Industrials

• At end-January 2023 it became clear activist Elliott Management had set its sights on Dai Nippon Printing (7912 JP). The stock popped and people got bullish.
• I warned about the “complicated” nature of gains going forward here. Three weeks later they announced details of including ¥100bn of buybacks per year for 3yrs. That’s discussed here.
• I rarely write bearishly about a huge buyback program but from next day open, over 1yr, total return has been 4.9%. Stage 2 starts 11 March with ¥50bn through end-Sep24. 

• Amidst intense competition in online mall retailing, JAL and ANA both launched their own e-commerce malls last year to replace once popular catalogues.
• Although a tough market to enter given the competition from the big 3 (Amazon, Rakuten and Yahoo), airlines have distinct advantages over other small malls.
• In particular, they have data on millions of consumers and access to premium customers willing to spend ¥1 million on a case of wine.

• Precision Tsugami China specializes in the production of precision machine tools. Precision Tsugami China is part of the broader Tsugami Corporation, a Japanese company founded in 1923.
• The company’s dividend yield increased from 4.3% in FY2021 to 8.9% in FY2022 and 10.1% in FY2023. 
• We found Precision Tsugami China (1651 HK) using Smartkarma’s Smart Score Screener system.

• At end-January 2023 it became clear activist Elliott Management had set its sights on Dai Nippon Printing (7912 JP). The stock popped and people got bullish.
• I warned about the “complicated” nature of gains going forward here. Three weeks later they announced details of including ¥100bn of buybacks per year for 3yrs. That’s discussed here.
• I rarely write bearishly about a huge buyback program but from next day open, over 1yr, total return has been 4.9%. Stage 2 starts 11 March with ¥50bn through end-Sep24. 

• Amidst intense competition in online mall retailing, JAL and ANA both launched their own e-commerce malls last year to replace once popular catalogues.
• Although a tough market to enter given the competition from the big 3 (Amazon, Rakuten and Yahoo), airlines have distinct advantages over other small malls.
• In particular, they have data on millions of consumers and access to premium customers willing to spend ¥1 million on a case of wine.

• Precision Tsugami China specializes in the production of precision machine tools. Precision Tsugami China is part of the broader Tsugami Corporation, a Japanese company founded in 1923.
• The company’s dividend yield increased from 4.3% in FY2021 to 8.9% in FY2022 and 10.1% in FY2023. 
• We found Precision Tsugami China (1651 HK) using Smartkarma’s Smart Score Screener system.

• Keisei Electric Railway Co (9009 JP) places out 1% of Oriental Land (4661 JP), but rejects lowering its stake to 15%.  That is the end of the near-term catalyst.
• New World Development (17 HK) popped after property cooling measures were scrapped. Then gave those gains back. And then some, and is now trading at 0.11x P/B, its lowest-ever level.
• The spreads for  both Alumina Ltd (AWC AU)  and Azure Minerals (AZS AU) are trading wide; both potentially FIRB-related.

• Comsys Holdings (1721 JP) is one of Japan’s three largest telecommunications construction companies.
• In FY03/23, sales were JPY563.3bn, operating profit was JPY32.1bn, recurring profit was JPY30.9bn, and net income attributable to owners of the parent was JPY19.3bn. Orders totaled JPY553.1bn.
• Comsys Holdings Corporation announced that it will change its representative directors, effective April 1, 2024.

• We forecast €2.6bn Adjusted EBIT in 2024, below management guidance of €2.7bn, given concerns about margin management as capacity increases 12% yoy.
• Detailed analysis of the margin gaps and key drivers of gaps at each of Lufthansa’s airlines illustrates remedial work required with new perspective.
• Bringing each portfolio company towards the Group Adjusted EBIT margin target of >8% would represent the CEO’s finest achievement (apart from helping save the company through COVID).

• Keisei Electric Railway Co (9009 JP) places out 1% of Oriental Land (4661 JP), but rejects lowering its stake to 15%.  That is the end of the near-term catalyst.
• New World Development (17 HK) popped after property cooling measures were scrapped. Then gave those gains back. And then some, and is now trading at 0.11x P/B, its lowest-ever level.
• The spreads for  both Alumina Ltd (AWC AU)  and Azure Minerals (AZS AU) are trading wide; both potentially FIRB-related.

• Comsys Holdings (1721 JP) is one of Japan’s three largest telecommunications construction companies.
• In FY03/23, sales were JPY563.3bn, operating profit was JPY32.1bn, recurring profit was JPY30.9bn, and net income attributable to owners of the parent was JPY19.3bn. Orders totaled JPY553.1bn.
• Comsys Holdings Corporation announced that it will change its representative directors, effective April 1, 2024.

