Industrials

• 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 – Amman Mineral Internasional (1416286D IJ), Tata Technologies (TATATECH IN), JD Industrials (2231713D CH) IPOs.
• Event-Driven developments – Toshiba Corp (6502 JP), Chindata Group (CD US), Eoflow (294090 KS), Inner Mongolia Yitai Coal Company Ltd (3948 HK), Estia Health (EHE AU), Origin Energy (ORG AU). 

• Share price performance has been strong in spite of pressure on margins from heavy investment in power semiconductors for electric vehicles. 
• Management’s medium-term targets are ambitious, but could be achieved in a reasonably favorable economic environment.
• Projected valuations compare favorably with historical ranges. The primary risk to investors appears to be  over-optimism. 

• Corporate governance report and securities report were inadequate because it was not possible to get a complete picture of how many advisors other than ex-CEOs were involved in the company.
• Mitsubishi Electric, which has suffered scandals, has revealed that “senior advisors” have been involved in its management. However, it is possible that advisors influence management at other companies as well.
• The ex-CEO isn’t necessarily in charge of industry association activities, the compensation of the advisors is undisclosed, and Mitsubishi Electric still has a ways to go in improving management transparency.

• The evolution of the digital age over the last two decades has seen an uninterrupted growth trajectory for the data center market, with demand being driven by increasing storage and computing requirements, as well as the widespread shift from on-premises infrastructure to cloud solutions.
• Developments in software applications and IT have reshaped the way clients interact with data, instigating a significant expansion of data center inventory.
• As the wheel of progress spins inexorably forward, Fortune 500 companies are turning their gaze toward the vast and uncharted frontier of Artificial Intelligence (AI) and its applications. 

• 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 – Amman Mineral Internasional (1416286D IJ), Tata Technologies (TATATECH IN), JD Industrials (2231713D CH) IPOs.
• Event-Driven developments – Toshiba Corp (6502 JP), Chindata Group (CD US), Eoflow (294090 KS), Inner Mongolia Yitai Coal Company Ltd (3948 HK), Estia Health (EHE AU), Origin Energy (ORG AU). 

• Share price performance has been strong in spite of pressure on margins from heavy investment in power semiconductors for electric vehicles. 
• Management’s medium-term targets are ambitious, but could be achieved in a reasonably favorable economic environment.
• Projected valuations compare favorably with historical ranges. The primary risk to investors appears to be  over-optimism. 

• Corporate governance report and securities report were inadequate because it was not possible to get a complete picture of how many advisors other than ex-CEOs were involved in the company.
• Mitsubishi Electric, which has suffered scandals, has revealed that “senior advisors” have been involved in its management. However, it is possible that advisors influence management at other companies as well.
• The ex-CEO isn’t necessarily in charge of industry association activities, the compensation of the advisors is undisclosed, and Mitsubishi Electric still has a ways to go in improving management transparency.

• The evolution of the digital age over the last two decades has seen an uninterrupted growth trajectory for the data center market, with demand being driven by increasing storage and computing requirements, as well as the widespread shift from on-premises infrastructure to cloud solutions.
• Developments in software applications and IT have reshaped the way clients interact with data, instigating a significant expansion of data center inventory.
• As the wheel of progress spins inexorably forward, Fortune 500 companies are turning their gaze toward the vast and uncharted frontier of Artificial Intelligence (AI) and its applications. 

• Toshiba Corp (6502 JP)‘s Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.
• Given CR Power (836 HK)‘s clean energy unit’s profitably, a listing should be a significant event, attracting a wide audience, and probably a premium to other listed green energy plays.
• Chindata Group (CD US) is unquestionably cheap. But Bain’s indicative Offer is not the answer to long-suffering shareholders.

• Hydro Lithium (formerly Korea Se Corp) is the top reserved issue in INDUSTRIALS and will get to replace NICE IS as a result of the KOSPI transfer listing.  
• The most significant price movements occur when the index corporate action announcement is made. However, some investors hunt for this pattern, as observed in the case of Youlchon Chemical.
• Hence, it’s worth considering an earlier entry timing. To minimize uncertainty, it’s vital to keep an eye on the preemptive price increase of Hydro Lithium before KRX’s approval.

• Toshiba Corp (6502 JP)‘s Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.
• Given CR Power (836 HK)‘s clean energy unit’s profitably, a listing should be a significant event, attracting a wide audience, and probably a premium to other listed green energy plays.
• Chindata Group (CD US) is unquestionably cheap. But Bain’s indicative Offer is not the answer to long-suffering shareholders.

• Hydro Lithium (formerly Korea Se Corp) is the top reserved issue in INDUSTRIALS and will get to replace NICE IS as a result of the KOSPI transfer listing.  
• The most significant price movements occur when the index corporate action announcement is made. However, some investors hunt for this pattern, as observed in the case of Youlchon Chemical.
• Hence, it’s worth considering an earlier entry timing. To minimize uncertainty, it’s vital to keep an eye on the preemptive price increase of Hydro Lithium before KRX’s approval.

