Industrials

• A solution for Keisei, similar to case of parent-subsidiary listing, is cashing OLC shares to raise profitability and growth potential of its business, to eliminate the distortion in market capitalization.
• There is a corporate governance issue in that OLC is accepting board members from Keisei, which has below 20% equity and does not clearly explain the synergies of the business.
• This can be viewed as part of dissolving cross-shareholdings where the company wants to obtain voting advantage without business synergies and cannot find opportunities to spend the cash it sells.

• Waaree Renewable Technologies (WAREERTL IN) or (WRTL) is into Solar EPC and is a subsidiary of Waaree Energies Ltd. 
• Revenues and order book have increased exponentially in the last few years.
• While the business has certainly picked up, there are few forensic checks that need attention; most important being the auditor’s comment on the need to increase strength of internal controls.

• China Communications Construction (1800 HK) maintained healthy earnings growth at 10% in 1Q24, ahead of the consensus expectation of 7.3% for full-year FY24.
• A 0.2pp gross margin expansion and positive swing in credit and asset impairments are the drivers, though higher finance costs have offset some of their benefits.
• 1Q24 new contracts were up 10.8%, and we estimate backlog equals 4.5x FY24F revenue. Despite YTD outperformance, it is still cheap at 2.4x PER and 0.2x P/B.

• CSX Corporation had a solid start to 2024, dealing with a number of challenges, including severe weather in January and the Francis Scott Key Bridge collapse.
• Despite these difficulties, the corporation managed to maintain a consistent momentum with a volume performance that kept moving forward.
• The company’s management remains committed to mitigating the impact of these challenges for its customers.

• Equifax Inc.’s strong start in 2024 is evident from its Q1 reported revenue of $1.389 billion, up 7%, resulting from sustained strength in mortgage revenue and global non-mortgage businesses.
• Equifax’s adjusted EBITDA margins of 29.1% were also slightly above expectations.
• Moreover, their adjusted earnings per share (EPS) of $1.50 a share exceeded the high end of their guidance.

Epwin’s FY23 results were robust and management navigated inflationary pressures well. Despite some market headwinds, we have increased our FY24 and FY25 underlying operating profit estimates for the second time this year. Long-term, well-established growth trends imply that Epwin is well-placed to leverage off increasing demand for its energy-efficient and low-maintenance building products. Epwin offers an attractive investment case with the potential for uplifts from additional self-funded M&A. It trades on an FY24e P/E ratio of 8.3x, materially below the long-term average of 10.5x, and yields c 6%. The extended share buyback programme should help support the share price.

On April 25, Mytilineos (MYTIL) announced, as part of its strategic review, that it is considering a potential international listing on the London Stock Exchange (LSE) within the next 12–18 months. Listing on the LSE would demonstrate a strong vote of confidence by MYTIL in the UK market and aligns with its international growth ambitions, allowing the company to leverage its geographically diverse portfolio of operations. It would provide greater liquidity for investors and enable MYTIL to continue to expand its global presence. While pursuing an LSE listing, MYTIL will retain its listing on the Athens Exchange, demonstrating its ongoing commitment to contributing to the Greek economy, while also acting as an ambassador for Greece in the UK.

• A solution for Keisei, similar to case of parent-subsidiary listing, is cashing OLC shares to raise profitability and growth potential of its business, to eliminate the distortion in market capitalization.
• There is a corporate governance issue in that OLC is accepting board members from Keisei, which has below 20% equity and does not clearly explain the synergies of the business.
• This can be viewed as part of dissolving cross-shareholdings where the company wants to obtain voting advantage without business synergies and cannot find opportunities to spend the cash it sells.

• Waaree Renewable Technologies (WAREERTL IN) or (WRTL) is into Solar EPC and is a subsidiary of Waaree Energies Ltd. 
• Revenues and order book have increased exponentially in the last few years.
• While the business has certainly picked up, there are few forensic checks that need attention; most important being the auditor’s comment on the need to increase strength of internal controls.

• China Communications Construction (1800 HK) maintained healthy earnings growth at 10% in 1Q24, ahead of the consensus expectation of 7.3% for full-year FY24.
• A 0.2pp gross margin expansion and positive swing in credit and asset impairments are the drivers, though higher finance costs have offset some of their benefits.
• 1Q24 new contracts were up 10.8%, and we estimate backlog equals 4.5x FY24F revenue. Despite YTD outperformance, it is still cheap at 2.4x PER and 0.2x P/B.

• CSX Corporation had a solid start to 2024, dealing with a number of challenges, including severe weather in January and the Francis Scott Key Bridge collapse.
• Despite these difficulties, the corporation managed to maintain a consistent momentum with a volume performance that kept moving forward.
• The company’s management remains committed to mitigating the impact of these challenges for its customers.

