Industrials

• CSI 300 represents the 300 largest stocks by marketcap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500. There is subjectivity.
• Here we look at potential ADDs/DELs for the CSI 300/500 rebalance in June 2024. With 93% of time passed, I expect 11 changes for CSI300, 50 for CSI 500. 
• Some names have changed since my last insight, but the long/short trades recommended eight weeks ago gained 11.26% since. We make small changes this time.

• Our base case valuation of HD Hyundai Marine Solution is target price of 98,254 won per share, representing an 18% upside from the high end of the IPO price range.
• The company’s ROE averaged 67% in 2022 and 2023. In comparison, the comps’ ROE averaged 10.6% in the same period. [HD Hyundai Marine Solution > Comps]
• Our base case valuation is based on 24.7x P/E (comps’ average) using our estimated net profit of 178.7 billion won for the company in 2024. 

• ZEEKR (ZK US), a premium Chinese BEV manufacturer and a subsidiary of Geely Auto (175 HK), has restarted its IPO process to raise US$500 million by listing on the NYSE.
• We previously discussed the IPO in ZEEKR IPO: The Bull Case and ZEEKR IPO: The Bear Case. 
• The latest SEC filings reinforce the bear case due to weak industry sentiment, rapidly slowing growth, ongoing operating losses and volatile FCF. 

• Air China Ltd (H) (753 HK) had 15.4% interest-bearing debt denominated in USD, vs. 21.3% for China Southern Airlines (1055 HK), making it less exposed to Rmb depreciation. 
• Recovery of international traffic and routes will help to lower unit costs. Air China’s unit costs for FY23 were Rmb4.0445, whereas CSA’s were only Rmb3.2000.
• There is more upside for Air China’s load factor which was down 7.8pp YoY in FY23, compared with -4.7pp for CSA. 

• TAL Education Group (TAL) reported net revenues of USD 373.5 million for its third quarter fiscal year 2024, exhibiting an increase of 60.5% and 63.7% in U.S. dollar and RMB terms.
• Despite the impressive revenue growth, profitability remained a concern with non-GAAP loss from operations and non-GAAP net loss attributable to TAL amounting to USD 10.2 million and USD 1.9 million, respectively.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• Base Carbon reported 2023 results that highlight the milestone year for the company, which saw the first issuance of carbon credits from one of its projects, cash received from the sale of its credits to a third party, and the diversification into carbon removal projects.
• Net profit was $98.3 million, driven by $6.4 million realized and $104.7 million in unrealized gains in its carbon credit projects portfolio.
• Vietnam project expected to deliver ~$29.1 million in cash flow in 2024.

• Afcons Infrastructure Limited (6595396Z IN) is looking to raise US$840m in its upcoming India IPO. The bookrunners are Jefferies, Nomura, ICICI Securities, SBI Capital, DAM Capital, and Nuvama Wealth.
• Afcons Infrastructure Limited (Afcons) is the flagship infrastructure engineering and construction company of the Shapoorji Pallonji group.
• As per the Fitch report, the firm was one of India’s largest international infrastructure companies as per the 2023 ENR top international contractors ranking, based on FY23 international revenue.

• UFP Industries Inc. posted robust financial results for its Q4 2023, despite falling slightly short of its annual target.
• The company’s sales and profit ranked as the third best in its nearly seven decades of operation.
• CEO Matt Missad and CFO Mike Cole laid out UFP’s achievements, plans for 2024, and long-term objectives in their earnings call.

ADS-TEC Energy operates in an emerging market serving the changing grid and power management requirements of an electrifying world. Its key market at present is for battery-buffered ultra-fast charging systems for electric vehicles (EVs). This is starting to produce tangible positive results, with the business EBITDA positive in Q423. Hence, ADS-TEC offers a de-risking investment into the electrification of the energy system, including the growth of EVs through the associated charging infrastructure.

• CSI 300 represents the 300 largest stocks by marketcap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500. There is subjectivity.
• Here we look at potential ADDs/DELs for the CSI 300/500 rebalance in June 2024. With 93% of time passed, I expect 11 changes for CSI300, 50 for CSI 500. 
• Some names have changed since my last insight, but the long/short trades recommended eight weeks ago gained 11.26% since. We make small changes this time.