• Toshiba announced today that its board had shifted stance on JIP’s upcoming tender and would recommend shareholders tender. 
• The special committee will review its opinion on the tender offer and based on that the company will offer another opinion when the tender commences. 
• Despite peers rising 13-30% since April an offer price increase still looks unlikely.

• Toshiba Corp (6502 JP) Board now recommends shareholders accept Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share. The Board also effectively rules out a bump.
• The Board unconvincingly recommends the offer in part on the premise that the IFA’s DCF valuation is unrealistic due to punchy forecasts and positive feedback from stakeholders.  
• The Board fails to consider that the peers have materially re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers’ multiples.

• In March, when the JIP Offer for Toshiba Corp (6502 JP) was announced, the Toshiba Board supported the Offer but declined, at the time, to recommend it to shareholders. 
• “[The price] has clearly not reached the level at which it is possible to recommend to general shareholders that they tender their shares at this time.” That was then.
• 10 weeks later and the Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.

• Redox (RDX AU), a chemical and ingredients distributor, is looking to raise around US$270m in its Australia IPO. 
• In 2022 it was ranked as the largest chemicals and ingredients distributor in Australia, as well as the 13th largest in the Asia Pacific region and the 35th largest worldwide.
• In this note, we undertake a quick peer comaprison and talk about valuations.

• GMR Airports Infrastructure (GMRI IN) saw pressure on its scrip after its results, that witnessed losses widening to INR-8.4 bn in F23 from INR -7.5 bn in F22 (continuing operations).
• The losses have further dented the balance sheet, that already looked fragile over a number of years.
• The company also faces cash generation problems on the back of debt burden, apart from severe contingent liabilities, that could further hamper the net-worth. Investors should remain cautious.

• TransDigm Group managed to exceed analyst expectations in terms of revenue as well as earnings in its recent quarterly result.
• With approximately 90% of net sales generated by unique proprietary products, the company’s focus on aftermarket revenues has provided stability and higher margins.
• TransDigm experienced substantial growth in total commercial revenues and bookings across all major market channels.

The quality of Severfield’s revenues is materially underappreciated by the market in our view, especially now that the UK and EU are embarking on huge investment programmes to renew and upgrade infrastructure to address global trends, such as the drive for net zero emissions. The reorganisation of the group, the internal improvement project (Project Horizon) and the EPS-enhancing M&A deal are not fully reflected in the FY24e P/E rating of c 7.0x, which is comfortably below the long-term average of 10.0x. Our positive stance is supported by the company’s strong balance sheet, progressive dividend and yield of over 5%.

• Jacobs Engineering Group managed to exceed analyst expectations in terms of revenue as well as earnings.
• The People and Places line of business of Jacobs Engineering delivered a strong performance.
• The divergent solutions operating unit had a strong operating profit with up in operating profit.

• Toshiba announced today that its board had shifted stance on JIP’s upcoming tender and would recommend shareholders tender. 
• The special committee will review its opinion on the tender offer and based on that the company will offer another opinion when the tender commences. 
• Despite peers rising 13-30% since April an offer price increase still looks unlikely.

• Toshiba Corp (6502 JP) Board now recommends shareholders accept Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share. The Board also effectively rules out a bump.
• The Board unconvincingly recommends the offer in part on the premise that the IFA’s DCF valuation is unrealistic due to punchy forecasts and positive feedback from stakeholders.  
• The Board fails to consider that the peers have materially re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers’ multiples.

• In March, when the JIP Offer for Toshiba Corp (6502 JP) was announced, the Toshiba Board supported the Offer but declined, at the time, to recommend it to shareholders. 
• “[The price] has clearly not reached the level at which it is possible to recommend to general shareholders that they tender their shares at this time.” That was then.
• 10 weeks later and the Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.

• Redox (RDX AU), a chemical and ingredients distributor, is looking to raise around US$270m in its Australia IPO. 
• In 2022 it was ranked as the largest chemicals and ingredients distributor in Australia, as well as the 13th largest in the Asia Pacific region and the 35th largest worldwide.
• In this note, we undertake a quick peer comaprison and talk about valuations.

• GMR Airports Infrastructure (GMRI IN) saw pressure on its scrip after its results, that witnessed losses widening to INR-8.4 bn in F23 from INR -7.5 bn in F22 (continuing operations).
• The losses have further dented the balance sheet, that already looked fragile over a number of years.
• The company also faces cash generation problems on the back of debt burden, apart from severe contingent liabilities, that could further hamper the net-worth. Investors should remain cautious.

• TransDigm Group managed to exceed analyst expectations in terms of revenue as well as earnings in its recent quarterly result.
• With approximately 90% of net sales generated by unique proprietary products, the company’s focus on aftermarket revenues has provided stability and higher margins.
• TransDigm experienced substantial growth in total commercial revenues and bookings across all major market channels.

