Industrials

• Bain has delayed the Outsourcing Inc (2427 JP) tender start from late January due to more time required to satisfy the European regulatory approval pre-condition.
• Potential reasons for bumping are opportunistic timing, re-rating of Japanese peers, a high minority acceptance rate, and an offer below the mid-point of the IFA DCF valuation range.
• Potential reasons for keeping terms unchanged are no activists, a 52.1% premium to the undisturbed price, and an offer still attractive compared to Japanese peers’ multiples and price ratios.  

• According to Expansion, Amber Equity (I Squared/TDR consortium vehicle), has signal its readiness to counteroffer between €10.65-€11 per Applus Services SA (APPS SM) share and drop minimum acceptance condition to 50.01%.
• There are three scenarios now: Amber withdraws (unlikely), final sealed envelope auction or splitting the bounty at the highest offer price, the latter seems increasingly likely considering similar past situations.
• At current market prices, IRR by year 8 would be 13.3%. The bidders must indeed be contemplating M&A and economies of scale to boost returns.

• Samsung C&T announced that it plans to cancel treasury shares including 7,807,563 shares of common stock (4.2% of outstanding shares) and 159,835 shares of preferred stock (9.8% of outstanding shares). 
• This would represent share cancellation amount of 1.1 trillion won and 17 billion won for Samsung C&T (028260 KS) (common) and Samsung C&T (02826K KS) (preferred).
• For the remaining treasury shares, the company will cancel 7.8 million shares in 2025 and 7.8 million shares in 2026. 

• For the month of January 2024, 8 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$2bn.
• The average premium for the new transactions announced (or first discussed) in January was ~34%. 
• This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

• Nihon M&A Center (2127 JP) reported 3QFY03/2024 results yesterday. Both revenue and OP increased 22.5% and 64.6% YoY respectively and were above consensus estimates.
• M&A revenues for the quarter saw significant growth after seeing two consecutive quarters of YoY decline driven by growth in the no. of deals and revenue per transaction.
• The company’s share price has moved up by around 15% following the earnings announcement, however, share price has been down by more than 30% over the last 12-months.  

• ANA has revised its FY24 to March 2024 profit guidance upward on higher revenues; EBIT up from ¥120bn to ¥190bn in line with consensus (AIRCT ¥182bn).
• Air Transportation naturally drives the upgrade, with its EBIT guide up ¥60bn as higher revenues outweigh higher costs.
• This upgrade also has major relevance for JAL, where expect a FY24 EBIT guidance upgrade. We are at ¥177bn versus consensus of ¥142bn/guidance of ¥130bn.

• Korean Air has reported a 4Q23 net loss of KRW235bn, which is down from a profit of KRW354bn in 4Q22. We had expected KRW264bn profit but higher opex/financing costs weighed
• We highlight 4Q23 saw KRW409bn in other financial expenses, which compared to an income of KRW322bn in 9M23. Without this, KAL would have generated profit of around KRW200bn in 4Q23
• Pre-Pandemic, 4Q saw a near-breakeven performance (KRW17-38bn losses in 4Q18-4Q19) so a KRW184bn profit in 4Q23 still remains strong relative to pre-pandemic levels

• This is our first report on electrical connection and protection products manufacturer, nVent Electric.
• The company had a decent quarterly result and reported record sales, robust free cash flow and strong income growth for Q3 2023.
• The company attributes its Q3 performance to the concentrated attention on high-growth verticals, new products, acquisitions and geographic expansion.

• This is our first report on staffing and IT solutions provider, ASGN Inc.
• The company’s Q3 2023 earnings update provided a detailed insight into the company’s financial performance which revealed trends that could influence future investment decisions.
• During the quarter, ASGN’s performance matched the company’s expectations resulting in $1.12 billion in revenue, a figure slightly above the midpoint of their guidance.

• Costain Group PLC is a United Kingdom-based sustainable infrastructure company.
• The Company offers a range of services across the whole lifecycle of its customers’ assets.
• The Company operates through two segments: Natural Resources and Transportation. 

• Bain has delayed the Outsourcing Inc (2427 JP) tender start from late January due to more time required to satisfy the European regulatory approval pre-condition.
• Potential reasons for bumping are opportunistic timing, re-rating of Japanese peers, a high minority acceptance rate, and an offer below the mid-point of the IFA DCF valuation range.
• Potential reasons for keeping terms unchanged are no activists, a 52.1% premium to the undisturbed price, and an offer still attractive compared to Japanese peers’ multiples and price ratios.  

