Industrials

NSE Indices have started a market consultation on dropping stocks that are not a part of the Futures & Options segment from the Nifty Next 50 Index (NIFTYJR INDEX).
This will be done in two phases with a weight reduction for non-F&O stocks in June and deletion from the index in September.
That will result in 11 inclusions to the Nifty Next 50 Index (NIFTYJR INDEX) in September and bring in a lot of flow to the stocks.

Kawasaki Heavy Ind (7012) | Building a Hydrogen Society

By Mark Chadwick

We are bullish on KHI and see around 40% upside for the share price
Over the next two years, we expect strong profit growth on recovery in aircraft parts, jet engines and military equipment
KHI is likely to be a key beneficiary of the Hydrogen economy and is well placed to build a new earnings driver over the next decade

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May 31

Daily Brief Industrials: Polycab India , Kawasaki Heavy Industries and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

NIFTY NEXT 50 Index Market Consultation: Non-F&O Stocks Could Be Dropped
Kawasaki Heavy Ind (7012) | Building a Hydrogen Society

NIFTY NEXT 50 Index Market Consultation: Non-F&O Stocks Could Be Dropped

NSE Indices have started a market consultation on dropping stocks that are not a part of the Futures & Options segment from the Nifty Next 50 Index (NIFTYJR INDEX).
This will be done in two phases with a weight reduction for non-F&O stocks in June and deletion from the index in September.
That will result in 11 inclusions to the Nifty Next 50 Index (NIFTYJR INDEX) in September and bring in a lot of flow to the stocks.

Kawasaki Heavy Ind (7012) | Building a Hydrogen Society

By Mark Chadwick

We are bullish on KHI and see around 40% upside for the share price
Over the next two years, we expect strong profit growth on recovery in aircraft parts, jet engines and military equipment
KHI is likely to be a key beneficiary of the Hydrogen economy and is well placed to build a new earnings driver over the next decade

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The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

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May 30

Daily Brief Industrials: Relia Inc, JD Industrials, Qantm Intellectual Property, Almac and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Relia (4708 JP) Tender Offer Launches – STILL at the Wrong Price for the Wrong Reasons
JD Industrials IPO: The Bear Case
QANTM Intellectual Property Ltd – Investor Briefing: Reiterates EBITDA Margin Target
Almac IPO Valuation Analysis
JD Industrials Pre-IPO – Initial Thoughts on Valuation

Relia (4708 JP) Tender Offer Launches – STILL at the Wrong Price for the Wrong Reasons

By Travis Lundy

In mid-January this year, Mitsui & Co Ltd (8031 JP) announced it would buy out minorities in Relia Inc (4708 JP) (longtime known as Moshi Moshi), a BPO/RPA/AI services company.
I said the deal was too cheap, with 44% upside to the midpoint of Target Advisor’s DCF fair value range. Investors needed to exercise their cowbell to get more.
Since then, TOPIX has returned ~15%, A peer basket 16%, H2 was possibly kitchen-sinked, but no Mar-2024 forecasts were provided. The Tender starts tomorrow. Noise is still warranted.

JD Industrials IPO: The Bear Case

By Research as a Service (RaaS)

JD Industrials (2231713D CH)/JDI, a leading industrial supply chain technology and service provider in China, has filed for a US$1bn IPO. JD.com Inc (ADR) (JD US) owns a 77.95% stake.
In JD Industrials IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
The key elements of the bear case rest on slowing SME growth, declining key accounts take rate and gross margin, unnecessary factoring and transfer of most cash for treasury management.

QANTM Intellectual Property Ltd – Investor Briefing: Reiterates EBITDA Margin Target

Unchanged outlook commentary versus February 23 results commentary: QIP expects continued organic growth and underlying EBITDA margin improvement.
Increased sense of urgency around transformation programme execution with IP management platform upgrades and redundant data centre commissioning scheduled in coming months.
Reiteration of EBITDA margin target of low 30s medium term versus c. 27% currently.

