Industrials

• Today, Toyota Motor (7203 JP) announced it would sell 4.379mm shares (4.55%) of Harmonic Drive Systems (6324 JP) in an overseas placement. 
• This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.
• Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too. 

• Toyota Motor (7203 JP) is looking to raise US$116m from selling its entire stake in Harmonic Drive Systems (6324 JP).
• Toyota Motors has indicated over the past one-two weeks that it will be looking to sell/trim its stakes in various entities as part of its exit from its multiple cross-holdings.
• While the deal would be a relatively large one to digest at 10 days of ADV, Toyota Motors will be selling its entire stake, clearing the overhang.

• Japan Airlines (9201 JP) (JAL) is making a positive recovery on strong domestic and international demand
• Weak JPY is a big headwind and so is its 40% fuel hedge cover locked in at higher than-market price. These factors should reverse and unwind next year 
• Target price JPY3,150 based on 1.65x FY24 P/BV – one standard deviation above its mean. Borderline attractive with 12% UPSIDE, and 2.3% dividend yield  

• Shanghai Jinjiang Shipping Group Co. Ltd., the shipping business unit of Shanghai International Port Group, gained 58.6% in its trading debut in Shanghai after a 2.18 billion yuan ($306 million) initial public offering.
• The container shipping service provider finished its first day of trading at 17.84 yuan a share, giving it a market cap of 23.1 billion yuan.
• Jinjiang Shipping was spun off from the world’s largest container port operator for a separate listing on the mainboard of Shanghai stock exchange.

• Today, Toyota Motor (7203 JP) announced it would sell 4.379mm shares (4.55%) of Harmonic Drive Systems (6324 JP) in an overseas placement. 
• This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.
• Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too. 

• Toyota Motor (7203 JP) is looking to raise US$116m from selling its entire stake in Harmonic Drive Systems (6324 JP).
• Toyota Motors has indicated over the past one-two weeks that it will be looking to sell/trim its stakes in various entities as part of its exit from its multiple cross-holdings.
• While the deal would be a relatively large one to digest at 10 days of ADV, Toyota Motors will be selling its entire stake, clearing the overhang.

• Japan Airlines (9201 JP) (JAL) is making a positive recovery on strong domestic and international demand
• Weak JPY is a big headwind and so is its 40% fuel hedge cover locked in at higher than-market price. These factors should reverse and unwind next year 
• Target price JPY3,150 based on 1.65x FY24 P/BV – one standard deviation above its mean. Borderline attractive with 12% UPSIDE, and 2.3% dividend yield  

• Shanghai Jinjiang Shipping Group Co. Ltd., the shipping business unit of Shanghai International Port Group, gained 58.6% in its trading debut in Shanghai after a 2.18 billion yuan ($306 million) initial public offering.
• The container shipping service provider finished its first day of trading at 17.84 yuan a share, giving it a market cap of 23.1 billion yuan.
• Jinjiang Shipping was spun off from the world’s largest container port operator for a separate listing on the mainboard of Shanghai stock exchange.

• The Partial Offer launched last month by Taisei Corp (1801 JP) to take a 50.2% stake in Ps Mitsubishi Construction (1871 JP) ends at the beginning of next week.
• This hasn’t been a very “exciting” trade. Small, boring sector. One big company selling to another. But it has traded cheap. However, volume has been high. 
• Volume has been so high it causes me to revisit my pro-ration expectations, so I have updated estimates and tables below.

