Industrials

• Today, Kawasaki Kisen Kaisha (9107 JP) announced Q1 earnings. As expected, net was WAY down on weak container business. But the company revised up H1 and Full-Year.
• KLINE increased its FY2023 payout, upping its expected buyback plan from ¥50bn to ¥60bn. This is still cheap at 8.5x and 0.7x book, and there is non-container growth. 
• The structure of the buyback deserves attention. It may deserve a very short-term trade. The buyback construct has the possibility of “fun and games.”

• ANA has just announced that it will purchase carbon removal credits underpinned by Direct Air Capture (DAC)
• The purchase of 30,000 credits over 3 years is virtually nothing compared to the company’s annual CO2 emissions over 12 million tons
• Assuming that DAC is expected to remove just 10% of emissions, we estimate that it could wipe out over 70% of operating profit

• Fortive Corporation delivered a strong result and managed an all-around beat in the last quarter, showcasing its portfolio’s durability and the strength of its execution.
• The company achieved higher core growth, margins, earnings, and free cash flows.
• Their focus on building leading positions across customers’ critical connected workflows has paid off, demonstrated by the significant margins and expansion in adjusted operating margins.

Norcros’s total revenue grew 2.1% in Q124 versus a strong comparator period despite tough UK market conditions and power outages in South Africa as the company’s strong service offering and multiple routes to market allowed it to unlock market share opportunities. We continue to believe Norcros’s key strengths are undervalued and that most, if not all, of the legacy issues, particularly the pension deficit, have been resolved. We retain our estimates and value Norcros at 246p, implying c 50% upside.

• Today, Kawasaki Kisen Kaisha (9107 JP) announced Q1 earnings. As expected, net was WAY down on weak container business. But the company revised up H1 and Full-Year.
• KLINE increased its FY2023 payout, upping its expected buyback plan from ¥50bn to ¥60bn. This is still cheap at 8.5x and 0.7x book, and there is non-container growth. 
• The structure of the buyback deserves attention. It may deserve a very short-term trade. The buyback construct has the possibility of “fun and games.”

• ANA has just announced that it will purchase carbon removal credits underpinned by Direct Air Capture (DAC)
• The purchase of 30,000 credits over 3 years is virtually nothing compared to the company’s annual CO2 emissions over 12 million tons
• Assuming that DAC is expected to remove just 10% of emissions, we estimate that it could wipe out over 70% of operating profit

• Fortive Corporation delivered a strong result and managed an all-around beat in the last quarter, showcasing its portfolio’s durability and the strength of its execution.
• The company achieved higher core growth, margins, earnings, and free cash flows.
• Their focus on building leading positions across customers’ critical connected workflows has paid off, demonstrated by the significant margins and expansion in adjusted operating margins.

Norcros’s total revenue grew 2.1% in Q124 versus a strong comparator period despite tough UK market conditions and power outages in South Africa as the company’s strong service offering and multiple routes to market allowed it to unlock market share opportunities. We continue to believe Norcros’s key strengths are undervalued and that most, if not all, of the legacy issues, particularly the pension deficit, have been resolved. We retain our estimates and value Norcros at 246p, implying c 50% upside.

• In April, Sekisui Jushi (4212 JP) announced lackluster earnings and unsurprising guidance after a year marked by higher costs. It also announced a small (2.5%) buyback, likely for cross-holdings.
• Yesterday, the company announced Q1 results, and a revision to their buyback programme (to buy 20.2% of shares out). This morning their 22+% (#1) shareholder Sekisui Chemical sold 18%. 
• Forward PER dropped nearly 20%. The stock is still outrageously cash/securities-rich and if “re-levered” to zero net leverage would get a high 20s ROE. Hmmm…

• Ecopro BM (247540 KS) and Kum Yang (001570 KS)’s shares are down 2.5% and 4.5%, respectively today, driven by news of insiders at these companies selling their shares.
• It is estimated that the total amount of Ecopro BM shares sold by insiders and related parties was about 20 billion won in July by more than 12 insiders/related parties.
• We are increasingly concerned about insiders selling at Ecopro BM and Kum Yang. Coupled with lofty valuations, we think there is a higher probability of downside risk on these names. 

