Industrials

• Major global indices have decided to relegate Russia to the “standalone” and “unclassified” market status due to sanctions and restrictions on transfer/payment/clearing.
• Talk of significant flows into major non-Russia EM markets such as China, Taiwan, Korea, etc is misguided. 
• Russia was a non-negligible weight in global EM a few months ago, but GDRs have fallen dramatically and Russia-listed are effectively now portfolio pocket lint.

• IHI likely to benefit from rising defense spending as events in Ukraine serve as a wake up call to a Japan already worried about North Korea and China.
• Japan’s top maker of jet engines and solid-fuel rockets. Also geared to the recovery of commercial air traffic and auto production, and to carbon neutral technologies. 
• Sales and profit recovery underway. 60% upside to 15x FY Mar-24 EPS estimate. 

• On the 10 January, China Infrastructure & Logistics Group (1719 HK) (“CILG”) has announced a possible MGO from Hubei Ports. The Composite Doc is now out. The Offer is open.
• This transaction is an unconditional mandatory cash offer at HK$1.45/share.
• The first – and likely, last close – is the 25 March.  The Offeror intends to maintain CILG’s listing.

• Back on the 12 January this year, 51 Job Inc (JOBS US) announced the Offeror had proposed reducing the merger consideration from US$79.05 in cash per common share to US$57.25.
• Yesterday 51job said it has entered into a revised merger agreement at US$61.00/share, a 6.55% bump in terms, but still 22.8% down the initial terms. 
• Presumably, the amended proposal still requires no PRC regulatory filing. This transaction appears to be done this time, with completion in the 2Q22.

• Geek+ is a smart logistics and warehousing robotics developer serving clientele from a number of industry verticals, including, apparel, e-commerce, retail, 3PL, pharmaceutical, manufacturing and automotive (think Amazon Kiva).
• In the latest Series C funding round, the company raised a total of US$200m with the most recent Series C2 round in Jun 2020, raising around US$50m. 
• In the CY2H21, there were news reports regarding an IPO that could raise US$500m. Geek+ was considering either going public in the US or in Shanghai’s Nasdaq-style STAR board.

• After prospectus approval, the acceptance period runs from 2 March until 1 April. Interloper risk is nil. Gross spread is a tiny 0.3%. Recommendation is long and tender.
• I still consider the offer to be cheeky: it implies 22.3x Fwd P/E and 13.9x EV/Fwd EBITDA, below the median of comparables at 26.5x Fw P/E and 15.8x EV/Fwd EBITDA.
• But the risks of not tendering are: share price dropping in the current Ukraine crisis context, reduced liquidity, and Otis may carry out a delisting if it reaches 75% acceptances.

• Yesterday Bloomberg published an interview with Toshiba CEO Satoshi Tsunakawa where he effectively said a privatisation was not going to happen. 
• Today, Toshiba announced that Tsunakawa and his deputy, Mamoru Hatazawa would be resigning effective immediately. 
• What an interesting coincidence… one which could make shorting Toshiba quite attractive.

• The ETF that directly impacts the flow of Korean stocks within the FTSE indices is the Vanguard Developed Markets ETF (VEA), which tracks the FTSE Developed All Cap ex-US.
• The FTSE rebalancing impact on Korean stocks has shown a pattern of bringing additional flow in the same direction as the VEA-triggered flow.
• So, we may want to consider basket trading of those stocks with a more substantial level of passive impact x ADTV towards March 18.

• Zero COVID policy calls for another lockdown in Hong Kong as the number of cases rises.
• A reduction in the number of services will help to cushion the blow but may not help the overall grim prospect of the firm. 
• Lower traffic is negative for MTR Corp (66 HK)transport revenue as well as the commercial business from the station which combined make up to 50% of total revenue.

• The shares have dropped back nearly 30% and their valuation is now reasonable. Guidance looks reasonable, but recent sales and profit trends show weakness.
• Factory Automation, Die Components and the VONA e-commerce business have all recovered.
• A new era of higher profitability may be at hand, but in view of market and economic uncertainty, approach with caution.

• Consideration is 690p + 0.0359 new GXO shares, an implied equity value of £961 million. Multiples are 12.8x EV/Fwd EBITDA (vs. a median 11.3x for comparable M&A transactions) and 33.3x Fwd P/E.
• My TP for Clipper is 857p (DCF, WACC 9.5%, 9.0x 5y EBITDA exit, 1% perpetuity growth rate). The offer price seems fair, with 40% of synergies accruing to Clipper shareholders. 
• This is a friendly deal with a compelling 49% premium. Considering GXO’s M&A experience, the merger should be successful. The spread (as of 28 February closing share prices) is 2.7%.