• The surprise US$1.9 billion acquisition of Hawaiian Holdings (HA US) by Alaska Air Group (ALK US) could potentially rerate the U.S. airline sector 
• US Global Jets ETF (JETS US) is up 16% from our initiation on 13 November, a mere 5% to our target price of US$19
• We advocate to take profits and square this trade in the upcoming days

• China Airlines (2610 TT) will deliver record profit in 2023 on strong passenger and rising cargo rates
• Beyond 2023, hard to forecast due to high exposure (~30%) to volatile cargo, and it lacks brand recognition and customer loyalty evidenced by its weaker yields to local rival   
• Target price of TWD23 based on 1.71x FY2024 P/BV ratio – one SD above mean. Limited 6% UPSIDE, with 3,9% dividend yield. Prefer Eva Airways (2618 TT) 

• Ongoing developments have been almost exclusively of the risk-on variety ever since we discussed that risk/reward favored buyers in late-October (10/24/23 and 10/31/23 Compass reports).
• The latest risk-on developments include the Russell2000 (IWM) and DJI breaking above resistances of $180 and 35,650, to go along with bullish 9-month RS reversals for small-, mid-, and micro-caps.
• Breadth improvement and broadening participation was a big reason why we recommended buying the IWM when it was testing $162-$163 support (10/31/23 Compass). We remain bullish

• The Partial Offer launched last month by Taisei Corp (1801 JP) to take a 50.2% stake in Ps Mitsubishi Construction (1871 JP) ends at the beginning of next week.
• This hasn’t been a very “exciting” trade. Small, boring sector. One big company selling to another. But it has traded cheap. However, volume has been high. 
• Volume has been so high it causes me to revisit my pro-ration expectations, so I have updated estimates and tables below.

• The surprise US$1.9 billion acquisition of Hawaiian Holdings (HA US) by Alaska Air Group (ALK US) could potentially rerate the U.S. airline sector 
• US Global Jets ETF (JETS US) is up 16% from our initiation on 13 November, a mere 5% to our target price of US$19
• We advocate to take profits and square this trade in the upcoming days

• China Airlines (2610 TT) will deliver record profit in 2023 on strong passenger and rising cargo rates
• Beyond 2023, hard to forecast due to high exposure (~30%) to volatile cargo, and it lacks brand recognition and customer loyalty evidenced by its weaker yields to local rival   
• Target price of TWD23 based on 1.71x FY2024 P/BV ratio – one SD above mean. Limited 6% UPSIDE, with 3,9% dividend yield. Prefer Eva Airways (2618 TT) 

• Ongoing developments have been almost exclusively of the risk-on variety ever since we discussed that risk/reward favored buyers in late-October (10/24/23 and 10/31/23 Compass reports).
• The latest risk-on developments include the Russell2000 (IWM) and DJI breaking above resistances of $180 and 35,650, to go along with bullish 9-month RS reversals for small-, mid-, and micro-caps.
• Breadth improvement and broadening participation was a big reason why we recommended buying the IWM when it was testing $162-$163 support (10/31/23 Compass). We remain bullish

• Since the announcement of the Benefit One Inc (2412 JP) partial offer, the stock has traded 16+mm shares in the market, which is about 40% of Real World Float.
• Some of that has been traded multiple times. Looking only at that data would suggest a higher pro-ration, but I expect there is other data one must take into account.
• Benefit One shares are currently trading at a level suggesting either lower participation OR higher back-end despite the earnings guidance downgrade at announcement.

• Cho Hyun-Sik has joined hands with MBK Partners to make a tender offer for shares of Hankook & Co for a minimum of 20.35% and maximum of 27.32% stake.
• The tender offer price is 20,000 won which is 18.9% higher than the closing price of 16,820 won on Monday.
• Chairman Cho Hyun-Bum may try to find a strategic ally to launch his own tender offer of Hankook & Co shares at even higher tender offer price than 20,000 won.