• We forecast €2.6bn Adjusted EBIT in 2024, below management guidance of €2.7bn, given concerns about margin management as capacity increases 12% yoy.
• Detailed analysis of the margin gaps and key drivers of gaps at each of Lufthansa’s airlines illustrates remedial work required with new perspective.
• Bringing each portfolio company towards the Group Adjusted EBIT margin target of >8% would represent the CEO’s finest achievement (apart from helping save the company through COVID).

• Since the US$260 million secondary placement announcement, Nippon Express Holdings (9147 JP) shares are down 5.3% from the undisturbed price of JPY8,039 per share (1 March).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Nippon Express shares have followed the pattern of previous large placements.
• The offering will likely be priced on 11 March. Investors who have participated in previous large Japanese placements tend to secure positive returns.

• COPRO-HOLDINGS. Co., Ltd., (COPRO) announced its 3Q FY24/3 (9 months) results.
• Key consolidated figures included net sales of ¥17,496 mn (+28.8% YoY), operating profit of ¥1,406 mn (+63.0% YoY), ordinary profit of ¥ 1,480 mn (+70.8% YoY), and profit attributable to owners of parent of ¥936 mn (+79.7% YoY).
• COPRO-CONSTRUCTION. Co., Ltd., (formerly COPRO-ENGINEERED), which operates the Company‘s core business of construction technician dispatching, proactively increased the number of recruits amid the chronically serious shortage of labor against the backdrop of regulations capping overtime work to start in April 2024 and big construction projects. 

• Shanghai Zhida Technology Development Co Ltd (SZTD HK) is looking to raise about US$130m in its upcoming Hong Kong IPO. Shenwan Hongyuan is the sole bookrunner.
• Shanghai Zhida Technology Development (SZTD) is a provider of electric vehicle (EV) home charging solutions.
• As per F&S, the firm was the world’s largest provider of EV home charging solutions in terms of sales volume of home EV chargers over its track record period.

• Plug Power’s Q4 earnings revealed both positive developments and challenges that the company faced during the quarter.
• Key highlights were its innovative green hydrogen projects and ongoing advancements in improving cash management, positively reflecting the company’s commitment towards a sustainable energy future.
• Plug Power’s most significant achievement during the Q4 period was the launch of their Georgia plant.

• The financial results were strong, as shown in the table below, and exceeded the company’s forecasts.
• The M&A Advisory Business was particularly strong in the 4Q, recovering from soft sales slightly down in the first 3 quarters, returning to 8% growth YoY in the 4Q.
• Sales by other main business segments remained firm, with the Management Consulting Business rising 17% YoY and the Revitalization Support Business up 174% YoY .

• The EMCOR Group reported an exceptional fourth quarter and a very strong 2023 overall.
• Revenue for the fourth quarter was $3.44 billion with an operating margin of 8.4%, significantly exceeding expectations and indicating 16.2% organic revenue growth.
• The total revenue for 2023 was $12.6 billion which demonstrates growth of 13.6% and was strictly organic in nature, with a 55% rise in operating income to $875.8 million for the year.

• kopi-C with BRC Asia’s CEO: “We’ve become the leader in Singapore’s reinforcing steel fabrication industry’” After becoming one of Singapore’s largest reinforcing steel fabricators through an acquisition, BRC Asia plans to extend its reach to other markets.
• Incorporated in 1938, BRC Asia Limited (“BRC”) is a leading Pan-Asia prefabricated reinforcing steel solutions provider headquartered in Singapore and listed on the Singapore Stock Exchange.

• Since the US$260 million secondary placement announcement, Nippon Express Holdings (9147 JP) shares are down 5.3% from the undisturbed price of JPY8,039 per share (1 March).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Nippon Express shares have followed the pattern of previous large placements.
• The offering will likely be priced on 11 March. Investors who have participated in previous large Japanese placements tend to secure positive returns.

• COPRO-HOLDINGS. Co., Ltd., (COPRO) announced its 3Q FY24/3 (9 months) results.
• Key consolidated figures included net sales of ¥17,496 mn (+28.8% YoY), operating profit of ¥1,406 mn (+63.0% YoY), ordinary profit of ¥ 1,480 mn (+70.8% YoY), and profit attributable to owners of parent of ¥936 mn (+79.7% YoY).
• COPRO-CONSTRUCTION. Co., Ltd., (formerly COPRO-ENGINEERED), which operates the Company‘s core business of construction technician dispatching, proactively increased the number of recruits amid the chronically serious shortage of labor against the backdrop of regulations capping overtime work to start in April 2024 and big construction projects. 

