Industrials

• Polycab India (POLYCAB IN) is in the limelight on the back of Income Tax investigation carried in December 2023 which revealed several accounted transactions.
• In a circular, it is hinted that the IT department has detected unaccounted cash sales worth INR 10 bn, unaccounted cash payments made by distributors, and some non-genuine expenses.
• However our forensics framework does not hint at any alarming red flags, apart from low FA turnover ratio, stock with third parties and board composition.

• Taiwan High Speed Rail (2633 TT) (THSR) solid traffic growth and high utilization rate are driving strong profits and cashflows which will be mostly paid out as dividends       
• We view THSR as a government-backed perpetual bond masked as equity as it has a minimum profit guarantee, a firm dividend mandate, and impetus to disperse excess cash to shareholders 
• The current yield margin against the 10-year bond is the widest since its IPO and is forecasted to widen further with strong profit growth. Attractive for alternative fixed-income investors 

• I continue to believe events in Ukraine, Israel, and China have broader implications than are appreciated by markets today.
• For now, my takeaways are simple (from most to least confident): own defense stocks and broad reshoring winners, and don’t get caught off-guard by tail events.
• Some notable additions (all long): Chemring (UK-based defense company that Upslope previously owned and re-added), North West Co (Canadian specialty retailer), nVent Electric (electrical connection/protection supplier), and Intel (leading semiconductor device manufacturer). Upslope also exited Man Group (UK-based alt. asset manager).

XP Power closed FY23 with higher-than-expected revenue, benefiting from the delay to relocation of its California facility, which pulled shipments worth c £5m into Q423 and pushed c £12m capex into Q124. Q423 order intake was higher than we forecast, with upside from semiconductor equipment customers partially offset by weaker demand from healthcare and industrial customers. Timing issues and currency resulted in lower-than-expected gearing at end-FY23, although it is expected to rise in H124 before reducing again in H224. Management expects market conditions to improve through 2024, with results weighted to H2. We maintain our forecasts pending FY23 results in March.

• Amaero International Ltd (ASX:3DA) is a global specialist in advanced materials manufacturing for the defence, aerospace, and other industrial sectors.
• The company is developing an 800+-tonne a year critical metals alloy powder manufacturing facility in Tennessee, USA, with the initial focus on producing refractory alloy powder, C103, a critical metal powder used in hypersonics weaponry, strategic metals and satellites.
• The company is moving apace with its planned commercialisation, recently announcing it had secured A$7.5m in corporate financing and that it had executed a binding purchase order for its second gas atomiser, the next generation Electrode Induction Melting Inert Gas Atomiser (or EIGA premium). 

• Polycab India (POLYCAB IN) is in the limelight on the back of Income Tax investigation carried in December 2023 which revealed several accounted transactions.
• In a circular, it is hinted that the IT department has detected unaccounted cash sales worth INR 10 bn, unaccounted cash payments made by distributors, and some non-genuine expenses.
• However our forensics framework does not hint at any alarming red flags, apart from low FA turnover ratio, stock with third parties and board composition.

• Taiwan High Speed Rail (2633 TT) (THSR) solid traffic growth and high utilization rate are driving strong profits and cashflows which will be mostly paid out as dividends       
• We view THSR as a government-backed perpetual bond masked as equity as it has a minimum profit guarantee, a firm dividend mandate, and impetus to disperse excess cash to shareholders 
• The current yield margin against the 10-year bond is the widest since its IPO and is forecasted to widen further with strong profit growth. Attractive for alternative fixed-income investors 

• I continue to believe events in Ukraine, Israel, and China have broader implications than are appreciated by markets today.
• For now, my takeaways are simple (from most to least confident): own defense stocks and broad reshoring winners, and don’t get caught off-guard by tail events.
• Some notable additions (all long): Chemring (UK-based defense company that Upslope previously owned and re-added), North West Co (Canadian specialty retailer), nVent Electric (electrical connection/protection supplier), and Intel (leading semiconductor device manufacturer). Upslope also exited Man Group (UK-based alt. asset manager).

XP Power closed FY23 with higher-than-expected revenue, benefiting from the delay to relocation of its California facility, which pulled shipments worth c £5m into Q423 and pushed c £12m capex into Q124. Q423 order intake was higher than we forecast, with upside from semiconductor equipment customers partially offset by weaker demand from healthcare and industrial customers. Timing issues and currency resulted in lower-than-expected gearing at end-FY23, although it is expected to rise in H124 before reducing again in H224. Management expects market conditions to improve through 2024, with results weighted to H2. We maintain our forecasts pending FY23 results in March.