• In this insight we review important e-comm logistics transactions from 2023
• We also provide a preview of potential e-comm logistics deals in 2024
• Interested readers can also find links to HKEX filings and our earlier insights

• Taiwanese air cargo rates soared during the pandemic, and remain high today
• Taiwan’s carriers also benefited from an early recovery in outbound tourism
• Investors seem to be pricing in a ’24 earnings collapse that probably won’t happen

• This is the somewhat-brand-spanking-new Quiddity Mainland Connect NORTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor.
• Kweichow Moutai and Contemporary Amperex continue in the top 5 of gross flows but BYD and Chongking Changan Auto are now in the top 5 of nets and gross.
• Last week, NORTHBOUND were net buyers of RMB 1.61bn. BYD, Wuxi Apptec, and Chongking Changan Auto were joined by Shenzhen Inovance and Beijing-Shanghai High Speed Rail in the top five.

• Eva Airways (2618 TT) (EVA) is enjoying the perfect tailwind of strong demand from both inbound and outbound, capacity deficit, a resurgence in corporate travel, and rising cargo rates   
• Consensus believes FY2023 will be peak earnings as 2024 capacity rollout will balance the demand-supply, but our observations suggest things will likely remain the same until the end of 1H24
• Target price of TWD34.90 based on 13.4x FY2024 PE ratio – its long-term mean. Borderline attractive with a modest 11% UPSIDE, but 5.9% dividend yield is a sweetener  

• Business investment and targeting growth – we view Sanyo Trading’s new long-term plan as a step in the right direction for the company to become a higher-quality business.
• Whilst investment activities and macro headwinds may limit short-term growth prospects, the company has indicated ¥20bn to ¥30bn 5-year cumulative allocation in human capital, DX implementation, and M&A, which should drive transformation into a more diversified and resilient business.
• This commitment by management demonstrates its aim to drive higher returns by leveraging its core strengths of product differentiation, strong technical staff, and maintaining high customer success in new products and activities.

Norcros’s compelling investment case was underpinned at the half year where underlying operating profit was down less than 3% despite material revenue pressure. Group operating margins rose 60bp, the UK business reported record underlying profits and Norcros continued to take market share in both the UK and South Africa. We believe that Norcros’s key strengths are underappreciated and that legacy issues, notably the pension deficit, have been resolved. We retain our estimates and value the shares at 246p, implying c 50% upside.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Ports & Special Economic Zone
• Yanlord Land

• Since the announcement of the Benefit One Inc (2412 JP) partial offer, the stock has traded 16+mm shares in the market, which is about 40% of Real World Float.
• Some of that has been traded multiple times. Looking only at that data would suggest a higher pro-ration, but I expect there is other data one must take into account.
• Benefit One shares are currently trading at a level suggesting either lower participation OR higher back-end despite the earnings guidance downgrade at announcement.

• Cho Hyun-Sik has joined hands with MBK Partners to make a tender offer for shares of Hankook & Co for a minimum of 20.35% and maximum of 27.32% stake.
• The tender offer price is 20,000 won which is 18.9% higher than the closing price of 16,820 won on Monday.
• Chairman Cho Hyun-Bum may try to find a strategic ally to launch his own tender offer of Hankook & Co shares at even higher tender offer price than 20,000 won.

• In this insight we review important e-comm logistics transactions from 2023
• We also provide a preview of potential e-comm logistics deals in 2024
• Interested readers can also find links to HKEX filings and our earlier insights

• Taiwanese air cargo rates soared during the pandemic, and remain high today
• Taiwan’s carriers also benefited from an early recovery in outbound tourism
• Investors seem to be pricing in a ’24 earnings collapse that probably won’t happen

• This is the somewhat-brand-spanking-new Quiddity Mainland Connect NORTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor.
• Kweichow Moutai and Contemporary Amperex continue in the top 5 of gross flows but BYD and Chongking Changan Auto are now in the top 5 of nets and gross.
• Last week, NORTHBOUND were net buyers of RMB 1.61bn. BYD, Wuxi Apptec, and Chongking Changan Auto were joined by Shenzhen Inovance and Beijing-Shanghai High Speed Rail in the top five.