• As of 1 August, there could be two changes for the iShares A50 China (2823 HK)/ CSOP A50 (2822 HK) in September.
• There should be over 1x ADV to buy on NARI Technology Co Ltd A (600406 CH) and over 1x ADV to sell on Shaanxi Coal Industry (601225 CH). 
• There are a few stocks bunched around similar market caps among the potential adds and there could be changes to the list over the next few weeks.

• 3M Company delivered a strong result and managed an all-around beat in the last quarter.
• Their cost management efforts and restructuring initiatives primarily drove these margin increases.
• We give 3M Company a ‘Hold’ rating with a revised target price.

• General Dynamics delivered a positive result and managed an all-around beat in the last quarter.
• General Dynamics had a revenue increase across Defense segments and a modest increase in Aerospace.
• The revenue increase came from international vehicle programs at European Land Systems and Land Systems.

XP Power reported year-on-year revenue growth of 30% in H123 as it made good progress shipping from its elevated backlog. As expected, orders declined year-on-year, but the c £250m backlog still provides at least nine months’ revenue visibility. The company continues to invest for the longer term in Malaysia (manufacturing) and the United States (R&D). With no change to management’s full year expectations, we maintain our normalised operating profit forecasts for FY23 and FY24 and nudge up our interest cost forecast for FY23.

• Old Dominion Freight Line Inc. delivered a mixed set of results for this quarter with revenues below the analyst consensus.
• Considering the operating challenges that are associated with the domestic economy’s continued softness, and decreased volumes, the financial results were solid.
• We give Old Dominion Freight Line an ‘Underperform’ rating with a revised target price.

• Otis Worldwide managed to surpass the revenue and earnings expectations of Wall Street.
• Otis also achieved significant milestones in innovation, launching the Gen3 Core elevator and securing major projects globally.
• Looking ahead, Otis’ management has raised its 2023 outlook, and with the launch of the UpLift program, the company aims to drive efficiency and sustainable growth for the future.

• TRS continues to grow in its two smaller business segments while the packaging segment continues to experience a moderated recovery
• Predominantly consumer staples. Inventory management has been the main culprit for the packaging segment not recovering as fast as expected
• We believe the softness in packaging has created an investment opportunity in TRS’s stock as the Company streamlines its operations

• In April, Sekisui Jushi (4212 JP) announced lackluster earnings and unsurprising guidance after a year marked by higher costs. It also announced a small (2.5%) buyback, likely for cross-holdings.
• Yesterday, the company announced Q1 results, and a revision to their buyback programme (to buy 20.2% of shares out). This morning their 22+% (#1) shareholder Sekisui Chemical sold 18%. 
• Forward PER dropped nearly 20%. The stock is still outrageously cash/securities-rich and if “re-levered” to zero net leverage would get a high 20s ROE. Hmmm…

• Ecopro BM (247540 KS) and Kum Yang (001570 KS)’s shares are down 2.5% and 4.5%, respectively today, driven by news of insiders at these companies selling their shares.
• It is estimated that the total amount of Ecopro BM shares sold by insiders and related parties was about 20 billion won in July by more than 12 insiders/related parties.
• We are increasingly concerned about insiders selling at Ecopro BM and Kum Yang. Coupled with lofty valuations, we think there is a higher probability of downside risk on these names. 

• As of 1 August, there could be two changes for the iShares A50 China (2823 HK)/ CSOP A50 (2822 HK) in September.
• There should be over 1x ADV to buy on NARI Technology Co Ltd A (600406 CH) and over 1x ADV to sell on Shaanxi Coal Industry (601225 CH). 
• There are a few stocks bunched around similar market caps among the potential adds and there could be changes to the list over the next few weeks.