• Amaero International Ltd (ASX:3DA) is a global specialist in advanced materials manufacturing for the defence, aerospace, and other industrial sectors.
• The company is developing an 800+-tonne a year critical metals alloy powder manufacturing facility in Tennessee, USA, with the initial focus on producing refractory alloy powder, C103, a critical metal powder used in hypersonics weaponry, strategic metals and satellites.
• The company is moving apace with its planned commercialisation, recently announcing it had secured A$7.5m in corporate financing and that it had executed a binding purchase order for its second gas atomiser, the next generation Electrode Induction Melting Inert Gas Atomiser (or EIGA premium). 

• We forecast EBITDAR of KRW3.35trn for Korean Air in 2023 (KRW3.8trn previously) with EBITDAR/ATK up 50% on 2019/32% on 2018. We remain at KRW2.9trn in 2024 (EBITDAR/ATK +28% vs 2019).
• Unwinding cargo yields may fully eliminate earnings gains but cost management safeguards future prospects despite Asiana merger uncertainty.
• Cost inflation management inflected negatively in 3Q as labour costs rose – control crucial as market conditions normalize and low cost competitors expand.

• LG Energy Solution reported disappointing preliminary earnings in 4Q 2023. The company reported operating profit of 338.2 billion won (43.5% lower than consensus).
• Post a major earnings miss for LGES in 4Q 2023, the consensus is likely to reduce earnings estimates of the company in 2024 and 2025.
• Major EV players such as Tesla were reducing prices in the past year causing higher pressures on EV battery makers such as LGES to reduce their prices as well. 

• Overview: arara primarily serves retailers such as supermarkets and restaurant chains, offering Dokuji Pay (branded currency payment + marketing) and high-speed e-mail delivery software as a service.
• With its Dokuji Pay service, where clients are the issuers, the company has a certain level of distinction from its competitors in this niche field, and is solidifying its market position.
• Starting in March 2024, the company plans to integrate its digital signage- related business as well, aiming to quickly accelerate its retail marketing platform strategy to help retail stores strengthen their connection with consumers both inside and outside their stores. 

• BluSmart Unlike other players in India’s crowded EV scene, BluSmart Mobility does not build its own electric vehicles.
• Instead, the company is a ride-hailing firm that leases EV models like the Tata e-Tigor, MG ZS, and Hyundai Kona to be part of its 5,500-strong fleet.
• But an equally important of BluSmart’s business is its charging infrastructure division.

• InterGlobe Aviation Ltd (INDIGO IN)’s co-founder Rakesh Gangwal’s 25%+ stake will be released from lock-up tomorrow.
• He had earlier stated his intention to pare down his stake. He has sold shares in Sep 2022, Feb 2023 and Aug 2023.
• In this note, we will talk about the lockup dynamics and possible placement.

• We forecast EBITDAR of KRW3.35trn for Korean Air in 2023 (KRW3.8trn previously) with EBITDAR/ATK up 50% on 2019/32% on 2018. We remain at KRW2.9trn in 2024 (EBITDAR/ATK +28% vs 2019).
• Unwinding cargo yields may fully eliminate earnings gains but cost management safeguards future prospects despite Asiana merger uncertainty.
• Cost inflation management inflected negatively in 3Q as labour costs rose – control crucial as market conditions normalize and low cost competitors expand.

• LG Energy Solution reported disappointing preliminary earnings in 4Q 2023. The company reported operating profit of 338.2 billion won (43.5% lower than consensus).
• Post a major earnings miss for LGES in 4Q 2023, the consensus is likely to reduce earnings estimates of the company in 2024 and 2025.
• Major EV players such as Tesla were reducing prices in the past year causing higher pressures on EV battery makers such as LGES to reduce their prices as well. 

• Overview: arara primarily serves retailers such as supermarkets and restaurant chains, offering Dokuji Pay (branded currency payment + marketing) and high-speed e-mail delivery software as a service.
• With its Dokuji Pay service, where clients are the issuers, the company has a certain level of distinction from its competitors in this niche field, and is solidifying its market position.
• Starting in March 2024, the company plans to integrate its digital signage- related business as well, aiming to quickly accelerate its retail marketing platform strategy to help retail stores strengthen their connection with consumers both inside and outside their stores. 

• BluSmart Unlike other players in India’s crowded EV scene, BluSmart Mobility does not build its own electric vehicles.
• Instead, the company is a ride-hailing firm that leases EV models like the Tata e-Tigor, MG ZS, and Hyundai Kona to be part of its 5,500-strong fleet.
• But an equally important of BluSmart’s business is its charging infrastructure division.

• InterGlobe Aviation Ltd (INDIGO IN)’s co-founder Rakesh Gangwal’s 25%+ stake will be released from lock-up tomorrow.
• He had earlier stated his intention to pare down his stake. He has sold shares in Sep 2022, Feb 2023 and Aug 2023.
• In this note, we will talk about the lockup dynamics and possible placement.

• Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
• Furuya Metal (7826 JP) and Visional (4194 JP) are expected to be included in the TOPIX index at the end of January 2024
• There are couple of other pre-event names that we have been tracking for the past few months.

• Our FY24 to March 2024 EBIT forecast for ANA of ¥ 196bn is considerably higher than company guidance of ¥ 140bn, supported by our analysis of historical earnings seasonality.
• However, we are only narrowly above consensus of ¥186bn, and narrowly below consensus of ¥204bn, ¥208bn in FY25, FY26.
• In contrast, we see considerably greater upside to expectations at JAL, where our FY24 EBIT is 27% above consensus.

• Adi Sarana Armada (ASSA IJ) represents one of the most interesting plays on people and goods mobility and end-to-end logistics in Indonesia, being market leaders in auto leasing and auctions.
• Revenues slowed in 9M2023 due to a slowdown in Anteraja because of slower e-commerce but other areas saw strong growth, especially its auction and used car business.
• Adi Sarana Armada continues to build its renamed Cargoshare end-to-end logistics business with new customers and a move into cold chain logistics. Valuations are attractive relative to growth.

• Use of quantum technology expected to improve electrical die sorting (EDS) performance by several percentage points.
• Collaboration with Quanmatic aims at full-scale introduction in April, the first month of FY Mar-25. 
• Buy for long-term growth led by power semiconductors with margin expansion from efficiency gains.

• Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
• Furuya Metal (7826 JP) and Visional (4194 JP) are expected to be included in the TOPIX index at the end of January 2024
• There are couple of other pre-event names that we have been tracking for the past few months.

• Our FY24 to March 2024 EBIT forecast for ANA of ¥ 196bn is considerably higher than company guidance of ¥ 140bn, supported by our analysis of historical earnings seasonality.
• However, we are only narrowly above consensus of ¥186bn, and narrowly below consensus of ¥204bn, ¥208bn in FY25, FY26.
• In contrast, we see considerably greater upside to expectations at JAL, where our FY24 EBIT is 27% above consensus.

• Adi Sarana Armada (ASSA IJ) represents one of the most interesting plays on people and goods mobility and end-to-end logistics in Indonesia, being market leaders in auto leasing and auctions.
• Revenues slowed in 9M2023 due to a slowdown in Anteraja because of slower e-commerce but other areas saw strong growth, especially its auction and used car business.
• Adi Sarana Armada continues to build its renamed Cargoshare end-to-end logistics business with new customers and a move into cold chain logistics. Valuations are attractive relative to growth.

• Use of quantum technology expected to improve electrical die sorting (EDS) performance by several percentage points.
• Collaboration with Quanmatic aims at full-scale introduction in April, the first month of FY Mar-25. 
• Buy for long-term growth led by power semiconductors with margin expansion from efficiency gains.

• We discuss the potential KOSPI200 rebalance candidates in June 2024. In the past several years, there have been a lot of alpha generating stocks arising from the KOSPI200 rebalances.
• The following companies are likely candidates which could be included in KOSPI200 rebalance in June 2024, including Posco DX, Doosan Robotics, Hyosung Heavy Industries Corp, and DS Dansuk. 
• For the potential exclusion candidates, we included 10 stocks that are in the bottom 5% market caps in KOSPI200.

• Sumitomo Chemical (4005 JP) and Mizuho Trust & Banking are looking to raise around US$180m through the sale of their stake in Inabata & Co (8098 JP).
• The deal is a large one to digest, at 90 days of three month ADV and 15% of current mcap. 
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• We revisit FY24 prospects by highlighting that historical full service carrier (FSC) earnings seasonality suggests group EBIT guidance of ¥130bn is very conservative.
• FSC FY24 EBIT guidance of ¥80bn implies only ¥9bn in 2H, 12% of 1H’s ¥71bn, whereas historically 2H has represented 74-83% of 1H. We model ¥59bn or 84% in 2H.
• Our ¥176.5bn group EBIT for FY24 is 36% above guidance but also 27% above Visible Alpha consensus, largely due to lower costs, which position JAL strongly for the long-term.

• Ferrotec shares have dropped by a third since last July and are now selling at 8.2x EPS guidance and 0.6x book value.
• Sales and operating should start to recover in 2H of FY Mar-24, led by power semiconductor substrates.
• Buy for the upturn in the semiconductor cycle and capacity expansion in Japan, China and Malaysia. No significant damage from the Noto Peninsula earthquake has been reported.

• Kerry Logistics Network will pay a special dividend in the form of KEX shares
• This will trigger a general offer by SF Holding for all KEX shares at THB 5.50
• Why is SF Holding doing this, & how could its int’l express business change?

