Industrials

• Sales, profits and profit margins continued to rise in 3Q, led by IC and discrete semiconductor sales for automotive and industrial applications.
• FY Mar-22 guidance looks conservative, but management left it unchanged out of a sense of caution.
• Having dropped 21% since November, the share price should now recover based on the fundamentals. 

• Daifuku 3QFY21 results were mostly in-line with revenue beating by 1.4% while OP beat by 0.7%. 
• ¥174.1bn in orders were positive however and the company revised up FY order guidance from ¥565bn to ¥575bn. 
• Nevertheless, multiples are correcting from extremely elevated levels suggesting even growth next year may not be enough to support the stock here.

• There are currently 46 – mostly firm – transactions currently being discussed and analysed on Smartkarma.
• Three new deals were discussed this week: Charter Hall (CHC AU) for Irongate (IAP AU); Daifuku (6383 JP) for Contec Co (6639 JP); Hinode for At Group Co (8293 JP).
• Keys updates took place for: Virtus Health (VRT AU), iCar Asia (ICQ AU), Aventus Group (AVN AU),Sydney Airport (SYD AU), and China Logistics Property Holdings (1589 HK) 

• Time Interconnect Technology (1729 HK) is currently suspended “pursuant to The Hong Kong Code on Takeovers and Mergers“.
• Paul Lo, the chairman, recently increased his stake to ~75% of shares out. A large parcel of shares moved into CCASS late last month. 
• Paul Lo, if he is the Offeror, is unlikely to table an Offer price significantly higher than the last close, given the recent price increase. A take under is possible. 

• We expect the company’s operating performance to improve gradually from the bottom in 3Q21as there are number of quality movies to be released after been postponed upon restricted measures induced 
• Expect the company to report Bt47m net profit in 4Q21, seven-quarter high in terms of core business operation
• EBITDA in 4Q21 is expected to turn positive as it driven by pent-up demand after lockdown together with impressive ticket sales from Spider-Man: No Way Home.

• Bharat Electronics (BEL) is leading aerospace and defence electronics company. It primarily manufactures advance electronics products.
• Multi-product, multi-technology- diverse product range including radar, missile systems, electronic warfare & avionics, anti-submarine warfare, electro-optics, home land security, civilian products, etc
• Focus to increase non-defence share to ~20-25% over two to three years

• KEC International (KEC) is one of the EPC majors in key infrastructure sectors like power T&D, railways, civil, urban infrastructure, solar, smart infrastructure, oil & gas pipelines and cables
• A strategic shift in portfolio from T&D to non-T&D (13% contribution in FY16 increased to 42% in FY21)
• Target Price and Valuation: We value KEC at Rs 535 i.e. 17x P/E on FY24E EPS.

• KEC International (KEC Int) reported a mixed set of numbers in Q3FY22
• The company reported revenues of Rs 3,340 Cr (up 2% YoY), EBIDTA of Rs 239 Cr ( down 20% YoY), and PAT of Rs 94 Cr (down 35% YoY)
• We roll over our estimate to FY24E and value KEC International at 14x FY24E EPS to arrive at a target price of Rs 555/share, implying an upside of 10% from the CMP and maintain a BUY rating on the stock.

• FY12/21 OP 24.1bn yen; Misses the company guidance but exceeds our forecast

• Consolidated OP for 4Q (Oct-Dec) was 6.6bn yen (+25.7% YoY, +16.7% YoY), and OPM was 12.8 (vs. 12.1% for 3Q)

• FY12/22 guidance should be a negative surprise to the market

Anticipating jump in FY22F new contract

• Chiyoda’s 3Q numbers weren’t especially surprising nor impactful as the company continues its recovery. 
• We have been detailing for some time how current valuations look depressed and upside risk was present from the capital structure. 
• Now we believe that revenue trends are improving to the extent that they may put a floor under the stock.