• Shanghai Zhida Technology Development Co Ltd (SZTD HK) is looking to raise about US$130m in its upcoming Hong Kong IPO. Shenwan Hongyuan is the sole bookrunner.
• Shanghai Zhida Technology Development (SZTD) is a provider of electric vehicle (EV) home charging solutions.
• As per F&S, the firm was the world’s largest provider of EV home charging solutions in terms of sales volume of home EV chargers over its track record period.

• Plug Power’s Q4 earnings revealed both positive developments and challenges that the company faced during the quarter.
• Key highlights were its innovative green hydrogen projects and ongoing advancements in improving cash management, positively reflecting the company’s commitment towards a sustainable energy future.
• Plug Power’s most significant achievement during the Q4 period was the launch of their Georgia plant.

• The financial results were strong, as shown in the table below, and exceeded the company’s forecasts.
• The M&A Advisory Business was particularly strong in the 4Q, recovering from soft sales slightly down in the first 3 quarters, returning to 8% growth YoY in the 4Q.
• Sales by other main business segments remained firm, with the Management Consulting Business rising 17% YoY and the Revitalization Support Business up 174% YoY .

• The EMCOR Group reported an exceptional fourth quarter and a very strong 2023 overall.
• Revenue for the fourth quarter was $3.44 billion with an operating margin of 8.4%, significantly exceeding expectations and indicating 16.2% organic revenue growth.
• The total revenue for 2023 was $12.6 billion which demonstrates growth of 13.6% and was strictly organic in nature, with a 55% rise in operating income to $875.8 million for the year.

• kopi-C with BRC Asia’s CEO: “We’ve become the leader in Singapore’s reinforcing steel fabrication industry’” After becoming one of Singapore’s largest reinforcing steel fabricators through an acquisition, BRC Asia plans to extend its reach to other markets.
• Incorporated in 1938, BRC Asia Limited (“BRC”) is a leading Pan-Asia prefabricated reinforcing steel solutions provider headquartered in Singapore and listed on the Singapore Stock Exchange.

• Over two decades, Keisei Electric Railway Co (9009 JP) has been the subject of softer and harder activist efforts to have Keisei monetise its stake in affiliate Oriental Land (4661).
• The most recent efforts were by Palliser last fall, briefly discussed here two weeks ago when Keisei announced a buyback. 
• Today, Keisei announced (Japanese only) an Accelerated Block Offering of 1% of Oriental Land shares. The accompanying announcement is worth reading. It’s pretty clear.

• Our base case valuation of Angel Robotics is target price of 20,277 won per share, which represents a 35% upside from the high end of the IPO price range. 
• We estimate sales of 9 billion won in 2024 (up 75.2% YoY) and 14.9 billion won in 2025 (up 65.3% YoY). Our estimates are more conservative than the company’s estimates.
• We like the strong sales growth of Angel Robotics. Many investors are likely to view this positively in this IPO. LG Electronics and Samsung Electronics are customers of Angel Robotics. 

• Shanghai REFIRE Group (SRG) is looking to raise around US$100m in its upcoming Hong Kong IPO. The bookrunner for the deal is CICC.
• SRG designs, develops, manufactures, and sells hydrogen fuel cell systems, hydrogen production systems, and related components, as well as provides fuel cell engineering and technical services.
• According to Frost & Sullivan (F&S), it ranked first in the hydrogen fuel cell system market in China, with a market share of 25.9%.

• This is our first report on transportation and fintech platform provider, Grab Holdings Inc.
• The company had a pivotal year in 2023, delivering on key goals and achieving profitability in adjusted EBITDA since the third quarter and earning a positive net profit in the fourth quarter.
• The company experienced a series of enhancements, including a successful rebuild of their mobility business which had been vastly impacted by the pandemic.

• The 72.5% decline in SITC International (1308 HK)‘s FY23 earnings is disappointing but should already reflected in the share price given the profit warning. Instead, this may be the trough.  
• Spot freight rates for key intra-Asia routes have already recovered since 3Q23, with the YTD level higher than the 2H23 average. The 1H24 result may show a sequential rebound.
• Even assuming flat YoY earnings in FY24, it still sits on a 9% dividend yield. The projected ROE of over 24% and net cash position mean 1.6-1.7x P/B undemanding.