The quality of Severfield’s revenues is materially underappreciated by the market in our view, especially now that the UK and EU are embarking on huge investment programmes to renew and upgrade infrastructure to address global trends, such as the drive for net zero emissions. The reorganisation of the group, the internal improvement project (Project Horizon) and the EPS-enhancing M&A deal are not fully reflected in the FY24e P/E rating of c 7.0x, which is comfortably below the long-term average of 10.0x. Our positive stance is supported by the company’s strong balance sheet, progressive dividend and yield of over 5%.

• Jacobs Engineering Group managed to exceed analyst expectations in terms of revenue as well as earnings.
• The People and Places line of business of Jacobs Engineering delivered a strong performance.
• The divergent solutions operating unit had a strong operating profit with up in operating profit.

• Japan’s newly approved hydrogen strategy has ignited a stock market rally in related names: KHI (+20%) Iwatani (+15%) Kansai Elec (+2%)
• Japan government approved higher supply targets for hydrogen to bring the hydrogen strategy in line with the most recent energy mix targets
• Kawasaki Heavy Industries plays a key role in Japan’s hydrogen supply chain, specializing in liquefied hydrogen and innovative initiatives

• Redox (RDX AU), a chemical and ingredients distributor, is looking to raise around US$270m in its Australia IPO. 
• In 2022 it was ranked as the largest chemicals and ingredients distributor in Australia, as well as the 13th largest in the Asia Pacific region and the 35th largest worldwide.
• In this note, we will look at the company’s past performance.

• Skymark Airlines (9204 JP) raised US$242m in its Japan IPO. The shares began to trade on 14th Dec 2022, its six-month lockup will expire on 11th Jun 2023.
• Skymark Airlines (SA) is a Japanese low-cost airline, being the third largest domestic airline  according to the company. Unlike major airlines and other low-cost carriers, Skymark operates only domestic flights.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• Japan’s newly approved hydrogen strategy has ignited a stock market rally in related names: KHI (+20%) Iwatani (+15%) Kansai Elec (+2%)
• Japan government approved higher supply targets for hydrogen to bring the hydrogen strategy in line with the most recent energy mix targets
• Kawasaki Heavy Industries plays a key role in Japan’s hydrogen supply chain, specializing in liquefied hydrogen and innovative initiatives

• Redox (RDX AU), a chemical and ingredients distributor, is looking to raise around US$270m in its Australia IPO. 
• In 2022 it was ranked as the largest chemicals and ingredients distributor in Australia, as well as the 13th largest in the Asia Pacific region and the 35th largest worldwide.
• In this note, we will look at the company’s past performance.

• Skymark Airlines (9204 JP) raised US$242m in its Japan IPO. The shares began to trade on 14th Dec 2022, its six-month lockup will expire on 11th Jun 2023.
• Skymark Airlines (SA) is a Japanese low-cost airline, being the third largest domestic airline  according to the company. Unlike major airlines and other low-cost carriers, Skymark operates only domestic flights.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• ASSA continues to demonstrate the ability to adapt to the changing environment in 1Q2023 with growth in its car fleet and improving profitability for logistics and the last mile. 
• Anteraja has seen a slowdown in e-commerce revenues but is focusing more on building offline customers, whilst ASSA logistics is increasingly focused on mid-mile and cold-chain logistics. 
• JBA Auction is seeing a strong recovery to pre-pandemic levels and maintains 40% market share, whilst Caroline is targeting 3,000-4,000 used car sales in 2023, whilst expanding its offline network.

• In 1Q FY12/23, net sales rose 12.8%, and operating profit increased 20.3%; thus, MARUKA FURUSATO made good progress toward achieving 1H forecasts of 9.2% increase in net sales and 9.4% decline in operating profit.
• As a large percentage of the company’s earnings comes from business orders, short-term earnings are unlikely to change much.
• It appears, however, that the company is making greater than initially expected progress in reducing its order backlog as supply constraints, such as shortage of semiconductors, are eliminated.

• ASSA continues to demonstrate the ability to adapt to the changing environment in 1Q2023 with growth in its car fleet and improving profitability for logistics and the last mile. 
• Anteraja has seen a slowdown in e-commerce revenues but is focusing more on building offline customers, whilst ASSA logistics is increasingly focused on mid-mile and cold-chain logistics. 
• JBA Auction is seeing a strong recovery to pre-pandemic levels and maintains 40% market share, whilst Caroline is targeting 3,000-4,000 used car sales in 2023, whilst expanding its offline network.

• In 1Q FY12/23, net sales rose 12.8%, and operating profit increased 20.3%; thus, MARUKA FURUSATO made good progress toward achieving 1H forecasts of 9.2% increase in net sales and 9.4% decline in operating profit.
• As a large percentage of the company’s earnings comes from business orders, short-term earnings are unlikely to change much.
• It appears, however, that the company is making greater than initially expected progress in reducing its order backlog as supply constraints, such as shortage of semiconductors, are eliminated.