• Our base case valuation of HD Hyundai Marine Solution is target price of 98,254 won per share, representing an 18% upside from the high end of the IPO price range.
• The company’s ROE averaged 67% in 2022 and 2023. In comparison, the comps’ ROE averaged 10.6% in the same period. [HD Hyundai Marine Solution > Comps]
• Our base case valuation is based on 24.7x P/E (comps’ average) using our estimated net profit of 178.7 billion won for the company in 2024. 

• ZEEKR (ZK US), a premium Chinese BEV manufacturer and a subsidiary of Geely Auto (175 HK), has restarted its IPO process to raise US$500 million by listing on the NYSE.
• We previously discussed the IPO in ZEEKR IPO: The Bull Case and ZEEKR IPO: The Bear Case. 
• The latest SEC filings reinforce the bear case due to weak industry sentiment, rapidly slowing growth, ongoing operating losses and volatile FCF. 

• Air China Ltd (H) (753 HK) had 15.4% interest-bearing debt denominated in USD, vs. 21.3% for China Southern Airlines (1055 HK), making it less exposed to Rmb depreciation. 
• Recovery of international traffic and routes will help to lower unit costs. Air China’s unit costs for FY23 were Rmb4.0445, whereas CSA’s were only Rmb3.2000.
• There is more upside for Air China’s load factor which was down 7.8pp YoY in FY23, compared with -4.7pp for CSA. 

• TAL Education Group (TAL) reported net revenues of USD 373.5 million for its third quarter fiscal year 2024, exhibiting an increase of 60.5% and 63.7% in U.S. dollar and RMB terms.
• Despite the impressive revenue growth, profitability remained a concern with non-GAAP loss from operations and non-GAAP net loss attributable to TAL amounting to USD 10.2 million and USD 1.9 million, respectively.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• Base Carbon reported 2023 results that highlight the milestone year for the company, which saw the first issuance of carbon credits from one of its projects, cash received from the sale of its credits to a third party, and the diversification into carbon removal projects.
• Net profit was $98.3 million, driven by $6.4 million realized and $104.7 million in unrealized gains in its carbon credit projects portfolio.
• Vietnam project expected to deliver ~$29.1 million in cash flow in 2024.

• Afcons Infrastructure Limited (6595396Z IN) is looking to raise US$840m in its upcoming India IPO. The bookrunners are Jefferies, Nomura, ICICI Securities, SBI Capital, DAM Capital, and Nuvama Wealth.
• Afcons Infrastructure Limited (Afcons) is the flagship infrastructure engineering and construction company of the Shapoorji Pallonji group.
• As per the Fitch report, the firm was one of India’s largest international infrastructure companies as per the 2023 ENR top international contractors ranking, based on FY23 international revenue.

• UFP Industries Inc. posted robust financial results for its Q4 2023, despite falling slightly short of its annual target.
• The company’s sales and profit ranked as the third best in its nearly seven decades of operation.
• CEO Matt Missad and CFO Mike Cole laid out UFP’s achievements, plans for 2024, and long-term objectives in their earnings call.

ADS-TEC Energy operates in an emerging market serving the changing grid and power management requirements of an electrifying world. Its key market at present is for battery-buffered ultra-fast charging systems for electric vehicles (EVs). This is starting to produce tangible positive results, with the business EBITDA positive in Q423. Hence, ADS-TEC offers a de-risking investment into the electrification of the energy system, including the growth of EVs through the associated charging infrastructure.

• With nearly 85% of the review period complete, there could be 15 changes for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance.
• Prior to the June rebalance, C&C International (352480 KS) will replace CanariaBio (016790 KS) in the index following CanariaBio being listed as an Administrative Issue and an Investment Attention Issue.
• The potential adds have outperformed the potential deletes and the KOSDAQ 150 Index since the start of the review period. Lighten positions ahead of the end of the review period.

• The review period for the June rebalance ends 30 April. We expect the changes to be announced 31 May with the implementation taking place after the close on 14 June.
• We forecast 10 changes for the index, including migrations between the STAR 100 Index and the SSE STAR50 (STAR50 INDEX). 
• Excluding the migrations, the potential adds have outperformed the potential deletes over the last few months and that could continue as we head to the end of the review period.