• Equifax Inc.’s strong start in 2024 is evident from its Q1 reported revenue of $1.389 billion, up 7%, resulting from sustained strength in mortgage revenue and global non-mortgage businesses.
• Equifax’s adjusted EBITDA margins of 29.1% were also slightly above expectations.
• Moreover, their adjusted earnings per share (EPS) of $1.50 a share exceeded the high end of their guidance.

Epwin’s FY23 results were robust and management navigated inflationary pressures well. Despite some market headwinds, we have increased our FY24 and FY25 underlying operating profit estimates for the second time this year. Long-term, well-established growth trends imply that Epwin is well-placed to leverage off increasing demand for its energy-efficient and low-maintenance building products. Epwin offers an attractive investment case with the potential for uplifts from additional self-funded M&A. It trades on an FY24e P/E ratio of 8.3x, materially below the long-term average of 10.5x, and yields c 6%. The extended share buyback programme should help support the share price.

On April 25, Mytilineos (MYTIL) announced, as part of its strategic review, that it is considering a potential international listing on the London Stock Exchange (LSE) within the next 12–18 months. Listing on the LSE would demonstrate a strong vote of confidence by MYTIL in the UK market and aligns with its international growth ambitions, allowing the company to leverage its geographically diverse portfolio of operations. It would provide greater liquidity for investors and enable MYTIL to continue to expand its global presence. While pursuing an LSE listing, MYTIL will retain its listing on the Athens Exchange, demonstrating its ongoing commitment to contributing to the Greek economy, while also acting as an ambassador for Greece in the UK.

• HD Hyundai Marine Solution (443060 KS) is looking to raise KRW 742bn (US$540m) in its IPO, valuing the company at KRW 3,707bn (US$2.69bn). Listing is expected to be in early-May.
• Competition for the shares has been fierce with institutional investors indicating demand for 201x the number of shares on offer at prices higher than the top end of the range.
• Barring a doubling of the stock price, the earliest that the stock will be added to major indices is December 2024. So, no passive buying in the short-term.

• The SET has run a market consultation on relaxing liquidity thresholds for inclusion of stocks in the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) universe.
• The consultation is the result of an increase in Average Daily Trading Values and lower turnover ratios, especially for large cap stocks.
• Berli Jucker (BJC TB) is now a potential index inclusion in June and that could result in four constituent changes at the next rebalance.

• Hesai Group, one of the global leaders in the LiDAR and perception solutions market, completed its IPO in February 2023 and listed ADSs on the Nasdaq Global Select Market.
• The stock peaked at $30+ during the first trading day and fell ~67% over the following 8 months as selling pressure intensified and investor sentiment worsened.
• The stock has taken another leg down following U.S. DoD’s decision to include Hesai Group in 1260H list of Chinese military-linked companies. Hesai believes this inclusion is unjust and meritless.

• Losses at Air China Ltd (H) (753 HK) narrowed by 42.8% YoY to Rmb1.67bn in 1Q24. If not for the exchange losses, it will be reduced to below Rmb1bn.
• Higher jet fuel prices have dragged result despite record 1Q revenue. However, an 8.3pp YoY margin expansion and a 4% decline in unit costs indicated profitability is climbing. 
• Valuations are too depressed as the share price is still lacklustre but quarterly losses and gross margin have already trimmed from the troughs of Rmb10.5bn and -98%, respectively.

• HD Hyundai Marine Solution (443060 KS) is looking to raise KRW 742bn (US$540m) in its IPO, valuing the company at KRW 3,707bn (US$2.69bn). Listing is expected to be in early-May.
• Competition for the shares has been fierce with institutional investors indicating demand for 201x the number of shares on offer at prices higher than the top end of the range.
• Barring a doubling of the stock price, the earliest that the stock will be added to major indices is December 2024. So, no passive buying in the short-term.

• The SET has run a market consultation on relaxing liquidity thresholds for inclusion of stocks in the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) universe.
• The consultation is the result of an increase in Average Daily Trading Values and lower turnover ratios, especially for large cap stocks.
• Berli Jucker (BJC TB) is now a potential index inclusion in June and that could result in four constituent changes at the next rebalance.

• Hesai Group, one of the global leaders in the LiDAR and perception solutions market, completed its IPO in February 2023 and listed ADSs on the Nasdaq Global Select Market.
• The stock peaked at $30+ during the first trading day and fell ~67% over the following 8 months as selling pressure intensified and investor sentiment worsened.
• The stock has taken another leg down following U.S. DoD’s decision to include Hesai Group in 1260H list of Chinese military-linked companies. Hesai believes this inclusion is unjust and meritless.