• According to Expansion, Amber Equity (I Squared/TDR consortium vehicle), has signal its readiness to counteroffer between €10.65-€11 per Applus Services SA (APPS SM) share and drop minimum acceptance condition to 50.01%.
• There are three scenarios now: Amber withdraws (unlikely), final sealed envelope auction or splitting the bounty at the highest offer price, the latter seems increasingly likely considering similar past situations.
• At current market prices, IRR by year 8 would be 13.3%. The bidders must indeed be contemplating M&A and economies of scale to boost returns.

• Samsung C&T announced that it plans to cancel treasury shares including 7,807,563 shares of common stock (4.2% of outstanding shares) and 159,835 shares of preferred stock (9.8% of outstanding shares). 
• This would represent share cancellation amount of 1.1 trillion won and 17 billion won for Samsung C&T (028260 KS) (common) and Samsung C&T (02826K KS) (preferred).
• For the remaining treasury shares, the company will cancel 7.8 million shares in 2025 and 7.8 million shares in 2026. 

• For the month of January 2024, 8 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$2bn.
• The average premium for the new transactions announced (or first discussed) in January was ~34%. 
• This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

• Nihon M&A Center (2127 JP) reported 3QFY03/2024 results yesterday. Both revenue and OP increased 22.5% and 64.6% YoY respectively and were above consensus estimates.
• M&A revenues for the quarter saw significant growth after seeing two consecutive quarters of YoY decline driven by growth in the no. of deals and revenue per transaction.
• The company’s share price has moved up by around 15% following the earnings announcement, however, share price has been down by more than 30% over the last 12-months.  

• ANA has revised its FY24 to March 2024 profit guidance upward on higher revenues; EBIT up from ¥120bn to ¥190bn in line with consensus (AIRCT ¥182bn).
• Air Transportation naturally drives the upgrade, with its EBIT guide up ¥60bn as higher revenues outweigh higher costs.
• This upgrade also has major relevance for JAL, where expect a FY24 EBIT guidance upgrade. We are at ¥177bn versus consensus of ¥142bn/guidance of ¥130bn.

• Korean Air has reported a 4Q23 net loss of KRW235bn, which is down from a profit of KRW354bn in 4Q22. We had expected KRW264bn profit but higher opex/financing costs weighed
• We highlight 4Q23 saw KRW409bn in other financial expenses, which compared to an income of KRW322bn in 9M23. Without this, KAL would have generated profit of around KRW200bn in 4Q23
• Pre-Pandemic, 4Q saw a near-breakeven performance (KRW17-38bn losses in 4Q18-4Q19) so a KRW184bn profit in 4Q23 still remains strong relative to pre-pandemic levels

• This is our first report on electrical connection and protection products manufacturer, nVent Electric.
• The company had a decent quarterly result and reported record sales, robust free cash flow and strong income growth for Q3 2023.
• The company attributes its Q3 performance to the concentrated attention on high-growth verticals, new products, acquisitions and geographic expansion.

• This is our first report on staffing and IT solutions provider, ASGN Inc.
• The company’s Q3 2023 earnings update provided a detailed insight into the company’s financial performance which revealed trends that could influence future investment decisions.
• During the quarter, ASGN’s performance matched the company’s expectations resulting in $1.12 billion in revenue, a figure slightly above the midpoint of their guidance.

• Costain Group PLC is a United Kingdom-based sustainable infrastructure company.
• The Company offers a range of services across the whole lifecycle of its customers’ assets.
• The Company operates through two segments: Natural Resources and Transportation. 

• Today, the Financial Services Commission of Korea announced treasury stock rule improvements: (1) No new share allocation to treasury shares during equity spinoffs. (2) Strengthened disclosure requirements.
• No mandatory cancellation may disappoint the market. Nevertheless, the decision not to issue new shares during equity spinoffs amplifies the volume targeted during subsequent tender offers, potentially intensifying price impacts.
• Also, enhanced disclosure for treasury stocks, especially for companies with over 10% holdings, may trigger significant trading events based on pre-information about holdings and disposals.

• In this insight, we take a look at Quiddity’s flow expectations for the March 2024 index rebal event.
• Based on current data, I expect there to be one DEL for the TDIV index in March. I also expect the AUM assumption to change.
• According to my calculations, these changes could collectively trigger index flows of ~US$150mn one-way resulting in some index members expected to have multiple days of volume to trade.

• The de facto beneficiary of the EU EV subsidy, and historically, 46% of the sales were generated from Audi and BMW EVs. 
• Valuation has hit the trough, but with no positive catalyst in sight, it is difficult to make a bull case for Samsung SDI (006400 KS) .
• If the EU put up higher trade tariff for Chinese EV, it could jolt up SDI’s share price but until then, stay away. 