• Eva Airways (2618 TT) (EVA) is enjoying the perfect tailwind of strong demand from both inbound and outbound, capacity deficit, a resurgence in corporate travel, and rising cargo rates   
• Consensus believes FY2023 will be peak earnings as 2024 capacity rollout will balance the demand-supply, but our observations suggest things will likely remain the same until the end of 1H24
• Target price of TWD34.90 based on 13.4x FY2024 PE ratio – its long-term mean. Borderline attractive with a modest 11% UPSIDE, but 5.9% dividend yield is a sweetener  

• Business investment and targeting growth – we view Sanyo Trading’s new long-term plan as a step in the right direction for the company to become a higher-quality business.
• Whilst investment activities and macro headwinds may limit short-term growth prospects, the company has indicated ¥20bn to ¥30bn 5-year cumulative allocation in human capital, DX implementation, and M&A, which should drive transformation into a more diversified and resilient business.
• This commitment by management demonstrates its aim to drive higher returns by leveraging its core strengths of product differentiation, strong technical staff, and maintaining high customer success in new products and activities.

Norcros’s compelling investment case was underpinned at the half year where underlying operating profit was down less than 3% despite material revenue pressure. Group operating margins rose 60bp, the UK business reported record underlying profits and Norcros continued to take market share in both the UK and South Africa. We believe that Norcros’s key strengths are underappreciated and that legacy issues, notably the pension deficit, have been resolved. We retain our estimates and value the shares at 246p, implying c 50% upside.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Ports & Special Economic Zone
• Yanlord Land

• Uber Technologies (UBER US), Jabil Circuit (JBL US) and Builders Firstsource (BLDR US) will be added to the S&P 500 INDEX (SPX INDEX) at the close on 15 December.
• There are a bunch of inclusions. deletions and migrations across the S&P 500 INDEX (SPX INDEX), the S&P Midcap 400 Index, and the S&P SmallCap 600 Index.
• We estimate passive trackers will need to buy around US$18bn of Uber Technologies (UBER US). There has been positioning in the stock for just over a month now. 

• The index changes for the T50/100 index family and the TDIV index were confirmed after market close on Friday 1st December 2023.
• The index changes were mostly in line with our final expectations.
• In this insight, we take a close look at the breakdown of our final flow expectations for the upcoming Inclusion/Exclusion and Capping events.

• The announcement of the inclusion of Uber Technologies (UBER US) in the S&P 500 INDEX was a big one last week. There were announcements for some other indices too.
• There are many indices in China that will be rebalanced at the close on Friday, the biggest being the CSI 300, CSI 500, STAR50, SSE50 and KWEB US.
• Relatively quiet in ETF world with net inflows to China focused ETFs and net outflows for Japan.

• Uber Technologies (UBER US), Jabil Circuit (JBL US) and Builders Firstsource (BLDR US) will be added to the S&P 500 INDEX (SPX INDEX) at the close on 15 December.
• There are a bunch of inclusions. deletions and migrations across the S&P 500 INDEX (SPX INDEX), the S&P Midcap 400 Index, and the S&P SmallCap 600 Index.
• We estimate passive trackers will need to buy around US$18bn of Uber Technologies (UBER US). There has been positioning in the stock for just over a month now. 

• The index changes for the T50/100 index family and the TDIV index were confirmed after market close on Friday 1st December 2023.
• The index changes were mostly in line with our final expectations.
• In this insight, we take a close look at the breakdown of our final flow expectations for the upcoming Inclusion/Exclusion and Capping events.

• The announcement of the inclusion of Uber Technologies (UBER US) in the S&P 500 INDEX was a big one last week. There were announcements for some other indices too.
• There are many indices in China that will be rebalanced at the close on Friday, the biggest being the CSI 300, CSI 500, STAR50, SSE50 and KWEB US.
• Relatively quiet in ETF world with net inflows to China focused ETFs and net outflows for Japan.