• We initiate coverage with a BUY rating and value the company 10.5x FY24E EPS to arrive at a target price of Rs 620/share.
• We believe PSPPL is well-placed to take advantage of the government’s focus on infrastructure development
• Strong and diversified order book provides robust revenue growth visibility.

• Accuracy Shipping (ACCURACY IN)  is an entity that provides third party logistics solutions worldwide.
• The company offers logistics services, including transportation, distribution, freight forwarding, clearing and forwarding, custom house clearance, warehousing, and other value-added services.
• Although the company has recently shifted to the main board of NSE, it does however contain several balance sheet and accounting issues that need to be considered.

• JPX-Nikkei 400 is composed of common stocks listed in 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.
• 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-February 2022.

• Hochtief AG (HOT GR) has finally launched an unconditional offer for the rest of CIMIC Group Ltd (CIM AU) (where it already owns 78.58%).
• SK Square (402340 KS) was inexpensive after its November listing. Now it’s even cheaper. 
• Canada-Based asset manager Brookfield Asset Management (BAM US) and Australian billionaire Mike Cannon-Brookes have combined to purchase all of AGL Energy Ltd (AGL AU) at A$7.50/share

• Based on following the company for 25 years, I agree with Mio Kato: I do not think Rohm would or should acquire Toshiba’s power semiconductor operations.
• It would violate Rohm’s commitment to a sound financial structure and saddle it with an integration problem that might never be solved.
• Far better to keep working with the NEDO power device consortium while continuing to expand and improve its own power device business.

• We have made no secret of the fact that we consider Toshiba’s restructuring plans to be unspectacular. 
• Initially we saw no reason to separate the infrastructure business and saleable assets but with  that issue addressed it is the position of the devices business which concerns us. 
• This is because we feel it is rather undersized to stand on its own two feet… but we increasingly feel that Renesas could be the ideal home for the unit.

• Japan continues to move forward with preparing for the shift to a hydrogen economy with new developments in both rail and hydrogen production. 
• The efforts to produce hydrogen through artificial photosynthesis are particularly interesting given the potential to reduce hydrogen costs drastically. 
• While Toyota is of course involved in the efforts, the key beneficiary for the hydrogen economy remains Iwatani.

• Impressive result with underlying net profit reached US$698m in FY21, up sharply from loss of US$19.4m a year ago. Net gearing dropped to 7% with record-high ROE of 58%. 
• With 48-64% of Handysize and Supramax days covered at TCE slightly below FY21 level, it has well secured FY22 profitability, with upside from higher rate in rest of this year.
• We expect ROE to be over 30% for FY22, making its 1.3x P/B not expensive, especially with an improved balance sheet. Dividend yield of 14% for FY22 is another attraction.

• Hochtief offers A$22/share in cash, a 33% premium to the closing share price on the prior day, and the offer is final. The offer is a relatively low amount.
• The deal should complete. The premium is generous, as the 15.4x P/22e E paid is high given that Hochtief and ACS are trading at 9.9x and 11.3x, respectively.
• ACS trades at 27% discount to NAV. Holding structure rationalization and c. €5 billion received should be a catalyst for discount tightening. Long 1 ACS SM/short 0.4162 HOT GR.

• Hyosung TNC announced 50,000 won in DPS in 2021, up 10x from 2020. This is likely to reverse the recent declining share price trend in the  past several months. 
• Hyosung TNC’s current dividend yield is 10.5%, representing one of the highest dividend yields in Korea. Dividend payout in 2021 was 28%.
• We believe Hyosung TNC is well positioned to outperform KOSPI in 2022.

• Polycab India is a leading manufacturer of cables & wires with a diverse product range catering to industrial and household segments
• In 2009 the company diversified into EPC business to strategically cater to the Cables & Wires requirement of large infrastructure EPC projects
• We recommend a Buy the stock for a target price of Rs 2,640 implying an upside of 11% from CMP

• Hitachi is evacuating more than 7,000 GlobalLogic employees from Ukraine to other countries, but IT workers are mobile and these may have more work due to cyber attacks.
• Hitachi Construction Machinery and other Hitachi Group divisions do some business in Ukraine, but we expect the impact of the crisis to be manageable and temporary.
• Hitachi Ltd shares are down 25% since November and the P/E ratio is near the bottom of its historical range. 