• Trex Company, the outdoor living products manufacturer reported solid performance for both the quarter and full year 2023, surpassing their revenue guidance.
• The strong results were credited to its mid-single-digit channel sell-through growth and new product offerings, demonstrating the strength and resilience of the Trex brand.
• In the fourth quarter, the company introduced numerous products that expanded its portfolio in existing categories and extended into complementary adjacencies.

• In its recent results, Heico is showing a significant growth trajectory in its recent financial results.
• This growth can be attributed to a couple of key factors, but there are also a number of risks and potential downsides that investors should be aware of.
• In terms of positives, HEICO’s first quarter of fiscal 2024 showed dramatic improvement over the first quarter of fiscal 2023.

• According to Expansion, the Hungarian Ganz-MaVag Euroe Zrt consortium is giving final touches to the offer for Talgo SA (TLGO SM) after obtaining verbal approval from the lenders.
• The Minister of Transport assured that the Spanish Government will do everything possible to prevent the consortium from taking over Talgo due to hidden interests of the Viktor Órban Government.
• However, the Government would need to justify its decision thoroughly to avoid potential legal challenges. For now, I would remain in the sidelines due to uncertainties about development and timing.

Capita faced numerous cash drags in FY23, notably £20m in costs associated with a cyber incident, a £30m pension deficit contribution and a £20m increase in technology capex, which depressed the adjusted free cash outflow before disposals to £116m (£42.4m outflow in FY22). Despite these challenges, the implementation of a rigorous cost efficiency programme and the strategic divestment of non-core assets have the potential to fuel a turnaround. Some £160m of annualised cost savings are expected to be realised by mid-2025 (part reinvested for growth), aimed at bolstering a significant improvement in operating margins. As margins improve, shifting to faster-growing market segments with a more competitive cost base could catalyse a reduction in the valuation discount.

• Republic Services (RSG) had a strong finish to 2023 highlighting its successful strategy designed for business growth.
• The company’s revenue for the year grew by 11%, which includes a 5% increase from its acquisitions.
• RSG generated 13% adjusted EBITDA growth and margin expansion of 60 basis points, as well as reporting adjusted earnings per share of $5.61.

• Over two decades, Keisei Electric Railway Co (9009 JP) has been the subject of softer and harder activist efforts to have Keisei monetise its stake in affiliate Oriental Land (4661).
• The most recent efforts were by Palliser last fall, briefly discussed here two weeks ago when Keisei announced a buyback. 
• Today, Keisei announced (Japanese only) an Accelerated Block Offering of 1% of Oriental Land shares. The accompanying announcement is worth reading. It’s pretty clear.

• Our base case valuation of Angel Robotics is target price of 20,277 won per share, which represents a 35% upside from the high end of the IPO price range. 
• We estimate sales of 9 billion won in 2024 (up 75.2% YoY) and 14.9 billion won in 2025 (up 65.3% YoY). Our estimates are more conservative than the company’s estimates.
• We like the strong sales growth of Angel Robotics. Many investors are likely to view this positively in this IPO. LG Electronics and Samsung Electronics are customers of Angel Robotics. 

• Shanghai REFIRE Group (SRG) is looking to raise around US$100m in its upcoming Hong Kong IPO. The bookrunner for the deal is CICC.
• SRG designs, develops, manufactures, and sells hydrogen fuel cell systems, hydrogen production systems, and related components, as well as provides fuel cell engineering and technical services.
• According to Frost & Sullivan (F&S), it ranked first in the hydrogen fuel cell system market in China, with a market share of 25.9%.

• This is our first report on transportation and fintech platform provider, Grab Holdings Inc.
• The company had a pivotal year in 2023, delivering on key goals and achieving profitability in adjusted EBITDA since the third quarter and earning a positive net profit in the fourth quarter.
• The company experienced a series of enhancements, including a successful rebuild of their mobility business which had been vastly impacted by the pandemic.

• The 72.5% decline in SITC International (1308 HK)‘s FY23 earnings is disappointing but should already reflected in the share price given the profit warning. Instead, this may be the trough.  
• Spot freight rates for key intra-Asia routes have already recovered since 3Q23, with the YTD level higher than the 2H23 average. The 1H24 result may show a sequential rebound.
• Even assuming flat YoY earnings in FY24, it still sits on a 9% dividend yield. The projected ROE of over 24% and net cash position mean 1.6-1.7x P/B undemanding.