• Interview discusses the offtake agreement and opportunity to expand beyond the current arrangement, the $20m capital raised and outlook for future funding needs, update on strategic equity/debt in the US and milestones to expect over the next six months.

• Amaero International Ltd (ASX:3DA) is a global specialist in advanced materials manufacturing for the defence, aerospace, and other industrial sectors, developing a critical metals alloy powder manufacturing facility in Tennessee, USA. The company has secured a binding offtake agreement for the supply of C103 additive manufacturing powder, a key milestone in the development of its critical metals powder manufacturing presence in the US. Concurrently, Amaero has raised $20m by way of a placement to institutional investors, which the company anticipates will be the last equity capital raise in the Australian market.
• Going forward, Amaero says it intends to seek equity capital from strategic US investors.
• We continue to incorporate Amaero’s guidance that it expects to report an EBITDA loss of $14m in CY2024 and to break-even in CY2025.

• Fluence Corporation (ASX:FLC) provides water and wastewater treatment, and reuse solutions, for the municipal, commercial, and industrial markets worldwide.
• The company has a proven suite of products and expertise, both proprietary and otherwise, which it has used to deliver more than 850 projects globally.
• After some historical missteps, FLC has now been completely rejuvenated through the appointment of a highly regarded and proven US-based management team and reinvigorated board.

• Industry needs batteries and batteries need metals. As numerous studies have concluded, even with slightly slower than previously anticipated growth in EV adoption and renewable energy (wind and solar) buildout, demand for metals going into lithium batteries is expected to exceed current estimates for said metals’ production as early as 2026-28.
• The implied need to find and develop sufficient new resources of these metals to satisfy the expected demand has become a major focus for battery and auto OEMs, as well as governments set on the path to electrification of their economies.
• More plentiful, less harmful. Many industry and investment banks’ reports also conclude that traditional terrestrial resources in the development or even exploration phase currently are not sufficient to meet the expected demand, suggesting other unconventional resources require commercial development.

• With nearly 85% of the review period complete, there could be 15 changes for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance.
• Prior to the June rebalance, C&C International (352480 KS) will replace CanariaBio (016790 KS) in the index following CanariaBio being listed as an Administrative Issue and an Investment Attention Issue.
• The potential adds have outperformed the potential deletes and the KOSDAQ 150 Index since the start of the review period. Lighten positions ahead of the end of the review period.

• The review period for the June rebalance ends 30 April. We expect the changes to be announced 31 May with the implementation taking place after the close on 14 June.
• We forecast 10 changes for the index, including migrations between the STAR 100 Index and the SSE STAR50 (STAR50 INDEX). 
• Excluding the migrations, the potential adds have outperformed the potential deletes over the last few months and that could continue as we head to the end of the review period.

• Interview discusses the offtake agreement and opportunity to expand beyond the current arrangement, the $20m capital raised and outlook for future funding needs, update on strategic equity/debt in the US and milestones to expect over the next six months.

• Amaero International Ltd (ASX:3DA) is a global specialist in advanced materials manufacturing for the defence, aerospace, and other industrial sectors, developing a critical metals alloy powder manufacturing facility in Tennessee, USA. The company has secured a binding offtake agreement for the supply of C103 additive manufacturing powder, a key milestone in the development of its critical metals powder manufacturing presence in the US. Concurrently, Amaero has raised $20m by way of a placement to institutional investors, which the company anticipates will be the last equity capital raise in the Australian market.
• Going forward, Amaero says it intends to seek equity capital from strategic US investors.
• We continue to incorporate Amaero’s guidance that it expects to report an EBITDA loss of $14m in CY2024 and to break-even in CY2025.

• Fluence Corporation (ASX:FLC) provides water and wastewater treatment, and reuse solutions, for the municipal, commercial, and industrial markets worldwide.
• The company has a proven suite of products and expertise, both proprietary and otherwise, which it has used to deliver more than 850 projects globally.
• After some historical missteps, FLC has now been completely rejuvenated through the appointment of a highly regarded and proven US-based management team and reinvigorated board.