• AMETEK, Inc. delivered a mixed result in the recent quarter, with revenues below market expectations but it managed to surpass the analyst consensus in terms of earnings.
• The operating income soared to a significant $438 million, demonstrating a 14% rise, and operating margins reached an all-time high of 27%.
• Despite challenges such as normalizing inventory levels, the Electromechanical Group delivered solid results, with third-quarter sales of $487 million and operating margins at a commendable 26.2%.

• Caterpillar managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• Sales and revenues surged by 12%, surpassing the previous year’s figures.
• Construction Industries in North America experienced a 6% increase in sales to users, driven by robust demand in non-residential and residential construction.

• C.H.
• Robinson Worldwide, Inc. delivered mixed results for the previous quarter, with revenues below the analyst consensus.
• The managed service business exhibited a route guide depth of 1.15 in Q3, indicating primary freight providers accepting the majority of contractual freight, diminishing spot market opportunities.

• Howmet Aerospace Inc. managed to exceed analyst expectations in terms of revenue as well as earnings, showcasing a 16% year-over-year revenue increase and a 1% sequential growth across all markets.
• Commercial aerospace, marking its tenth consecutive quarter of growth, led the surge with a 23% year-over-year increase, constituting 49% of total revenue.
• Besides, Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels reported significant year-over-year revenue growth, with EBITDA margins showing improvement.

• Ingersoll Rand Inc. delivered a solid result and managed an all-around beat in the last quarter, characterized by double-digit growth in revenue, adjusted EBITDA, adjusted EPS, and free cash flow.
• Despite the dynamic macroeconomic environment, the company demonstrated resilience and agility, delivering robust financial performance and surpassing expectations.
• Notably, Ingersoll Rand raised its 2023 full-year guidance based on continued robust performance year-to-date.

• Parker-Hannifin Corporation delivered a mixed result in the recent quarter, with revenues below market expectations, but it managed to surpass the analyst consensus in terms of earnings.
• Prioritizing safety, the company achieved a notable 16% reduction in significant incidents, reinforcing its unwavering commitment to a secure work environment.
• The quarter yielded sales of $4.8 billion, marking a substantial 15% increase over the previous year, driven by an impressive 2.3% organic growth.

• Quanta Services delivered an all-around beat in the previous quarter, marked by strong double-digit revenue growth and significant financial metrics.
• The segments of the Electric Power Infrastructure Solutions and Renewable Energy Infrastructure Solutions spearheaded the revenue and profit surge, underlining the sustained capital infusion into grid modernization and resilience efforts.
• The Renewable Infrastructure Solutions segment experienced a significant revenue upswing, propelled by increased construction activities in solar, wind, and battery storage projects.

• Rockwell Automation, Inc. managed to exceed analyst expectations in terms of revenue as well as earnings, witnessing sales and adjusted earnings surge by over 20% compared to the previous year.
• The Intelligent Devices Business segment experienced an 18% organic sales boost, particularly in independent car technology, concluding the fiscal year with over 50% growth in sales.
• Information Solutions and Connected Services also achieved a 10% sales increase from the previous year, securing significant information solutions wins with Prometeon Tyre.

• In the third quarter, Stanley Black & Decker managed a decent result including an earnings beat.
• The company enhanced adjusted gross margin, earnings per share, and free cash flow compared to the previous year, demonstrating focused execution and strategic advancements.
• Looking ahead to 2024, Stanley Black & Decker’s team anticipates additional gross margin gains and continues to focus on improving margins in uncertain market conditions.

• Textron Inc. delivered a mixed result in the recent quarter, with revenues below market expectations, but it surpassed the analyst consensus regarding earnings.
• Bell, Textron’s aerospace division, witnessed stable revenues with improved margins, with military revenues increasing.
• Textron Systems reported higher revenues and margins, receiving a critical design review contract for the Army’s Future Tactical Unmanned Aircraft System and expanding its uncrewed aerial systems operations with the US.