• Losses at Air China Ltd (H) (753 HK) narrowed by 42.8% YoY to Rmb1.67bn in 1Q24. If not for the exchange losses, it will be reduced to below Rmb1bn.
• Higher jet fuel prices have dragged result despite record 1Q revenue. However, an 8.3pp YoY margin expansion and a 4% decline in unit costs indicated profitability is climbing. 
• Valuations are too depressed as the share price is still lacklustre but quarterly losses and gross margin have already trimmed from the troughs of Rmb10.5bn and -98%, respectively.

• This insight is a book review of 주주 권리가 없는 나라 (A Country Without Shareholder Rights), which is one of the best books on the corporate governance in Korea.
• There are so much wisdom that are included in this book. The author really goes into details about numerous corporate governance problems in Korea and ways to fix them.
• This book was published in January 2024 and it was written by a famous Korean retail investor called Park Young-Ok.

• The CSRC has announced five capital market cooperation measures for the Hong Kong Southbound Connect programs including  RMB dual counters and REITs. 
• Jardine Cycle & Carriage (JCNC SP)‘s current implied stub value and simple ratio are both highly elevated.
• A simple Keisei Electric Railway Co (9009 JP)model says “this doesn’t present me with enough upside to warrant it unless I am also really bullish Oriental Land (4661 JP).”

• This insight is a book review of 주주 권리가 없는 나라 (A Country Without Shareholder Rights), which is one of the best books on the corporate governance in Korea.
• There are so much wisdom that are included in this book. The author really goes into details about numerous corporate governance problems in Korea and ways to fix them.
• This book was published in January 2024 and it was written by a famous Korean retail investor called Park Young-Ok.

• The CSRC has announced five capital market cooperation measures for the Hong Kong Southbound Connect programs including  RMB dual counters and REITs. 
• Jardine Cycle & Carriage (JCNC SP)‘s current implied stub value and simple ratio are both highly elevated.
• A simple Keisei Electric Railway Co (9009 JP)model says “this doesn’t present me with enough upside to warrant it unless I am also really bullish Oriental Land (4661 JP).”

• I Squared and TDR presented a final offer price of €12.78/share in cash, marking a 16.2% increase over their prior bid and surpassing Apollo Global Management’s final offer of €12.51/share.
• The winning offer values the share capital at €1,649 million (7.3x EV/Fwd NTM EBITDA, 13.2x Fwd P/E), 34% above Apollo’s initial offer.
• Gross spread is 0.2%. Settlement could happen around 27 May, with 3.7% estimated annual return.

• Fanuc was up 4.7% this past week as the market reacted to a slight uptick in orders and transparently conservative guidance.
• The book-to-bill ratio remained below 1.0 in 4Q of FY Mar-24, but was up from 3Q, which appears to have been the low point in the cycle.
• Inflation and ongoing inventory adjustments indicate a slow recovery, but demand for automation  from traditional markets and new opportunities in aerospace and other industries should support long-term growth.

• BQE reported Q4 & 2023 financial results yesterday that came in largely ahead of our expectations on revenue.
• Proportional revenue was $5.4M compared to our estimate of $4.2M and adjusted EBITDA was $0.5M compared to our estimate of $0.6M.
• BQE remains well positioned for another record year in 2024, we are expecting 8% revenue growth and 36% EBITDA growth.

• I Squared and TDR presented a final offer price of €12.78/share in cash, marking a 16.2% increase over their prior bid and surpassing Apollo Global Management’s final offer of €12.51/share.
• The winning offer values the share capital at €1,649 million (7.3x EV/Fwd NTM EBITDA, 13.2x Fwd P/E), 34% above Apollo’s initial offer.
• Gross spread is 0.2%. Settlement could happen around 27 May, with 3.7% estimated annual return.

• Fanuc was up 4.7% this past week as the market reacted to a slight uptick in orders and transparently conservative guidance.
• The book-to-bill ratio remained below 1.0 in 4Q of FY Mar-24, but was up from 3Q, which appears to have been the low point in the cycle.
• Inflation and ongoing inventory adjustments indicate a slow recovery, but demand for automation  from traditional markets and new opportunities in aerospace and other industries should support long-term growth.

• BQE reported Q4 & 2023 financial results yesterday that came in largely ahead of our expectations on revenue.
• Proportional revenue was $5.4M compared to our estimate of $4.2M and adjusted EBITDA was $0.5M compared to our estimate of $0.6M.
• BQE remains well positioned for another record year in 2024, we are expecting 8% revenue growth and 36% EBITDA growth.

• Last October, activist Palliser Capital launched a campaign (presentation) on well-known “stub trade” Keisei Electric Railway Co (9009 JP) with a stake of about 1.6%. 
• The proposal? Monetise a decent stake in Oriental Land (4661 JP), repurchase shares, and invest for growth. Keisei responded 6-8 weeks ago with a buyback and 1% OLC stake sale.
• I thought that was time to bail. That was it. But now, Palliser has re-engaged. Today a press release (Japanese/English) and a Letter to the Board.