• Industry needs batteries and batteries need metals. As numerous studies have concluded, even with slightly slower than previously anticipated growth in EV adoption and renewable energy (wind and solar) buildout, demand for metals going into lithium batteries is expected to exceed current estimates for said metals’ production as early as 2026-28.
• The implied need to find and develop sufficient new resources of these metals to satisfy the expected demand has become a major focus for battery and auto OEMs, as well as governments set on the path to electrification of their economies.
• More plentiful, less harmful. Many industry and investment banks’ reports also conclude that traditional terrestrial resources in the development or even exploration phase currently are not sufficient to meet the expected demand, suggesting other unconventional resources require commercial development.

• J&T Global Express (1519 HK)’s 180-day IPO lock-up period for 88% of outstanding shares expires on 24 April. The shares exiting the lock-up period are worth US$9.9 billion.
• The likely sellers will be the Series pre-A1, pre-A2, A and B investors as are they are materially in the money at the last close price.
• J&T has returned to organic growth with a shift to profits and declining cash burn. While the last close is 17% below the IPO price, the shares are fairly valued. 

• Nearly 90% of the way through the review period of the June rebalance, we see one potential index change with Wipro Ltd (WPRO IN) in deletion zone.
• Oil & Natural Gas Corp (ONGC IN), Coal India Ltd (COAL IN) and Adani Enterprises (ADE IN) are potential replacements with sector balance likely to come into play.
• Passive trackers will need to trade over 13 days of delivery volume on the potential index changes.

• On the 28th Feb, PE-outfit CVC Asia Pacific bumped its NBIO to A$2.00/share, and was granted exclusive due diligence. On the 27th Mar, CVC said they were “unable to proceed“. 
• Today, the 8th April, Madison Dearborn Partners, holding ~29%, has pitched an non-indicative, non-binding Offer at A$1.40/share, in cash, by way of a Scheme. An unlisted scrip option is available.
• A key condition is APM Human Services (APM AU)‘s executive-chair Megan Wynne, founding related parties, and key management, electing scrip. The Independent Board Committee reckons the Offer Price is disappointing.

• J&T Global Express (1519 HK)’s 180-day IPO lock-up period for 88% of outstanding shares expires on 24 April. The shares exiting the lock-up period are worth US$9.9 billion.
• The likely sellers will be the Series pre-A1, pre-A2, A and B investors as are they are materially in the money at the last close price.
• J&T has returned to organic growth with a shift to profits and declining cash burn. While the last close is 17% below the IPO price, the shares are fairly valued. 

• Nearly 90% of the way through the review period of the June rebalance, we see one potential index change with Wipro Ltd (WPRO IN) in deletion zone.
• Oil & Natural Gas Corp (ONGC IN), Coal India Ltd (COAL IN) and Adani Enterprises (ADE IN) are potential replacements with sector balance likely to come into play.
• Passive trackers will need to trade over 13 days of delivery volume on the potential index changes.

• On the 28th Feb, PE-outfit CVC Asia Pacific bumped its NBIO to A$2.00/share, and was granted exclusive due diligence. On the 27th Mar, CVC said they were “unable to proceed“. 
• Today, the 8th April, Madison Dearborn Partners, holding ~29%, has pitched an non-indicative, non-binding Offer at A$1.40/share, in cash, by way of a Scheme. An unlisted scrip option is available.
• A key condition is APM Human Services (APM AU)‘s executive-chair Megan Wynne, founding related parties, and key management, electing scrip. The Independent Board Committee reckons the Offer Price is disappointing.

• The outlook for factory automation is improving with inventory clearance, the upturn in the semiconductor industry and an AI-enhanced response to the labor shortage.
• Yaskawa’s margins should continue to rise with renewed growth in Robotics, efficiency gains and an upgraded product line. 
• Valuation stretched at 30x EPS guidance for FY Feb-25, but current weakness looks like a long term buying opportunity.

• The outlook for factory automation is improving with inventory clearance, the upturn in the semiconductor industry and an AI-enhanced response to the labor shortage.
• Yaskawa’s margins should continue to rise with renewed growth in Robotics, efficiency gains and an upgraded product line. 
• Valuation stretched at 30x EPS guidance for FY Feb-25, but current weakness looks like a long term buying opportunity.