Almac IPO Valuation Analysis

By Douglas Kim

Our target price of Almac is 58,573 won per share, which is 30% higher than the high end of the IPO price range of 45,000 won.
Our target price is based on 14.8x P/E using our estimated net profit of 25.4 billion won in 2024.
Almac ranks first in domestic market share (Korea) in the aluminum extruded module cases that protect batteries from external shocks.

JD Industrials Pre-IPO – Initial Thoughts on Valuation

By Sumeet Singh

JD Industrials is looking to raise about US$1bn in its upcoming HK IPO.
JDI is a leading industrial supply chain technology and service provider in China in terms of GMV in each year during the Track Record Period, according to CIC.
We have looked at the company background and undertaken a peer comparison in our previous notes. In this note, we will talk about valuations.

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May 30

Daily Brief Industrials: Relia Inc, JD Industrials, Qantm Intellectual Property, Almac and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Relia (4708 JP) Tender Offer Launches – STILL at the Wrong Price for the Wrong Reasons
JD Industrials IPO: The Bear Case
QANTM Intellectual Property Ltd – Investor Briefing: Reiterates EBITDA Margin Target
Almac IPO Valuation Analysis
JD Industrials Pre-IPO – Initial Thoughts on Valuation

Relia (4708 JP) Tender Offer Launches – STILL at the Wrong Price for the Wrong Reasons

By Travis Lundy

In mid-January this year, Mitsui & Co Ltd (8031 JP) announced it would buy out minorities in Relia Inc (4708 JP) (longtime known as Moshi Moshi), a BPO/RPA/AI services company.
I said the deal was too cheap, with 44% upside to the midpoint of Target Advisor’s DCF fair value range. Investors needed to exercise their cowbell to get more.
Since then, TOPIX has returned ~15%, A peer basket 16%, H2 was possibly kitchen-sinked, but no Mar-2024 forecasts were provided. The Tender starts tomorrow. Noise is still warranted.

JD Industrials IPO: The Bear Case

By Research as a Service (RaaS)

JD Industrials (2231713D CH)/JDI, a leading industrial supply chain technology and service provider in China, has filed for a US$1bn IPO. JD.com Inc (ADR) (JD US) owns a 77.95% stake.
In JD Industrials IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
The key elements of the bear case rest on slowing SME growth, declining key accounts take rate and gross margin, unnecessary factoring and transfer of most cash for treasury management.

QANTM Intellectual Property Ltd – Investor Briefing: Reiterates EBITDA Margin Target

Unchanged outlook commentary versus February 23 results commentary: QIP expects continued organic growth and underlying EBITDA margin improvement.
Increased sense of urgency around transformation programme execution with IP management platform upgrades and redundant data centre commissioning scheduled in coming months.
Reiteration of EBITDA margin target of low 30s medium term versus c. 27% currently.

Almac IPO Valuation Analysis

By Douglas Kim

Our target price of Almac is 58,573 won per share, which is 30% higher than the high end of the IPO price range of 45,000 won.
Our target price is based on 14.8x P/E using our estimated net profit of 25.4 billion won in 2024.
Almac ranks first in domestic market share (Korea) in the aluminum extruded module cases that protect batteries from external shocks.

JD Industrials Pre-IPO – Initial Thoughts on Valuation

By Sumeet Singh

JD Industrials is looking to raise about US$1bn in its upcoming HK IPO.
JDI is a leading industrial supply chain technology and service provider in China in terms of GMV in each year during the Track Record Period, according to CIC.
We have looked at the company background and undertaken a peer comparison in our previous notes. In this note, we will talk about valuations.

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May 29

Daily Brief Industrials: Cathay Pacific Airways, Uponor OYJ and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Cathay Pacific (293 HK): Hard Landing
Circling Uponor

Cathay Pacific (293 HK): Hard Landing

By Osbert Tang, CFA

The recent discrimination incident will likely affect traffic recovery pace of Cathay Pacific Airways (293 HK) negatively if it turns into a full-scale boycott by mainland passengers.
The scenario of CX becoming majority-owned by Air China Ltd (H) (753 HK) is getting increasingly possible. This may not be totally positive to CX given CA’s weaker service ranking.
Consensus forecasts now look somewhat bullish following the incident, and the stock’s 0.7x P/B does not stand out as attractive relative to history or ROE (7% in FY25F).