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Standard Profil’s ESG as “Adequate”, in line with its “Adequate” Environmental, Social and Governance scores. Controversies are “Immaterial”, but Disclosure is “Weak”. 
• Standard Profil (SP) is a European manufacturer of automotive sealing solutions.

• We discuss the potential KOSPI200 rebalance candidates in June 2024. In the past several years, there have been a lot of alpha generating stocks arising from the KOSPI200 rebalances.
• The following companies are likely candidates which could be included in KOSPI200 rebalance in June 2024, including Posco DX, Doosan Robotics, Hyosung Heavy Industries Corp, and DS Dansuk. 
• For the potential exclusion candidates, we included 10 stocks that are in the bottom 5% market caps in KOSPI200.

• Sumitomo Chemical (4005 JP) and Mizuho Trust & Banking are looking to raise around US$180m through the sale of their stake in Inabata & Co (8098 JP).
• The deal is a large one to digest, at 90 days of three month ADV and 15% of current mcap. 
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• We revisit FY24 prospects by highlighting that historical full service carrier (FSC) earnings seasonality suggests group EBIT guidance of ¥130bn is very conservative.
• FSC FY24 EBIT guidance of ¥80bn implies only ¥9bn in 2H, 12% of 1H’s ¥71bn, whereas historically 2H has represented 74-83% of 1H. We model ¥59bn or 84% in 2H.
• Our ¥176.5bn group EBIT for FY24 is 36% above guidance but also 27% above Visible Alpha consensus, largely due to lower costs, which position JAL strongly for the long-term.

• Ferrotec shares have dropped by a third since last July and are now selling at 8.2x EPS guidance and 0.6x book value.
• Sales and operating should start to recover in 2H of FY Mar-24, led by power semiconductor substrates.
• Buy for the upturn in the semiconductor cycle and capacity expansion in Japan, China and Malaysia. No significant damage from the Noto Peninsula earthquake has been reported.

• Kerry Logistics Network will pay a special dividend in the form of KEX shares
• This will trigger a general offer by SF Holding for all KEX shares at THB 5.50
• Why is SF Holding doing this, & how could its int’l express business change?

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Standard Profil’s ESG as “Adequate”, in line with its “Adequate” Environmental, Social and Governance scores. Controversies are “Immaterial”, but Disclosure is “Weak”. 
• Standard Profil (SP) is a European manufacturer of automotive sealing solutions.

• On Friday after the close, Inabata & Co (8098 JP) announced Sumitomo Chemical (4005 JP) would sell down a large stake in a ~$200mm secondary equity offering. 
• Mizuho Bank’s Retirement Benefit Trust account sells down too. Sumitomo Chem will keep 10+% and other crossholders remain. 
• This is “big” at 80 days of ADV with limited early index demand, but a 10% fall would make this cheap enough to buy vs Peers.

• The share price has increased by around 20% since mid-last year.
• A new revenue stream from the booking fee through the Zig app and calls that, albeit small, it was never possible to share upside with cabbies before. 
• Extension from 15 days to 30 days visa-free for Chinese tourists to come to Singapore on early 2024. 

• Human services company Millennium Services Group Ltd (ASX:MIL) has entered a Scheme of Arrangement with an entity associated with Softbank Robotics Singapore for the acquisition of 100% of shares at $1.15/share cash.
• Shareholders also have the option to accept a mix of cash and scrip in the new unlisted entity, with certain management committing not less than a total of 30% for this option.
• The bid price represents an 89% premium to the last RaaS update note (October 23) and 360% premium from July 1, 2023. 

• On Friday after the close, Inabata & Co (8098 JP) announced Sumitomo Chemical (4005 JP) would sell down a large stake in a ~$200mm secondary equity offering. 
• Mizuho Bank’s Retirement Benefit Trust account sells down too. Sumitomo Chem will keep 10+% and other crossholders remain. 
• This is “big” at 80 days of ADV with limited early index demand, but a 10% fall would make this cheap enough to buy vs Peers.

• The share price has increased by around 20% since mid-last year.
• A new revenue stream from the booking fee through the Zig app and calls that, albeit small, it was never possible to share upside with cabbies before. 
• Extension from 15 days to 30 days visa-free for Chinese tourists to come to Singapore on early 2024. 

• Human services company Millennium Services Group Ltd (ASX:MIL) has entered a Scheme of Arrangement with an entity associated with Softbank Robotics Singapore for the acquisition of 100% of shares at $1.15/share cash.
• Shareholders also have the option to accept a mix of cash and scrip in the new unlisted entity, with certain management committing not less than a total of 30% for this option.
• The bid price represents an 89% premium to the last RaaS update note (October 23) and 360% premium from July 1, 2023.