Record revenue with beat on all fronts

• Post the end of the review period, there are 19 potential adds for Asia and 9 potential deletes. High probability names include 16 adds and 8 deletes.
• There are stocks that will have same way flow from the FTSE AW/AC trackers in March, while others could have same way flows from KOSPI200 or CSI300 trackers in June.
• Potential additions that got beaten down over the last few weeks have started to recover and could remain supported going into announcement date on 10 February (Asia time). 

• Sojitz and JAL have announced the start of their tender offer for Jalux Inc (2729 JP). There was no surprise in November. And no change in the interim.
• While not outrageously generous, it is not particularly egregious to minority shareholders and the shareholder structure suggests it gets done easily. 
• The lack of Japan FTC approval prior to launch is a little odd, but there should be minimal risk, and practically speaking, zero incremental risk vs waiting to start.

• Kabra Extrusion Technik (KET), incorporated in 1982, is India’s prominent player (~40% market share) in the organised plastic extrusion machinery used for manufacturing pipes, profiles & films. It is primarily a capex linked product.
• Interestingly, in the recent past, KET has ventured into manufacturing (assembly) of lithium-ion battery packs for EV under its new division Battrixx
• Export turnover amounts to ~30% of total revenue as of FY21

• About the stock: TCI Express is a leading asset light B2B (95% of revenues) express logistics company with 28 sorting centres, 800+ owned pan-India centres covering 40000 pick-up and delivery points.
• SME and corporate clients comprise 50:50 of overall revenues 
• Total 55% of revenues from sectors like auto ancillary, pharma, engineering

• Recruit announced a buyback of up to 34 million shares in an own share tender offer to take place at a price below the current market price.
• This kind of tender offer is almost always meant for Japanese corporate holders as it rarely makes sense for others to participate.
• This is mildly EPS accretive, BVPS decretive, quite ROE accretive, but Recruit can’t really use this method for the rest of its cross-holdings.

• 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-January 2022.

• HCM posted a strong set of 3Q results with revenue of ¥246.7bn a touch below our ¥248.5bn estimate and blowing away clueless consensus’ ¥219.2bn. 
• That the consensus high was just ¥231bn is an illustration of how poor the sell side understanding of HCM is compared to Komatsu. 
• We expect more of the same going forward… strength from HCM and cluelessness from sell side analysts.

• Komatsu’s 3Q results hit revenue of ¥723bn (+12.5% QoQ, +30.1% YoY) and OP of ¥87.5bn. 
• They beat consensus by 9.8% and 19.0% at the revenue and OP levels respectively. 
• That puts it on track to hit the high end of our ¥305-325bn OP estimate for the FY but upside is relatively moderate compared to HCM.

• AIA Engineering (AIA) is India’s largest manufacturer and supplier of high chrome wear, corrosion and abrasion resistance castings used in cement, mining and thermal power plants (or mills)
• Products include tube mill internals (grinding media, shell liners, diaphragm), HRCS castings & crusher parts for cement, mining and power
• Target Price and Valuation: We value AIA at Rs 1895 i.e. 28x P/E on FY24E EPS

• Recruit has announced a share buy-back on Friday of 34.0m shares (2.06% of outstanding shares) for JPY155.8bn, implying JPY4,581 per share.
• Recruit’s shares closed at JPY5,090 per share at the end of Thursday’s close, and following the announcement, shares moved up to JPY5,305 a piece, gaining 4.2%.
• We think Recruit’s shares will be a good Short over the next few days.

• The S&P/ASX Index family is a widely-tracked group of indices and sub-indices which represent the performance of ASX-listed companies. 
• In March 2022, Index rebalance events will take place for the S&P/ASX capitalization-weighted indices including ASX 300, ASX 200, ASX 100, ASX 50, and ASX 20. 
• In this insight, we take a look at the leading candidates who could become Adds/Deletes during the March 2022 Rebalance and other potential intra-quarterly changes.

• Operating profit declined in 3Q despite a 15% YoY increase in sales. FY Mar-22 profit guidance now looks too high. 
• The Automotive division is suffering from the semiconductor shortage, high materials prices and the cost of ramping up EV motor production – which is scheduled to continue until 2025.
• But the share price has dropped 31% since the beginning of January. Long-term investors may now choose when to buy in.