Circling Uponor

By Jesus Rodriguez Aguilar

Aliaxis SA (ALIVP BB) seeks market expansion and by offering a 55% premium (€25.75/share,10.0x EV/Fwd EBITDA) it’s quickly accumulated a 20% stake in Uponor OYJ (UNR1V FH), whose Board isn’t engaging.
The shares trade c.7% above the offer on expectations of others suitors, but the stake already owned by Aliaxis should act as a deterrent. My fair value estimate (EV/EBITDA) is €27.09/share.
The share price implies 6.6% perpetuity growth (in a mature industry) on a conservative 11.5% WACC. Oras (25% stake) isn’t giving into temptation. Aliaxis’d be happy with another 30%.

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May 29

Daily Brief Industrials: Cathay Pacific Airways, Uponor OYJ and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Cathay Pacific (293 HK): Hard Landing
Circling Uponor

Cathay Pacific (293 HK): Hard Landing

By Osbert Tang, CFA

The recent discrimination incident will likely affect traffic recovery pace of Cathay Pacific Airways (293 HK) negatively if it turns into a full-scale boycott by mainland passengers.
The scenario of CX becoming majority-owned by Air China Ltd (H) (753 HK) is getting increasingly possible. This may not be totally positive to CX given CA’s weaker service ranking.
Consensus forecasts now look somewhat bullish following the incident, and the stock’s 0.7x P/B does not stand out as attractive relative to history or ROE (7% in FY25F).

Circling Uponor

By Jesus Rodriguez Aguilar

Aliaxis SA (ALIVP BB) seeks market expansion and by offering a 55% premium (€25.75/share,10.0x EV/Fwd EBITDA) it’s quickly accumulated a 20% stake in Uponor OYJ (UNR1V FH), whose Board isn’t engaging.
The shares trade c.7% above the offer on expectations of others suitors, but the stake already owned by Aliaxis should act as a deterrent. My fair value estimate (EV/EBITDA) is €27.09/share.
The share price implies 6.6% perpetuity growth (in a mature industry) on a conservative 11.5% WACC. Oras (25% stake) isn’t giving into temptation. Aliaxis’d be happy with another 30%.

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May 28

Daily Brief Industrials: AVIC (Chengdu) UAS Co Ltd, CRRC Corp Ltd A, JD Industrials, Rockwell Automation, Textron Inc, Toyo Construction, Japan Post Holdings, Kurita Water Industries and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

STAR50 Index Rebalance: Two Changes in June (As Expected)
SSE180 Index Rebalance: Small Impact but Not Widely Tracked
JD Industrials IPO: The Bull Case
Rockwell Automation: The Strategic Partnership with Autonox Robotics Could Be A Game Changer – Key Drivers
Textron Inc.: Major Contracts With The U.S
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Toyo Construction, Silk Laser, Sing Tao, GK Goh Holdings
Last Week In Event SPACE: Rakuten Bank/Group, Cathay/Swire Pacific, Japan Post
Revision of the Corporate Governance Code Requires Substantive Discussion, Not Individual Issues

STAR50 Index Rebalance: Two Changes in June (As Expected)

The index committee has used a 6-month minimum listing history and that results in two changes. This is the first rebalance with less than 5 changes at a review.
One way turnover is estimated at 1.03% and will result in a one-way trade of CNY 1,025m. Given the adds are new listings, there will be some reverse funding flow.
There appears to be little pre-positioning on the adds while there is a bigger buildup on the deletes.

SSE180 Index Rebalance: Small Impact but Not Widely Tracked

There are 18 changes for the SSE180 Index that will be implemented at the close of trading on 9 June.
The impact on the stocks is small but this is not a widely tracked index, so there could still be opportunities for some high risk/reward basket trades.
With Northbound Stock Connect eligibility no longer drawing on the SSE180 Index constituents, the index could lose relevance over time.