• 3M Company delivered a strong result and managed an all-around beat in the last quarter.
• Their cost management efforts and restructuring initiatives primarily drove these margin increases.
• We give 3M Company a ‘Hold’ rating with a revised target price.

• General Dynamics delivered a positive result and managed an all-around beat in the last quarter.
• General Dynamics had a revenue increase across Defense segments and a modest increase in Aerospace.
• The revenue increase came from international vehicle programs at European Land Systems and Land Systems.

XP Power reported year-on-year revenue growth of 30% in H123 as it made good progress shipping from its elevated backlog. As expected, orders declined year-on-year, but the c £250m backlog still provides at least nine months’ revenue visibility. The company continues to invest for the longer term in Malaysia (manufacturing) and the United States (R&D). With no change to management’s full year expectations, we maintain our normalised operating profit forecasts for FY23 and FY24 and nudge up our interest cost forecast for FY23.

• Old Dominion Freight Line Inc. delivered a mixed set of results for this quarter with revenues below the analyst consensus.
• Considering the operating challenges that are associated with the domestic economy’s continued softness, and decreased volumes, the financial results were solid.
• We give Old Dominion Freight Line an ‘Underperform’ rating with a revised target price.

• Otis Worldwide managed to surpass the revenue and earnings expectations of Wall Street.
• Otis also achieved significant milestones in innovation, launching the Gen3 Core elevator and securing major projects globally.
• Looking ahead, Otis’ management has raised its 2023 outlook, and with the launch of the UpLift program, the company aims to drive efficiency and sustainable growth for the future.

• TRS continues to grow in its two smaller business segments while the packaging segment continues to experience a moderated recovery
• Predominantly consumer staples. Inventory management has been the main culprit for the packaging segment not recovering as fast as expected
• We believe the softness in packaging has created an investment opportunity in TRS’s stock as the Company streamlines its operations

• Toshiba announced on Friday that JIP’s upcoming tender offer would not make the July end deadline. 
• At this point delays for Toshiba are par for the course and we do not think anything needs to be read into this. 
• With earnings coming up next week we examine the likely trends and the possibility of a revision to guidance.

• Nihon M&A reported 1QFY03/2024 results on Friday. Both revenue and OP decreased 9.1% and 52.5% YoY to ¥8.2bn (vs consensus ¥9.8bn) and ¥1.7bn (vs consensus ¥3.6bn) respectively.
• M&A sales decreased yet again in 1Q as the company is struggling to improve revenue per transaction despite there being an increase in the no. of transactions.
• We think the company may not be able to achieve full-year target given declining per transaction revenues and falling other businesses.

• R R Kabel (2333180Z IN) is looking to raise about US$200m in its upcoming India IPO. 
• R R Kabel is an Indian consumer electrical company, which primarily sells wires, cables and fast moving electrical goods (FMEG). 
• R R Kabel registered strong earnings growth on the back of growth in the volume of wires and cables sold. However, the lack of commodity hedging affected the firm’s margins.  

• Toshiba announced on Friday that JIP’s upcoming tender offer would not make the July end deadline. 
• At this point delays for Toshiba are par for the course and we do not think anything needs to be read into this. 
• With earnings coming up next week we examine the likely trends and the possibility of a revision to guidance.

• Nihon M&A reported 1QFY03/2024 results on Friday. Both revenue and OP decreased 9.1% and 52.5% YoY to ¥8.2bn (vs consensus ¥9.8bn) and ¥1.7bn (vs consensus ¥3.6bn) respectively.
• M&A sales decreased yet again in 1Q as the company is struggling to improve revenue per transaction despite there being an increase in the no. of transactions.
• We think the company may not be able to achieve full-year target given declining per transaction revenues and falling other businesses.

• R R Kabel (2333180Z IN) is looking to raise about US$200m in its upcoming India IPO. 
• R R Kabel is an Indian consumer electrical company, which primarily sells wires, cables and fast moving electrical goods (FMEG). 
• R R Kabel registered strong earnings growth on the back of growth in the volume of wires and cables sold. However, the lack of commodity hedging affected the firm’s margins.  