• AKR Corporindo (AKRA IJ) booked an impressive finish to the year despite slower revenue growth from its trading & distribution business boosted by strong industrial plot sales at JIIPE.
• The company expects trading & industrial volumes to improve in 2024, with retail petroleum becoming more significant with JIIPE expected to see increasing recurrent utilities earnings starting in 2H2024. 
• AKR Corporindo has a strong pipeline of potential tenants for JIIPE and expects to expand its BP JV retail petrol stations by 40-50 this year. Valuations remain attractive.

• On 5 April, Hanwha Aerospace (012450 KS) formally announced that it will spin off its semiconductor equipment and video surveillance units which contributed to about 16% of its revenue. 
• We are Negative on Hanwha Aerospace mainly due to valuations. Its share price has risen so much in the past year that its valuations are no longer attractive.
• Hanwha Aerospace is trading at premium valuation to Lockheed Martin on an EV/EBITDA basis. Despite its recent strong growth, Hanwha Aerospace is no Lockheed Martin. 

• One of a basket of Hong Kong commodity stocks we like
• One off issues in 2023 which should reverse in 2024
• Can also be viewed as  a tangential play on India’s industrial growth

• Fragmented industry with growth opportunities
• Successful acquisitions and expansion
• Focus on customer service and reputation for excellence

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Gibraltar Industries’ Q4 2023 financial results presented a robust year-end performance.
• The company’s leadership positions were expanded, the quality of earnings improved, and strong cash flows were generated.
• Both Residential and Infrastructure perform strongly, and although the Renewable segment faced industry headwinds, it demonstrated excellent margin expansion.

• Ganz Mavag, a public/private consortium, requests authorisation for its €5/share offer for 100% of Talgo SA (TLGO SM). It needs approvals from Spain and seven other EMEA regulators.
• Yesterday’s close remains similar to the announcement date (7 March), gross spread of 11.3%, indicating uncertainty regarding timeline and development. The market is pricing a 48% probability of deal completion.
• The Spanish Government will delay the authorization process. Vs. comparables and considering uncertainties regarding backlog execution, investing in the company seems somewhat risky. The risk/reward ratio is not particularly attractive.

• AKR Corporindo (AKRA IJ) booked an impressive finish to the year despite slower revenue growth from its trading & distribution business boosted by strong industrial plot sales at JIIPE.
• The company expects trading & industrial volumes to improve in 2024, with retail petroleum becoming more significant with JIIPE expected to see increasing recurrent utilities earnings starting in 2H2024. 
• AKR Corporindo has a strong pipeline of potential tenants for JIIPE and expects to expand its BP JV retail petrol stations by 40-50 this year. Valuations remain attractive.

• On 5 April, Hanwha Aerospace (012450 KS) formally announced that it will spin off its semiconductor equipment and video surveillance units which contributed to about 16% of its revenue. 
• We are Negative on Hanwha Aerospace mainly due to valuations. Its share price has risen so much in the past year that its valuations are no longer attractive.
• Hanwha Aerospace is trading at premium valuation to Lockheed Martin on an EV/EBITDA basis. Despite its recent strong growth, Hanwha Aerospace is no Lockheed Martin. 

• One of a basket of Hong Kong commodity stocks we like
• One off issues in 2023 which should reverse in 2024
• Can also be viewed as  a tangential play on India’s industrial growth

• Fragmented industry with growth opportunities
• Successful acquisitions and expansion
• Focus on customer service and reputation for excellence

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Gibraltar Industries’ Q4 2023 financial results presented a robust year-end performance.
• The company’s leadership positions were expanded, the quality of earnings improved, and strong cash flows were generated.
• Both Residential and Infrastructure perform strongly, and although the Renewable segment faced industry headwinds, it demonstrated excellent margin expansion.

• Ganz Mavag, a public/private consortium, requests authorisation for its €5/share offer for 100% of Talgo SA (TLGO SM). It needs approvals from Spain and seven other EMEA regulators.
• Yesterday’s close remains similar to the announcement date (7 March), gross spread of 11.3%, indicating uncertainty regarding timeline and development. The market is pricing a 48% probability of deal completion.
• The Spanish Government will delay the authorization process. Vs. comparables and considering uncertainties regarding backlog execution, investing in the company seems somewhat risky. The risk/reward ratio is not particularly attractive.