• AMETEK, Inc. delivered a mixed result in the recent quarter, with revenues below market expectations but it managed to surpass the analyst consensus in terms of earnings.
• The operating income soared to a significant $438 million, demonstrating a 14% rise, and operating margins reached an all-time high of 27%.
• Despite challenges such as normalizing inventory levels, the Electromechanical Group delivered solid results, with third-quarter sales of $487 million and operating margins at a commendable 26.2%.

• Caterpillar managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• Sales and revenues surged by 12%, surpassing the previous year’s figures.
• Construction Industries in North America experienced a 6% increase in sales to users, driven by robust demand in non-residential and residential construction.

• C.H.
• Robinson Worldwide, Inc. delivered mixed results for the previous quarter, with revenues below the analyst consensus.
• The managed service business exhibited a route guide depth of 1.15 in Q3, indicating primary freight providers accepting the majority of contractual freight, diminishing spot market opportunities.

• Howmet Aerospace Inc. managed to exceed analyst expectations in terms of revenue as well as earnings, showcasing a 16% year-over-year revenue increase and a 1% sequential growth across all markets.
• Commercial aerospace, marking its tenth consecutive quarter of growth, led the surge with a 23% year-over-year increase, constituting 49% of total revenue.
• Besides, Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels reported significant year-over-year revenue growth, with EBITDA margins showing improvement.

• Ingersoll Rand Inc. delivered a solid result and managed an all-around beat in the last quarter, characterized by double-digit growth in revenue, adjusted EBITDA, adjusted EPS, and free cash flow.
• Despite the dynamic macroeconomic environment, the company demonstrated resilience and agility, delivering robust financial performance and surpassing expectations.
• Notably, Ingersoll Rand raised its 2023 full-year guidance based on continued robust performance year-to-date.

• Parker-Hannifin Corporation delivered a mixed result in the recent quarter, with revenues below market expectations, but it managed to surpass the analyst consensus in terms of earnings.
• Prioritizing safety, the company achieved a notable 16% reduction in significant incidents, reinforcing its unwavering commitment to a secure work environment.
• The quarter yielded sales of $4.8 billion, marking a substantial 15% increase over the previous year, driven by an impressive 2.3% organic growth.

• Quanta Services delivered an all-around beat in the previous quarter, marked by strong double-digit revenue growth and significant financial metrics.
• The segments of the Electric Power Infrastructure Solutions and Renewable Energy Infrastructure Solutions spearheaded the revenue and profit surge, underlining the sustained capital infusion into grid modernization and resilience efforts.
• The Renewable Infrastructure Solutions segment experienced a significant revenue upswing, propelled by increased construction activities in solar, wind, and battery storage projects.

• Rockwell Automation, Inc. managed to exceed analyst expectations in terms of revenue as well as earnings, witnessing sales and adjusted earnings surge by over 20% compared to the previous year.
• The Intelligent Devices Business segment experienced an 18% organic sales boost, particularly in independent car technology, concluding the fiscal year with over 50% growth in sales.
• Information Solutions and Connected Services also achieved a 10% sales increase from the previous year, securing significant information solutions wins with Prometeon Tyre.

• In the third quarter, Stanley Black & Decker managed a decent result including an earnings beat.
• The company enhanced adjusted gross margin, earnings per share, and free cash flow compared to the previous year, demonstrating focused execution and strategic advancements.
• Looking ahead to 2024, Stanley Black & Decker’s team anticipates additional gross margin gains and continues to focus on improving margins in uncertain market conditions.

• Textron Inc. delivered a mixed result in the recent quarter, with revenues below market expectations, but it surpassed the analyst consensus regarding earnings.
• Bell, Textron’s aerospace division, witnessed stable revenues with improved margins, with military revenues increasing.
• Textron Systems reported higher revenues and margins, receiving a critical design review contract for the Army’s Future Tactical Unmanned Aircraft System and expanding its uncrewed aerial systems operations with the US.