Industrials

• 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.

It has doubled its Capex run-rate FY22 onwards to expand capacities, all through internal accruals. It expects its margin to rebound on full benefit of the price hikes taken in Q3 and if gas prices stabilise around current levels. We reiterate our BUY rating on Kajaria Ceramics (KJC), with an unchanged target price of INR1,450/sh (21x its Dec-23E consolidated EBITDA). KJC reported robust growth across tiles, bathware, and ply segments, riding on both healthy demand and market share gains, which drove its revenue by 27% YoY.

• Hitachi is, as the media fuss suggests, in the last stages of its re-formation after ridding itself of nearly two-dozen listed subs over the last decade-plus.
• Hitachi Transport System (9086) is the last major sub/affiliate without a new home. Hitachi owns just under 40%. SG Holdings (9143 JP) owns just under 10%. Both want to sell.
• It is not clear HTS wants to be taken private, but there could be an interesting financial engineering solution to suit the sellers. 

• Mitsui OSK Lines impulsive decline as sell volumes rise is a big negative and sets up a short on a bounce, which may be limited.
• 8,500 is near resistance. 7,000 is tactical support (trendline) where a reaction rise is due. Watch RSI near/below 30 for a short term low.
• Major support at 6,500 targeted representing key dual lows, 200 dma and congestion support.

• More important than the continuity of the Hitachi brand is how HCM can increase the competitive advantage of its products and how quickly it can respond to changes in market.
• Changes in major shareholders and the presence of major shareholders have been shown to have statistically significant correlations in ROA, Tobin’s q (and changes in market capitalization).
• The existence of the Ownership factor doesn’t necessarily predict the future of HCM, but in construction equipment market with strong competition, having a reliable partner is encouraging in business decisions.

• Itochu today announced a buyback program to buy US$500mm+ in the next 10 weeks. 
• Net income growth, a rising dividend, and balanced risk book help it perform with low beta and medium correlation to peers. 
• The low volatility-relative multiple is supportive, and the buyback helps, but style bias vs Peers matters more. 

• Hitachi Construction Machinery continues to trade under ¥3,000 following the revelation that it would not be bought out by Hitachi. 
• There was little new at its conference call following the Itochu stake purchase announcement save some potential positives on the logistics front. 
• Nevertheless, with the stock trading at five-year lows vs. TOPIX and Komatsu, and consensus looking light we are extremely bullish here.

• Baycurrent Consulting (6532 JP) reported 3QFY02/2022 results last week. Revenue for the quarter increased 39.0% YoY to JPY15.0bn while OP increased 57.5% YoY to JPY3.7bn.
• The company has revised both its revenue and OP guidance upwards for full-year FY02/2022E to JPY56.5bn and JPY21bn respectively.
• The company has already met 73.5% and 72.7% of its revenue and OP target, we expect earnings beat for the full-year as fourth quarter is the strongest.

• This presentation runs through six current short ideas presented on a Smartkarma webinar on 22nd December.
• These are:  Atkore (ATKR), Danaher (DHR), Service Corp International (SCI), ABM Industries (ABM), Monro (MNRO), and Renewable Fuels (REGI).
• The presentation also summarizes Two Rivers’ short idea generation process.

• We reiterate ONEE with a BUY rating, based on a new target price of Bt12.70 (previous TP:11.80)derived from 26.7xPE’22E,which is the average for the stocks in Thailand’s communication services sector
• We expect the company to report 4Q21 net profit at Bt221m (-15%YoY +32%QoQ). Excluding deferred tax item in 4Q20, core earnings would grow 17%YoY, all-time high level.
• Ads spending via TV look resilient relative to overall media

Outlook stays rosy

• With a day to go to the start of the review period, we see 14 inclusions and 6 deletions for Asia. Most of the adds are in China and Korea.
• There are quite a few adds that will require passive trackers to buy more than 5 days of ADV. Some of the stocks have rallied strongly year to date.
• We expect large buying on SK Square (402340 KS), JD Health (6618 HK) and Sea Ltd (SE US) at the February QIR due to an increase in the FIF.

• On Thursday we saw news of a Hitachi sale of half its stake in HCM. Friday the stock traded down hard. Friday night saw news that underwhelmed further. 
• The deal is big, but it is basically a deal to get Hitachi out as parent. There is no Capital Alliance and there is no Strategic Alliance yet. 
• There simply is not much there, there yet. And the stock is less liquid than it looks, and that won’t get better any time soon.

• Nearly midway through the review period for the June rebalance of the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX), we see 29 potential changes to the index.
• There are a lot of high and medium probability changes that could result in a one-way turnover of 4.2% and a one-way trade of CNY 10.17bn at the June rebalance.
• The potential inclusions have underperformed the potential deletions by c.15% over the last month and this provides a good entry point into a long short/trade.