• Adi Sarana Armada (ASSA IJ)  has successfully spun off its Auto trading subsidiary Autopedia Sukses Lestari (ASLC IJ) through an IPO reducing debt and raising capital to grow the business.
• Autopedia will focus on growing its online O2O business through Caroline, with a captive supply of used cars from its auction and car leasing businesses plus offline infrastructure in place.
• Adi Sarana Armada (ASSA IJ) also looks attractive for its logistics and last-mile business, which is close to profitability and now more than 50% of its revenues and growing fast.

• We believe PLANB’s acquisition of media business from AQUA PCL at total cost of Bt2.9bn will create value accretive for the company as it purchases at PE multiple of 16x-18x 
• 2022 to be harvesting period after heavy CAPEX investment in the past two years ,which also included the largest deal on Aqua’s assets.
• Media revenue is expected to grow 35%CAGR in 2022-23E, driven by revenue recognition of new media capacity in digital, static segments (mainly from Aqua), and, retail media in 7-eleven stores.

• Sector outlook is weak with a -20% yoy decline on sales volume expected.
• End demand was largely brought forward in 1H2021. Lots of inventory at dealers are waiting to be sold.
• Sinotruk’s valuation looks fair now. However we see limited positive momentum to drive its share performance this year.

• Nidec missed 3Q consensus as OP of ¥44.3bn came in 12.6% below consensus despite a 5.8% beat at the top line.
• The deterioration in profitability across the Existing Auto, Machinery, and Appliance, Commercial and Industry businesses is a significant concern. 
• It also suggests that consensus expectations for 22.6% OP growth next year may prove highly optimistic.

• Fanuc results were a little better than the in-line we expected on account of a big jump in Robot segment sales. 
• Given relative margins however, the impact at the OP line was limited and Fanuc’s revised guidance is now just under consensus for the year. 
• Much of the recent strength in FA and Robots looks unsustainable and we suspect this result may be taken negatively.

• 3Q results were above guidance, as expected. Full-year guidance looks conservative, as usual. New orders ahead of sales, pointing to one or two good quarters ahead. 
• Shares down 10% since the beginning of January. Valuation reasonable but not compelling given the risk of a cyclical peak in SPE demand this year.
• Uncertainty likely to keep the shares in a trading range.

• CVR declined despite an increase in the number of projects. However, this is not a new negative factor

• Makuake (4479, the company) announced 1Q FY9/22 parent results. Total amount of pre-orders (GMV) was 5.369bn yen (+19.0% YoY, -7.5% QoQ)

• KPIs: Focus on the effectiveness of CVR measures going forward

• This chart draws a fascinating historical comparison between the behaviour of the stock market today with that seen 100 years ago around the Spanish Influenza
• It clearly shows that what we are seeing today has some sort of reflection of the past
• We have fresh developments that indicate further weakness for Equities [relative to Gold]

• Guodian Technology & Environment Group (1296 HK) announced a pre-conditional privatisation offer from China Energy at HK$1.08 per H share, a 47.59% premium to the last close. 
• The key conditions for the delisting will be approval by at least 75% independent H-shareholders (<10% of all independent H-shareholders rejection). There is no minimum acceptance condition.  
• The offer is attractive in comparison to long-term historical share prices and multiples. We think that the privatisation proposal will likely succeed. 

• Concor is the dominant player in the CTO business (65% market share) with ~60 terminals
• Revenue from rail transportation comprised 75% of total revenues (rest 4% by road, 13% via handling income, 2% warehousing and 4% others)
• Target Price and Valuation: We value the stock at Rs 780 i.e. 21x P/E on FY24E EPS

• Havells India (HIL) is India’s leading electrical appliances & equipment manufacturer with a diversified product portfolio
• In all its business segments, Havells has a strong presence in the organised product category with market share ranging between 6% and 20%
• We value the stock at 53x FY24 EPS and revise the target price to Rs 1515/share
• 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.