• Now that the U.S Big 4 airlines have all reported their earnings, let’s look at some of the key trends underpinning the airline industry this quarter.
• The industry continues to be marred by several macro trends, including a triple whammy of inflation-driven increasing maintenance and labor costs, supply chain issues, and the unreliability of a major supplier (Boeing).
• Boeing’s perennial woes seemed to be a major point of discussion as every Big 4 airline faced an analyst question about it during their earnings calls.

Key points (machine generated)

• FTAI’s Module Swap offering is expected to have strong growth potential based on the company’s performance and market conditions.
• The number of Module Swap customers is projected to increase from 25 in 2022 to potentially 75-100 by 2025.
• The average number of Module Swap orders per customer is expected to increase from 2 in 2022 to potentially 3 in 2023.

This article is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Following JetBlue’s 2023 results, we refresh estimates to reflect a small operating loss and a near-$200m net loss in 2024.
• Management is focused on cutting costs and restructuring the network, but without meaningful self-help, losses and cash burn may continue in 2025.
• Liquidity and leverage concerns are significant for JetBlue but we highlight reduced capacity could boost commercial performance as early as 2Q, providing a glimpse of distant recovery prospects.

Epwin Group’s H223 trading was robust and management has navigated inflationary pressures well. As a result we have increased our FY23 and FY24 underlying operating profit estimates by 13.6% and 10.3%, respectively. Longer 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. Management action contributed to overall margin expansion, a feature that we expect to continue in FY24. Epwin offers an attractive investment case with the potential for uplifts from additional self-funded M&A. It trades on a P/E ratio of 7.4x, some 30% below the long-term average of 10.7x, and yields 6%.

• Today, the Financial Services Commission of Korea announced treasury stock rule improvements: (1) No new share allocation to treasury shares during equity spinoffs. (2) Strengthened disclosure requirements.
• No mandatory cancellation may disappoint the market. Nevertheless, the decision not to issue new shares during equity spinoffs amplifies the volume targeted during subsequent tender offers, potentially intensifying price impacts.
• Also, enhanced disclosure for treasury stocks, especially for companies with over 10% holdings, may trigger significant trading events based on pre-information about holdings and disposals.

• In this insight, we take a look at Quiddity’s flow expectations for the March 2024 index rebal event.
• Based on current data, I expect there to be one DEL for the TDIV index in March. I also expect the AUM assumption to change.
• According to my calculations, these changes could collectively trigger index flows of ~US$150mn one-way resulting in some index members expected to have multiple days of volume to trade.

• The de facto beneficiary of the EU EV subsidy, and historically, 46% of the sales were generated from Audi and BMW EVs. 
• Valuation has hit the trough, but with no positive catalyst in sight, it is difficult to make a bull case for Samsung SDI (006400 KS) .
• If the EU put up higher trade tariff for Chinese EV, it could jolt up SDI’s share price but until then, stay away. 

• Now that the U.S Big 4 airlines have all reported their earnings, let’s look at some of the key trends underpinning the airline industry this quarter.
• The industry continues to be marred by several macro trends, including a triple whammy of inflation-driven increasing maintenance and labor costs, supply chain issues, and the unreliability of a major supplier (Boeing).
• Boeing’s perennial woes seemed to be a major point of discussion as every Big 4 airline faced an analyst question about it during their earnings calls.

Key points (machine generated)

• FTAI’s Module Swap offering is expected to have strong growth potential based on the company’s performance and market conditions.
• The number of Module Swap customers is projected to increase from 25 in 2022 to potentially 75-100 by 2025.
• The average number of Module Swap orders per customer is expected to increase from 2 in 2022 to potentially 3 in 2023.

This article is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Following JetBlue’s 2023 results, we refresh estimates to reflect a small operating loss and a near-$200m net loss in 2024.
• Management is focused on cutting costs and restructuring the network, but without meaningful self-help, losses and cash burn may continue in 2025.
• Liquidity and leverage concerns are significant for JetBlue but we highlight reduced capacity could boost commercial performance as early as 2Q, providing a glimpse of distant recovery prospects.

Epwin Group’s H223 trading was robust and management has navigated inflationary pressures well. As a result we have increased our FY23 and FY24 underlying operating profit estimates by 13.6% and 10.3%, respectively. Longer 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. Management action contributed to overall margin expansion, a feature that we expect to continue in FY24. Epwin offers an attractive investment case with the potential for uplifts from additional self-funded M&A. It trades on a P/E ratio of 7.4x, some 30% below the long-term average of 10.7x, and yields 6%.

