and a 30-day ADTV of +₩3B.
• And another additional condition was an increase in the loan balance during the same period. As a result, six names came up as having a high potential of price decline.

• Geared to rising demand for semiconductor and other industrial polishing services in general and rapid growth in the production of advanced power semiconductors in particular.
• Sales and operating profit could double over the next 5 years, but dilution from capital raising might hold EPS growth to 50%.
• Selling at 9.2x EPS guidance for FY Mar-22. 10x potential EPS implies 65% upside. Risks include small market cap and potentially volatile quarterly earnings.