Industrials

• Non-Core items boosted Q3 earnings, but core margins plunged vs Q2
• In a surprise move, ZTO has abandoned its aggressive pursuit of share
• Medium term growth is likely to slow, and pressure on margins remains

• Rolling stock manufacturer Talgo SA (TLGO SM)  confirms the interest of a Hungarian investor in launching a takeover bid at €5/share, 28% premium, 10.5 EV/24e EBITDA.
• The implied market cap is €617 million and the implied EV is €837 million. My fair value estimate (DCF-based) is €4.76/share, so the potential offer price seems adequate.
• The 17 November closing share price implies a 44% probability of an offer (12% gross spread, 12% gain since disclosure), which indicates that the outcome seems uncertain.

• Non-Core items boosted Q3 earnings, but core margins plunged vs Q2
• In a surprise move, ZTO has abandoned its aggressive pursuit of share
• Medium term growth is likely to slow, and pressure on margins remains

• Rolling stock manufacturer Talgo SA (TLGO SM)  confirms the interest of a Hungarian investor in launching a takeover bid at €5/share, 28% premium, 10.5 EV/24e EBITDA.
• The implied market cap is €617 million and the implied EV is €837 million. My fair value estimate (DCF-based) is €4.76/share, so the potential offer price seems adequate.
• The 17 November closing share price implies a 44% probability of an offer (12% gross spread, 12% gain since disclosure), which indicates that the outcome seems uncertain.

• Pasona Group (2168 JP) is massively net cash. And it’s ofloading Benefit One Inc (2412 JP). Though we don’t know what the future holds, Pasona is the wrong price.
• ENN Energy (2688 HK) controlling shreholder announced it intends to increase it stake. And it’s been in the market almost everry day since the interims. 
• Zhejiang Expressway (576 HK) announced its rights offering. It’s at a long-term low price, and about to earn a long-term high net income, and have a long-term high payout ratio

• I tally 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Six new deals were discussed this week: Benefit One  (2412 JP), Japan Best Rescue System (2453 JP), IJTT (7315 JP), Ohizumi (6618 JP), Amara (AMA SP), and Atlantic Lithium (A11 AU).
• Key updates took place for: VNET (VNET US), Eoflow (294090 KS), Azure Minerals (AZS AU), Origin Energy (ORG AU), Haitong International Securities Group (665 HK) and Shidax Corp (4837 JP).

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Asahi Group Holdings (2502 JP)‘s US$1.3 billion secondary offering; ZEEKR (ZK US), Tata Technologies (TATATECH IN) and Cainiao Smart Logistics Network (1437124D HK) IPOs
• Event-Driven developments Benefit One Inc (2412 JP), Japan Best Rescue System Co (2453 JP), Eoflow (294090 KS), Haitong International Securities Group (665 HK), Vinda International (3331 HK), Amara Holdings (AMA SP).

• Pasona Group (2168 JP) is massively net cash. And it’s ofloading Benefit One Inc (2412 JP). Though we don’t know what the future holds, Pasona is the wrong price.
• ENN Energy (2688 HK) controlling shreholder announced it intends to increase it stake. And it’s been in the market almost everry day since the interims. 
• Zhejiang Expressway (576 HK) announced its rights offering. It’s at a long-term low price, and about to earn a long-term high net income, and have a long-term high payout ratio

• I tally 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Six new deals were discussed this week: Benefit One  (2412 JP), Japan Best Rescue System (2453 JP), IJTT (7315 JP), Ohizumi (6618 JP), Amara (AMA SP), and Atlantic Lithium (A11 AU).
• Key updates took place for: VNET (VNET US), Eoflow (294090 KS), Azure Minerals (AZS AU), Origin Energy (ORG AU), Haitong International Securities Group (665 HK) and Shidax Corp (4837 JP).

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Asahi Group Holdings (2502 JP)‘s US$1.3 billion secondary offering; ZEEKR (ZK US), Tata Technologies (TATATECH IN) and Cainiao Smart Logistics Network (1437124D HK) IPOs
• Event-Driven developments Benefit One Inc (2412 JP), Japan Best Rescue System Co (2453 JP), Eoflow (294090 KS), Haitong International Securities Group (665 HK), Vinda International (3331 HK), Amara Holdings (AMA SP).

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Iochpe-Maxion’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Strong”.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Iochpe-Maxion’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Strong”.

• As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
• That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
• Though we don’t know what the future holds, Pasona now is the wrong price for its future. 

• ZEEKR (ZK US), a premium Chinese BEV manufacturer and a subsidiary of Geely Auto (175 HK), has filed for a US$500 million IPO to list on the NYSE.
• In ZEEKR IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on growth slowdown in the second-largest business, high related-parties dependence, Virdi/CEVT gross margin pressure, ongoing operating losses and FCF burn.

• iPower reported $26.5 million in revenue in 1QFY24, its highest quarterly revenue ever, compared with $26.0 million in 1QFY23.
• The company’s performance was helped by business generated by its SuperSuite supply chain partnerships, currently on a $7 million annual run rate.
• The company’s TikTok Shop sales also contributed to the solid sales results.

• Earnings Trends: 1Q FY24/5 results were solid, with steady sales and improved gross profit margins.
• Profit growth was limited owing to higher SG&A expenses in absolute terms stemming from hiring personnel, higher wages, and the inclusion of SG&A expenses of Ohba Research and Land Surveys.
• However, the company is likely to see more benefits from the steady accumulation of orders and continuous improvement in gross profit margin from 2Q onward, when it becomes easier to secure sales volume owing to the seasonality of its business.