• Fanuc reported 1Q3/24 operating profit of ¥32.6 billion (-26.3% YoY), missing street expectations at around ¥43 billion
• Fanuc cut full year guidance for operating profit to ¥118 billion (-38% YoY), way below street estimates of ¥176 billion
• Turning bearish. We think the stock will essentially tread water given lack of catalysts over next 6-9 months and valuations

• Boeing delivered a mixed result in the recent quarter, with revenues above market expectations, but it failed to surpass the analyst consensus regarding earnings.
• In the quarter, Boeing booked 460 net orders and delivered 136 commercial airplanes.
• The results impacted by the continuing losses on MQ-25, the T-7A, Commercial Crew, and three fixed-price development programs hit Boeing in the quarter.

• General Electric managed to exceed Wall Street expectations in terms of revenue and earnings.
• GE Vernova is also increasing spin with significant orders, improved profitability in Renewable Energy, and continuing margin expansion in Power.
• We give General Electric a ‘Hold’ rating with a revised target price.

• Roper delivered a strong positive result in the recent quarter and exceeded the expectations of the management in terms of both revenue and earnings.
• By the end of the year, Roper hopes to close its acquisition of Replicon, a bolt-on acquisition for the company’s Deltek business.
• Aderant, the software business of Roper that’s aimed at the needs of law firms, is quite excellent.

• Fanuc reported 1Q3/24 operating profit of ¥32.6 billion (-26.3% YoY), missing street expectations at around ¥43 billion
• Fanuc cut full year guidance for operating profit to ¥118 billion (-38% YoY), way below street estimates of ¥176 billion
• Turning bearish. We think the stock will essentially tread water given lack of catalysts over next 6-9 months and valuations

• Boeing delivered a mixed result in the recent quarter, with revenues above market expectations, but it failed to surpass the analyst consensus regarding earnings.
• In the quarter, Boeing booked 460 net orders and delivered 136 commercial airplanes.
• The results impacted by the continuing losses on MQ-25, the T-7A, Commercial Crew, and three fixed-price development programs hit Boeing in the quarter.

• General Electric managed to exceed Wall Street expectations in terms of revenue and earnings.
• GE Vernova is also increasing spin with significant orders, improved profitability in Renewable Energy, and continuing margin expansion in Power.
• We give General Electric a ‘Hold’ rating with a revised target price.

• Roper delivered a strong positive result in the recent quarter and exceeded the expectations of the management in terms of both revenue and earnings.
• By the end of the year, Roper hopes to close its acquisition of Replicon, a bolt-on acquisition for the company’s Deltek business.
• Aderant, the software business of Roper that’s aimed at the needs of law firms, is quite excellent.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Aeropuertos Argentina 2000’s ESG as “Adequate”, in line with its Social, Environmental and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Aeropuertos Argentina 2000 (AA2000) is Argentina’s largest airport operator. In 1998, it was granted a 30-year concession by the national government for the use, operation and management of 37 airports, out of a total of 56 in the country.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess EVOCA’s ESG as “Adequate”. The company has “Adequate” Governance and Social scores, but a “Weak” Environmental score. Controversies are “Immaterial” and Disclosure is “Adequate”.
• EVOCA (formerly N&W Vending) is a manufacturer of professional coffee machines, as well as machines for hot & cold beverages and snacks.

• Equifax delivered a mixed result in the recent quarter, with revenues below market expectations but managed to surpass the analyst consensus regarding earnings.
• Last quarter, the company faced a challenge, particularly in the mortgage and hiring markets.
• While the U.S. mortgage market weakened, they delivered adjusted EPS and EBITDA margins above guidance.

• United Airlines delivered an all-around beat in the most recent quarterly result.
• The strategic initiatives, including aggressive pilot hiring, fleet expansion, and route optimization, have paid off and put United on a path toward delivering impressive earnings per share.
• We give United Airlines Holdings a ‘Buy’ rating with a revised target price.