• CEO Hashimoto told the Nikkei newspaper that customers are ordering silicon wafers at higher prices before they are made, even as production capacity is being increased.
• SEMI and TSMC announcements point to rising wafer demand for at least another two years. SUMCO’s expansion plans suggest at least three years.
• We continue to recommend buying into the current weakness for the medium to long term.

• This chart draws a fascinating historical comparison between the behaviour of the stock market today with that seen 100 years ago around the time of the Spanish Influenza
• It clearly shows that what we are seeing today has some sort of reflection of the past
• The picture should be taken as a warning sign that the weeks and possibly the months ahead are going to be difficult for the equity market.

• We maintain WICE with a BUY rating while roll over target price to Bt27.10 (previous TP:16.70) ,derived from 27.4xPE’22E ( +0.5 S.D. five-year average), implies 40% discount to Thai transportation 
• We expect strong earnings growth momentum to persist in 2022E supported by; 1.) high sea freight rate anticipated to last until mid 2H22 (sea freight contributes 48% of total revenue 
• We expect WICE to report 4Q21 net profit at Bt167m (+182%YoY and +3%QoQ), the highest level since inception

Get the ball rolling, preparing for the next big thing

• An NHK report today post-close said Hitachi Ltd (6501 JP) would sell “about half” its stake in sub Hitachi Construction Machinery (6305 JP) to Itochu and Japan Industrial Partners.
• That is quite similar to the announcement 15 months ago in the Nikkei which precipitated a large drop. While unconfirmed, it smells like there is fire behind the smoke.
• The big question is What Next? and What Impact for shareholders? That’s a tough couple of questions. 

• NHK reports that Hitachi will be selling roughly half of its 51% stake in HCM to Itochu and Japan Industrial Partners. 
• HCM has outperformed Komatsu over the last year and it is possible that some investors were expecting a buyout. 
• If so, and if there is a negative reaction to this news we would be looking to buy.

• Not an overreaction after all. After shares closed down 19.2% on the 8 November, 20% adrift of indicative terms, that appeared overdone.
• Now 51 Job Inc (JOBS US) has announced the Offeror has proposed reducing the merger consideration from US$79.05 in cash per common share to US$57.25.
• Shares closed up, but still at a 14.5% gross spread to terms. The new construct, and the reasons for doing so, are decidedly baffling.

• JL Mag Rare-earth Co. Ltd (JLM) raised around US$544m via its H-shares listing. 
• JLM is a producer of high-performance REPMs. It ranked first in the world by high-performance REPM production volume in 2020 with a market share of approximately 14.5%.
• In this note, we look at the allocation results and trading dynamics.

• Indonesia’s best quality ceramic tile producer, Arwana Citramulia (ARNA IJ), continues to register strong growth and higher margins due to improving product mix and improvements in manufacturing efficiency.
• Arwana Citramulia (ARNA IJ) is introducing new higher-end porcelain tiles which will displace Chinese imports given lower pricing, better terms for wholesalers and significantly faster delivery times.  
• The company remains a top choice amongst Indonesian industrials with high-quality governance and a strong growth track record along with attractive valuations. 

• A slowdown short-term performance but solid long-term growth outlook. We reiterate our BUY rating with a target price of Bt28.0 derived from 35xPE’22E,which is close to the biggest home-improvement player
• We expect DOHOME to report 4Q21 net profit at Bt420m (+95%YoY, +23%QoQ), YoY growth will be supported by (1) a solid SSSG at +39%YoY, and (2) gross profit margin expansion 
• We expect 1H22 earnings to slightly soften YoY pressured by (1) a drop in margin for steel products,which will trim down overall gross profit margin to roughly 19% from 21.7%-22.7% 

• The Katakura (3001 JP) MBO has failed. Nearly 60% tendered but I expect 85-90% of that 60% came from corporate and financial crossholders. 
• A new activist is in at ¥2,350/share, and that activist wants a higher price. 
• It is not clear there is a lot of downside here, but it is not clear what drives it up near-term either.

Lastly, ordering has been muted and cornered by unlisted peers, and we expect a pick-up from Q4FY22 with listed players winning a larger part of ordering. Q3FY22 mixed quarter: Unseasonal rains, NCR NGT ban, delays in appointed date, and a low contribution from Jal Jeevan mission orders have impacted Q3FY22 execution. On a case-by-case basis, the performance may differ based on order mix and appointed date. This is also the quarter in which some companies may continue to make their balance sheets leaner: (1) Ashoka sales of ACL toll assets (INR5bn write-off); (2) KNR monetisation of HAM asset to Cube; (3) Dilip monetisation of HAM assets to Cube; (4) LT refinancing of Hyderabad Metro debt; and (5) KPTL/JMC concluding Kohima asset sale/progress on restructuring of road asset.