Despite slow in January, February operationals should be higher

• Hochtief AG (HOT GR) holds 78.58% of CIMIC Group Ltd (CIM AU) and has made an offer to acquire the remaining shares at A$22/share.
• Hochtief will squeeze out the remaining shareholders once it holds more than 90% of the shares in CIMIC Group Ltd (CIM AU). 
• We think the offer is fair and expect the stock to open close to A$22/share tomorrow. There could be ad hoc inclusion to the ASX200 index in May or June.

• Actividades de Construcción y Servicios (ACS SM) , via 52.3%-held Hochtief (HOT GR), is offering $22/share for all CIMIC (CIM AU) shares it does not own. The Offer is unconditional.
• The Offer Price is a 33% premium to last close. The price will not be increased. 
• Hochtief intends to exercise its right to on-market purchases. CIMIC’s board has yet to comment on the Offer.

• Volkswagen (VOW GR) said it was in advanced talks with its controlling shareholder, the Porsche-Piëch family, over IPOing the iconic Porsche car brand.
• VW gained as much as 10.2%, lagging Porsche Automobil Holding Se (PAH3 GR)‘s intra-day-high of 15.2%.
• Proceeds from a potential IPO would ostensibly support VW’s electric vehicle roll-out. But expect the founding families to be also looking to fill their boots. 

• Hochtief AG (HOT GR) has finally launched an unconditional offer for the rest of CIMIC Group Ltd (CIM AU) (where it already owns 78.58%).
• As David Blennerhassett writes in Hochtief’s Unconditional Offer For CIMIC, this should be a done deal. Completion would free up a place in the S&P/ASX200.  
• This looks to be one of the earlier Q2 intra-quarter changes, but there are technicalities.

• Hochtief AG (HOT GR) announced an unconditional off-market takeover offer for CIMIC Group Ltd (CIM AU) at A$22.00 cash per share, a 33.4% premium to the last close price. 
• The offer’s implied forward EV/EBITDA multiple is at a discount to peer multiples. However, the offer is attractive compared to historical and transaction multiples.  
• The offer presents a reasonable exit for minorities tired of the weak share price due to years of troubled contracts.

• Demand for speed reduction gears is rebounding from the COVID downturn, but sales and profits are likely to be restrained by an increasingly difficult operating environment.
• HDS faces growing competition from Nidec in Japan and Leaderdrive in China, both of which want to lead the market. For HDS, a return to peak margins is unlikely.
• The shares have dropped 31% since last September, but at 81x EPS guidance are still quite expensive. Consider alternative factory automation investments. 

• Motonic Corp (009680 KS) is the 16th company in our Korea Small Cap Gems series. 
• Motonic’s net cash (including treasury shares) total 432 billion won, which would represent 148% of the company’s current market cap. 
• Established in 1974, Motonic Corp makes automobile parts in Korea. Its main products consist of liquefied petroleum injection (LPI) systems, clutches, and continuously variable valve lifts (CVVLs). 

• Maintain HOLD with a revised MYR1.58 TP
• Even stronger if not for impairment/provision
• MYR4.8b outstanding orderbook; targets MYR2b wins
• Revising forecasts; ESG risk score has improved

• V-Guard reported earnings CAGR of 8.6% over FY17-21 vs Havells (15.4%), Crompton (21.5%) and Polycab (39.2%).
• We model V-Guard’s earnings growth to be lower than peers ahead too due to negligible growth in stabilizer business with improving quality and quantity of power supply pan India, While V-Guard has forayed into high-growth consumer durables business, it generates lowest margin among all three segments, Non-South region also offers higher growth but lower margins and V-Guard’s right-to-win in kitchen appliances also appears low.

• China Energy Engineering (3996 HK) and Power Construction Corporation Of China (601669 CH) are the two giants in power construction industry in China; but there are significant differences between them.
• Power China has better business and generation mix while Energy China won in terms of margin and profitability, leverage and financial position, new order momentum and hydrogen energy expansion. 
• We like Energy China “H” for cheap valuation, secured earnings and deep discount to Energy China “A”. For just the A-shares, we prefer Power China “A” to Energy China “A”.