• December: strong volume growth, but worsening price declines for STO, Yunda
• Recent trends in X-border parcel volume growth & pricing moderated in December
• In 2024, look for SF to continue its outpeformance; STO, Yunda should still lag

• Ryanair trimmed its FY24 (March 2024) net income guidance from €1,850m-€2,050m to €1,850m-€1,950m. We cut our forecast 4% to €1,944m.
• Ryanair guidance on summer pricing is encouraging. It sees fares up low-single digit % yoy at this point but expects an improvement as we near the summer.
• This commentary follows bullish pricing updates from easyJet, Wizz Air on short haul as well as the US carriers on Transatlantic routes, suggesting strong 2024 pricing on European routes.

• This is our first report on automation solutions provider, ATS Corporation.
• The company has maintained a consistent performance for the last quarter, with solid order bookings, organic revenue growth, and robust operations across its business.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Human services company Millennium Services Group Ltd (ASX:MIL) has released its Q2 FY24 cash-flow report and a Q2/H1 FY24 revenue update.
• Total Q2 FY24 revenue increased 17.7% on the pcp, accelerating from Q1 FY24 and above RaaS estimates with ad-hoc revenue the key surprise, up 40% due to additional extended trading hours at retail malls and new security project work.
• MIL is on track to achieve its FY24 revenue guidance of $300m to $305m. 

• December: strong volume growth, but worsening price declines for STO, Yunda
• Recent trends in X-border parcel volume growth & pricing moderated in December
• In 2024, look for SF to continue its outpeformance; STO, Yunda should still lag

• Ryanair trimmed its FY24 (March 2024) net income guidance from €1,850m-€2,050m to €1,850m-€1,950m. We cut our forecast 4% to €1,944m.
• Ryanair guidance on summer pricing is encouraging. It sees fares up low-single digit % yoy at this point but expects an improvement as we near the summer.
• This commentary follows bullish pricing updates from easyJet, Wizz Air on short haul as well as the US carriers on Transatlantic routes, suggesting strong 2024 pricing on European routes.

• This is our first report on automation solutions provider, ATS Corporation.
• The company has maintained a consistent performance for the last quarter, with solid order bookings, organic revenue growth, and robust operations across its business.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Human services company Millennium Services Group Ltd (ASX:MIL) has released its Q2 FY24 cash-flow report and a Q2/H1 FY24 revenue update.
• Total Q2 FY24 revenue increased 17.7% on the pcp, accelerating from Q1 FY24 and above RaaS estimates with ad-hoc revenue the key surprise, up 40% due to additional extended trading hours at retail malls and new security project work.
• MIL is on track to achieve its FY24 revenue guidance of $300m to $305m. 

• LS Materials completed its 15-day review but hasn’t been announced for fast entry, likely due to KRX’s Korean document disclosing the effective date starting February 1, 2024.
• LS Materials will be in the June rebalancing, having not met the 6-month listing requirement for the June review, thus subject to the special entry rule.
• Hyundai Hyms, surging 300% from IPO, ranks 58th by market cap, poised for KOSDAQ 150 entry. If successful, Unitest will be removed.

• Q3 net sales: ¥197.8 billion, down 10.1% YoY; operating income: ¥40.9 billion, down 22.1%; operating margin: 20.7% (-320bps YoY)
• Full-Year guidance revised: Net sales up 1.8% to ¥771.5 billion; operating profit up 8.4% to ¥132.2 billion.
• Positive stock reaction post-Q2 report; FY3/25 outlook cautious, especially for the Robot Division given a -30.2% YoY decline in Q4 orders.

• China Communications Construction (1800 HK) saw its 4Q23 new contracts increased 14%, faster than the 13.5% growth in 9M23. Full-year new contracts are 3.5% ahead of its target.
• Our estimated backlog of Rmb4.26trn at end-FY23 is 25.6% higher than end-FY22. Such backlog covers 4.9x FY24F revenue, which is a 0.6pp improvement YoY.
• The inclusion of market cap management as a KPI for senior SOE officials will drive return, while CSRC’s encouragement to raise payout ratio may easily push yield to over 10%.