• Danaher managed to exceed the revenue and earnings expectations of Wall Street despite a more dynamic operating environment.
• Better-than-expected respiratory testing revenue and high single-digit base business core revenue growth in Life Sciences and Diagnostics helped counteract weaker base business demand in bioprocessing.
• Besides, broad-based strength throughout the Cepheid test portfolio drove another quarter of more than 30% core growth in non-respiratory testing in Molecular Diagnostics.

• Millennium Services Group Ltd (ASX:MIL) has provided an update on Q4 FY23 revenue, cash flow from operating activities, and the H2 FY23 gross margin. MIL delivered 8.0% (RaaS 9.6%) revenue growth in Q4 FY23 and 2.0% over FY23 on the back of new contract wins and wage inflation. Q4 FY23 cash flow turned positive with the group ending FY23 with just $1.2m net debt.
• The H2 FY23 GP% came in below implied guidance and RaaS estimates at 14.4% against ~15.9% forecast, attributed to wage pressure in a tight labour market.
• While most contracts have an annual contract adjustment clause for wage increases, the timing and magnitude of recent award increases is proving difficult to manage. 

• Dover delivered a disappointing set of results as the company was unable to meet the revenue expectations as well as earnings expectations of Wall Street.
• However, they faced operational challenges in their vehicle service group due to an ERP implementation, resulting in a loss of revenue and EPS.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Aeropuertos Argentina 2000’s ESG as “Adequate”, in line with its Social, Environmental and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Aeropuertos Argentina 2000 (AA2000) is Argentina’s largest airport operator. In 1998, it was granted a 30-year concession by the national government for the use, operation and management of 37 airports, out of a total of 56 in the country.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess EVOCA’s ESG as “Adequate”. The company has “Adequate” Governance and Social scores, but a “Weak” Environmental score. Controversies are “Immaterial” and Disclosure is “Adequate”.
• EVOCA (formerly N&W Vending) is a manufacturer of professional coffee machines, as well as machines for hot & cold beverages and snacks.

• Equifax delivered a mixed result in the recent quarter, with revenues below market expectations but managed to surpass the analyst consensus regarding earnings.
• Last quarter, the company faced a challenge, particularly in the mortgage and hiring markets.
• While the U.S. mortgage market weakened, they delivered adjusted EPS and EBITDA margins above guidance.

• United Airlines delivered an all-around beat in the most recent quarterly result.
• The strategic initiatives, including aggressive pilot hiring, fleet expansion, and route optimization, have paid off and put United on a path toward delivering impressive earnings per share.
• We give United Airlines Holdings a ‘Buy’ rating with a revised target price.

• Danaher managed to exceed the revenue and earnings expectations of Wall Street despite a more dynamic operating environment.
• Better-than-expected respiratory testing revenue and high single-digit base business core revenue growth in Life Sciences and Diagnostics helped counteract weaker base business demand in bioprocessing.
• Besides, broad-based strength throughout the Cepheid test portfolio drove another quarter of more than 30% core growth in non-respiratory testing in Molecular Diagnostics.

• Millennium Services Group Ltd (ASX:MIL) has provided an update on Q4 FY23 revenue, cash flow from operating activities, and the H2 FY23 gross margin. MIL delivered 8.0% (RaaS 9.6%) revenue growth in Q4 FY23 and 2.0% over FY23 on the back of new contract wins and wage inflation. Q4 FY23 cash flow turned positive with the group ending FY23 with just $1.2m net debt.
• The H2 FY23 GP% came in below implied guidance and RaaS estimates at 14.4% against ~15.9% forecast, attributed to wage pressure in a tight labour market.
• While most contracts have an annual contract adjustment clause for wage increases, the timing and magnitude of recent award increases is proving difficult to manage. 

• Dover delivered a disappointing set of results as the company was unable to meet the revenue expectations as well as earnings expectations of Wall Street.
• However, they faced operational challenges in their vehicle service group due to an ERP implementation, resulting in a loss of revenue and EPS.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.