• As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
• That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
• Though we don’t know what the future holds, Pasona now is the wrong price for its future. 

• ZEEKR (ZK US), a premium Chinese BEV manufacturer and a subsidiary of Geely Auto (175 HK), has filed for a US$500 million IPO to list on the NYSE.
• In ZEEKR IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on growth slowdown in the second-largest business, high related-parties dependence, Virdi/CEVT gross margin pressure, ongoing operating losses and FCF burn.

• iPower reported $26.5 million in revenue in 1QFY24, its highest quarterly revenue ever, compared with $26.0 million in 1QFY23.
• The company’s performance was helped by business generated by its SuperSuite supply chain partnerships, currently on a $7 million annual run rate.
• The company’s TikTok Shop sales also contributed to the solid sales results.

• Earnings Trends: 1Q FY24/5 results were solid, with steady sales and improved gross profit margins.
• Profit growth was limited owing to higher SG&A expenses in absolute terms stemming from hiring personnel, higher wages, and the inclusion of SG&A expenses of Ohba Research and Land Surveys.
• However, the company is likely to see more benefits from the steady accumulation of orders and continuous improvement in gross profit margin from 2Q onward, when it becomes easier to secure sales volume owing to the seasonality of its business.

• A double dose of StubWorld this week as Pasona Group (2168 JP) finally takes the hint to sell (if not exit altogether) its holding in Benefit One Inc (2412 JP).
• Preceding my comments on Pasona/Benefit One are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• General Electric intends to offload its entire shareholding via a secondary offer, a positive development as it removes the share overhang
• Opportune time to own Aercap as aircraft is in high demand and supply chain disruptions mean limited supply over the medium-term, ensuring high lease rates and strong profits 
• BUY with target price of $81.45 (+21% UPSIDE) pegged to FY24 P/BV of 0.94x, Aercap is the best in the pack with superior net lease margin, finance cost, and ROE     

• Top shareholder Gubel (59.9% stake) launches a cash partial takeover offer for Prosegur Cia De Seguridad Sa (PSG SM) at €1.83/share, cum dividend, except for €0.0661/share dividend payable on 1 December.
• Premium 27.4%, 4.1x EV/Fwd NTM EBITDA, 7.5x Fwd P/E. The founders profit from an underperforming share price to increase their stake, and this could comfortably be financed with the dividends.
• Gross spread, including December dividend, is c. 7%, which is quite good even considering risk of apportionment, although patience may be needed to accumulate a large position.

• We are publishing this note to introduce a new HNI financial model inclusive of the acquisition of Kimball International.
• We expect this new model will be more user-friendly for investors who want to see how we arrive at our estimates or tinker with the assumptions.
• Per our discipline, our model is available on request or visible through our partners.

Mytilineos (MYTIL) is continuing to deliver on its transformation into a simpler structure based on two pillars, Energy and Metals. Its strategy is focused on realising synergies in the group and building its renewable energy sources (RES) business, with its existing industrial assets providing a solid platform for growth. In our view, €1bn/year in EBITDA looks achievable in FY23 and would reset earnings at a higher level. We are increasing our valuation from €36/share to €45/share, in part due to the growth of its RES business, partly funded by its asset rotation strategy.

• A double dose of StubWorld this week as Pasona Group (2168 JP) finally takes the hint to sell (if not exit altogether) its holding in Benefit One Inc (2412 JP).
• Preceding my comments on Pasona/Benefit One are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• General Electric intends to offload its entire shareholding via a secondary offer, a positive development as it removes the share overhang
• Opportune time to own Aercap as aircraft is in high demand and supply chain disruptions mean limited supply over the medium-term, ensuring high lease rates and strong profits 
• BUY with target price of $81.45 (+21% UPSIDE) pegged to FY24 P/BV of 0.94x, Aercap is the best in the pack with superior net lease margin, finance cost, and ROE     

• Top shareholder Gubel (59.9% stake) launches a cash partial takeover offer for Prosegur Cia De Seguridad Sa (PSG SM) at €1.83/share, cum dividend, except for €0.0661/share dividend payable on 1 December.
• Premium 27.4%, 4.1x EV/Fwd NTM EBITDA, 7.5x Fwd P/E. The founders profit from an underperforming share price to increase their stake, and this could comfortably be financed with the dividends.
• Gross spread, including December dividend, is c. 7%, which is quite good even considering risk of apportionment, although patience may be needed to accumulate a large position.

• We are publishing this note to introduce a new HNI financial model inclusive of the acquisition of Kimball International.
• We expect this new model will be more user-friendly for investors who want to see how we arrive at our estimates or tinker with the assumptions.
• Per our discipline, our model is available on request or visible through our partners.

Mytilineos (MYTIL) is continuing to deliver on its transformation into a simpler structure based on two pillars, Energy and Metals. Its strategy is focused on realising synergies in the group and building its renewable energy sources (RES) business, with its existing industrial assets providing a solid platform for growth. In our view, €1bn/year in EBITDA looks achievable in FY23 and would reset earnings at a higher level. We are increasing our valuation from €36/share to €45/share, in part due to the growth of its RES business, partly funded by its asset rotation strategy.