• This is our first report electrical and mechanical construction, and facilities services provider, EMCOR Group.
• This has resulted in all-time quarterly records for revenues, gross profits, operating income, operating margin, diluted EPS, and remaining performance obligations (RPOs).
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• LS Materials completed its 15-day review but hasn’t been announced for fast entry, likely due to KRX’s Korean document disclosing the effective date starting February 1, 2024.
• LS Materials will be in the June rebalancing, having not met the 6-month listing requirement for the June review, thus subject to the special entry rule.
• Hyundai Hyms, surging 300% from IPO, ranks 58th by market cap, poised for KOSDAQ 150 entry. If successful, Unitest will be removed.

• Q3 net sales: ¥197.8 billion, down 10.1% YoY; operating income: ¥40.9 billion, down 22.1%; operating margin: 20.7% (-320bps YoY)
• Full-Year guidance revised: Net sales up 1.8% to ¥771.5 billion; operating profit up 8.4% to ¥132.2 billion.
• Positive stock reaction post-Q2 report; FY3/25 outlook cautious, especially for the Robot Division given a -30.2% YoY decline in Q4 orders.

• China Communications Construction (1800 HK) saw its 4Q23 new contracts increased 14%, faster than the 13.5% growth in 9M23. Full-year new contracts are 3.5% ahead of its target.
• Our estimated backlog of Rmb4.26trn at end-FY23 is 25.6% higher than end-FY22. Such backlog covers 4.9x FY24F revenue, which is a 0.6pp improvement YoY.
• The inclusion of market cap management as a KPI for senior SOE officials will drive return, while CSRC’s encouragement to raise payout ratio may easily push yield to over 10%.

• This is our first report electrical and mechanical construction, and facilities services provider, EMCOR Group.
• This has resulted in all-time quarterly records for revenues, gross profits, operating income, operating margin, diluted EPS, and remaining performance obligations (RPOs).
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• While the world is trying to transition to more renewable energies, FSP Technology (Taiwan) could be a beneficiary of reliable power energy supply products. 
• FSP Technology’s dividend yield averaged 8.1% from 2020 to 2022. The company has a strong balance sheet. Net cash as a percentage of market cap is 40%.
• FSP Technology provides power supply products used for personal computers, industrial power, renewable energy, and batteries. We used Smartkarma’s Smart Score Screener system to find Fsp Technology (3015 TT). 

• The US Department of Transport (DOT) has ordered the termination of Delta and Aeromexico’s joint venture from October 2024 due to access restrictions in Mexico City.
• This follows the (unrelated) US blocking of JetBlue’s planned acquisition of Spirit Airlines on the grounds that it would negatively impact consumers.
• Each case is different, but the US has previously voiced concerns regarding Korean Air’s planned merger with Asiana, and the bar continues to rise for M&A/JV approval globally.

• This is our first report on ceiling systems producer, Armstrong World Industries.
• The company’s last results present an investment perspective characterized by robust sales and growth despite compromised market conditions.
• Moreover, Armstrong World Industries pleasantly surpassed expectations as it did not witness any further deterioration of market activity.

• This is our first report on militiry ships design player, Huntington Ingalls Industries.
• The company’s Q3 2023 earnings conference call revealed solid overall growth for the company.
• According to President and CEO, Chris Kastner, the company reached record Q3 revenue, with top-line growth of 7.2% year-on-year to $2.8 billion.

• While the world is trying to transition to more renewable energies, FSP Technology (Taiwan) could be a beneficiary of reliable power energy supply products. 
• FSP Technology’s dividend yield averaged 8.1% from 2020 to 2022. The company has a strong balance sheet. Net cash as a percentage of market cap is 40%.
• FSP Technology provides power supply products used for personal computers, industrial power, renewable energy, and batteries. We used Smartkarma’s Smart Score Screener system to find Fsp Technology (3015 TT). 

• The US Department of Transport (DOT) has ordered the termination of Delta and Aeromexico’s joint venture from October 2024 due to access restrictions in Mexico City.
• This follows the (unrelated) US blocking of JetBlue’s planned acquisition of Spirit Airlines on the grounds that it would negatively impact consumers.
• Each case is different, but the US has previously voiced concerns regarding Korean Air’s planned merger with Asiana, and the bar continues to rise for M&A/JV approval globally.

• This is our first report on ceiling systems producer, Armstrong World Industries.
• The company’s last results present an investment perspective characterized by robust sales and growth despite compromised market conditions.
• Moreover, Armstrong World Industries pleasantly surpassed expectations as it did not witness any further deterioration of market activity.

• This is our first report on militiry ships design player, Huntington Ingalls Industries.
• The company’s Q3 2023 earnings conference call revealed solid overall growth for the company.
• According to President and CEO, Chris Kastner, the company reached record Q3 revenue, with top-line growth of 7.2% year-on-year to $2.8 billion.