• Trex Company, the outdoor living products manufacturer reported solid performance for both the quarter and full year 2023, surpassing their revenue guidance.
• The strong results were credited to its mid-single-digit channel sell-through growth and new product offerings, demonstrating the strength and resilience of the Trex brand.
• In the fourth quarter, the company introduced numerous products that expanded its portfolio in existing categories and extended into complementary adjacencies.

• In its recent results, Heico is showing a significant growth trajectory in its recent financial results.
• This growth can be attributed to a couple of key factors, but there are also a number of risks and potential downsides that investors should be aware of.
• In terms of positives, HEICO’s first quarter of fiscal 2024 showed dramatic improvement over the first quarter of fiscal 2023.

• According to Expansion, the Hungarian Ganz-MaVag Euroe Zrt consortium is giving final touches to the offer for Talgo SA (TLGO SM) after obtaining verbal approval from the lenders.
• The Minister of Transport assured that the Spanish Government will do everything possible to prevent the consortium from taking over Talgo due to hidden interests of the Viktor Órban Government.
• However, the Government would need to justify its decision thoroughly to avoid potential legal challenges. For now, I would remain in the sidelines due to uncertainties about development and timing.

Capita faced numerous cash drags in FY23, notably £20m in costs associated with a cyber incident, a £30m pension deficit contribution and a £20m increase in technology capex, which depressed the adjusted free cash outflow before disposals to £116m (£42.4m outflow in FY22). Despite these challenges, the implementation of a rigorous cost efficiency programme and the strategic divestment of non-core assets have the potential to fuel a turnaround. Some £160m of annualised cost savings are expected to be realised by mid-2025 (part reinvested for growth), aimed at bolstering a significant improvement in operating margins. As margins improve, shifting to faster-growing market segments with a more competitive cost base could catalyse a reduction in the valuation discount.

• Republic Services (RSG) had a strong finish to 2023 highlighting its successful strategy designed for business growth.
• The company’s revenue for the year grew by 11%, which includes a 5% increase from its acquisitions.
• RSG generated 13% adjusted EBITDA growth and margin expansion of 60 basis points, as well as reporting adjusted earnings per share of $5.61.

• We refresh estimates for ANA and JAL, and highlight we think the strength of FY24 makes it difficult for ANA to avoid an earnings decline in FY25.
• However, ANA’s superior recovery to JAL poses bigger questions for JAL as it revisits its medium term plan on 21 March
• Our deep dive on margin management at each carrier suggests a revenue problem rather than a cost problem at JAL; but without revenue improvements, it will have to cut costs

• Angel Robotics is getting ready to complete its IPO in KOSDAQ in March. The IPO price range is from 11,000 won to 15,000 won. 
• The IPO offering amount is from 17.6 billion won to 24 billion won. At the IPO price range, the company’s valuation ranges from 154 billion won to 210 billion won. 
• Angel Robotics is likely to be compared to Doosan Robotics and Rainbow Robotics. 

• A highly unpopular acquisition driving investors and sell-side analysts up the wall. Forward Air is OVERSOLD on almost all technical indicators and valuations are the lowest in its history  
• Our analysis suggests it is not all that bad, the business will still be profitable and generate positive free cash flow 
• Our fair value of USD59.50 (+97% UPSIDE) is derived by 2x current Book Value. A potential double-bagger, will be rewarding for the patient investors     

• We refresh estimates for ANA and JAL, and highlight we think the strength of FY24 makes it difficult for ANA to avoid an earnings decline in FY25.
• However, ANA’s superior recovery to JAL poses bigger questions for JAL as it revisits its medium term plan on 21 March
• Our deep dive on margin management at each carrier suggests a revenue problem rather than a cost problem at JAL; but without revenue improvements, it will have to cut costs

• Angel Robotics is getting ready to complete its IPO in KOSDAQ in March. The IPO price range is from 11,000 won to 15,000 won. 
• The IPO offering amount is from 17.6 billion won to 24 billion won. At the IPO price range, the company’s valuation ranges from 154 billion won to 210 billion won. 
• Angel Robotics is likely to be compared to Doosan Robotics and Rainbow Robotics. 

• A highly unpopular acquisition driving investors and sell-side analysts up the wall. Forward Air is OVERSOLD on almost all technical indicators and valuations are the lowest in its history  
• Our analysis suggests it is not all that bad, the business will still be profitable and generate positive free cash flow 
• Our fair value of USD59.50 (+97% UPSIDE) is derived by 2x current Book Value. A potential double-bagger, will be rewarding for the patient investors