• Four years ago, almost to the day, Bloomberg ran an article, “China Merchants Group Ltd. is exploring taking China Merchants Port Holdings private“. China Merchants Ports (144 HK) popped 23%.
• CMP gave back (most) of that gain a month later. Shares are up just ~10% since. 
• CMP’s implied stub is bouncing around a multi-year low; and the simple ratio (CMP/ Shanghai International Port Group (600018 CH)) is around an all-time low.

• Frontier Management (hereafter referred to as “the company”) is a consulting firm that operates in the three pillars of management consulting, M&A advisory, and business revitalization services, as well as an investment business that began in 2022.
• Founded by Mr. Shoichiro Onishi and Mr. Masahiro Matsuoka, both former employees of the Industrial Revitalization Corporation of Japan, the company has expanded its operations through proactive hiring.
• It is characterized by its lineup of specialists with diverse backgrounds and is able to solve a wide variety of management issues as a one-stop shop. Mr. Matsuoka retired as of the shareholders’ meeting held on March 27, 2024, leaving Mr. Onishi as the sole leader of the company.

• Afcons Infrastructure Limited (6595396Z IN) is looking to raise US$840m in its upcoming India IPO.
• Afcons Infrastructure Limited (Afcons) is the flagship infrastructure engineering and construction company of the Shapoorji Pallonji group.
• In this note, we talk about the not-so-positive aspects of the deal.

• Nextracker, Inc. posted strong third-quarter results for the fiscal year 2024.
• The company achieved record revenue, profits and backlog data for the quarter, with year-over-year revenue growth of 38% surpassing $700 million.
• Nextracker’s adjusted EBITDA also increased significantly to $168 million, doubling from the same period in the previous year.

Norcros’s disposal of Johnson Tiles is the latest strategic activity taken by management to better allocate capital to fit with priorities. Last year it closed its UK adhesives operation. Norcros has a compelling investment case, where its new product development initiatives, market positioning and self-help initiatives allow it to take market share in both the UK and South Africa. Its rating is low at 6.0x FY24e P/E, which is attractive, especially when compared to its yield of 5.4% on its well-covered dividend. We retain our estimates and value the shares at 246p, implying c 30% upside.

• Last October, activist Palliser Capital launched a campaign (presentation) on well-known “stub trade” Keisei Electric Railway Co (9009 JP) with a stake of about 1.6%. 
• The proposal? Monetise a decent stake in Oriental Land (4661 JP), repurchase shares, and invest for growth. Keisei responded 6-8 weeks ago with a buyback and 1% OLC stake sale.
• I thought that was time to bail. That was it. But now, Palliser has re-engaged. Today a press release (Japanese/English) and a Letter to the Board.

• Four years ago, almost to the day, Bloomberg ran an article, “China Merchants Group Ltd. is exploring taking China Merchants Port Holdings private“. China Merchants Ports (144 HK) popped 23%.
• CMP gave back (most) of that gain a month later. Shares are up just ~10% since. 
• CMP’s implied stub is bouncing around a multi-year low; and the simple ratio (CMP/ Shanghai International Port Group (600018 CH)) is around an all-time low.

• Frontier Management (hereafter referred to as “the company”) is a consulting firm that operates in the three pillars of management consulting, M&A advisory, and business revitalization services, as well as an investment business that began in 2022.
• Founded by Mr. Shoichiro Onishi and Mr. Masahiro Matsuoka, both former employees of the Industrial Revitalization Corporation of Japan, the company has expanded its operations through proactive hiring.
• It is characterized by its lineup of specialists with diverse backgrounds and is able to solve a wide variety of management issues as a one-stop shop. Mr. Matsuoka retired as of the shareholders’ meeting held on March 27, 2024, leaving Mr. Onishi as the sole leader of the company.

• Afcons Infrastructure Limited (6595396Z IN) is looking to raise US$840m in its upcoming India IPO.
• Afcons Infrastructure Limited (Afcons) is the flagship infrastructure engineering and construction company of the Shapoorji Pallonji group.
• In this note, we talk about the not-so-positive aspects of the deal.

• Nextracker, Inc. posted strong third-quarter results for the fiscal year 2024.
• The company achieved record revenue, profits and backlog data for the quarter, with year-over-year revenue growth of 38% surpassing $700 million.
• Nextracker’s adjusted EBITDA also increased significantly to $168 million, doubling from the same period in the previous year.

Norcros’s disposal of Johnson Tiles is the latest strategic activity taken by management to better allocate capital to fit with priorities. Last year it closed its UK adhesives operation. Norcros has a compelling investment case, where its new product development initiatives, market positioning and self-help initiatives allow it to take market share in both the UK and South Africa. Its rating is low at 6.0x FY24e P/E, which is attractive, especially when compared to its yield of 5.4% on its well-covered dividend. We retain our estimates and value the shares at 246p, implying c 30% upside.