JD Industrials IPO: The Bull Case

JD Industrials (2231713D CH)/JDI, a leading industrial supply chain technology and service provider in China, has filed for a US$1bn IPO. JD.com Inc (ADR) (JD US) owns a 77.95% stake.
JDI is the largest industrial supply chain technology and service provider in China in terms of GMV, customer coverage and SKU offerings in 2022, according to CIC.
The key elements of the bull case rest on large addressable markets, market share gains, robust product revenue growth underpinned by key accounts, improving underlying margin and strong cash generation.

Rockwell Automation: The Strategic Partnership with Autonox Robotics Could Be A Game Changer – Key Drivers

It was a successful second quarter for Rockwell Automation, as the company outperformed market expectations in terms of both sales and earnings.
The company’s strong execution, focus on business resiliency, and improved electronic component availability contributed to double-digit sales and margin growth.
Despite the uncertain economic environment, Rockwell Automation’s differentiated offerings continued to experience robust demand, with organic sales surpassing expectations.

Textron Inc.: Major Contracts With The U.S

It was a mixed first quarter for Textron as the company failed to meet the revenue expectations of Wall Street given the lower revenues observed at Bell.
Despite the Aviation, Industrial, and Systems segments offsetting the decline, Textron’s revenues were below expectations though it did manage an earnings beat.
Textron Aviation received an initial award on the US Navy Multi-engine Training System contract, and fleet utilization remained strong, contributing to aftermarket revenue growth.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Toyo Construction, Silk Laser, Sing Tao, GK Goh Holdings

There are 38 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
There were no new deals were discussed on Smartkarma this week.
Key updates took place for Toyo Construction (1890 JP), Silk Laser Australia (SLA AU), Sing Tao News Corp (1105 HK), and GK Goh Holdings (GKG SP).

Last Week In Event SPACE: Rakuten Bank/Group, Cathay/Swire Pacific, Japan Post

Rakuten Bank (5838 JP)‘s TOPIX inclusion is this week. And the Real World Float has gotten smaller since the offering. And some of those people aren’t going to sell near-term.
Swire Pacific (A) (19 HK)‘s P/B is back down to 0.31x as Cathay Pacific Airways (293 HK) tackles alleged language bias by flight attendants.
Understanding real money demand on the Rakuten (4755 JP) story is key. If there is any, that makes deal overhang smaller than it looks.

Revision of the Corporate Governance Code Requires Substantive Discussion, Not Individual Issues

By Aki Matsumoto

Companies were occupied with meeting the raised standards, and there was little substantive discussion of how corporate governance should be implemented to achieve the corporation’s goal of maximizing shareholder interests.
A few companies have made steady progress, but we cannot expect corporate governance initiatives to go further than they are now if left to the efforts of well-intentioned companies.
Unless the benchmark is changed from TOPIX to another index with a smaller number of components, it will be nearly impossible to find a satisfactory engagement for a passive fund.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

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✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 28

Daily Brief Industrials: AVIC (Chengdu) UAS Co Ltd, CRRC Corp Ltd A, JD Industrials, Rockwell Automation, Textron Inc, Toyo Construction, Japan Post Holdings, Kurita Water Industries and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

STAR50 Index Rebalance: Two Changes in June (As Expected)
SSE180 Index Rebalance: Small Impact but Not Widely Tracked
JD Industrials IPO: The Bull Case
Rockwell Automation: The Strategic Partnership with Autonox Robotics Could Be A Game Changer – Key Drivers
Textron Inc.: Major Contracts With The U.S
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Toyo Construction, Silk Laser, Sing Tao, GK Goh Holdings
Last Week In Event SPACE: Rakuten Bank/Group, Cathay/Swire Pacific, Japan Post
Revision of the Corporate Governance Code Requires Substantive Discussion, Not Individual Issues

STAR50 Index Rebalance: Two Changes in June (As Expected)

The index committee has used a 6-month minimum listing history and that results in two changes. This is the first rebalance with less than 5 changes at a review.
One way turnover is estimated at 1.03% and will result in a one-way trade of CNY 1,025m. Given the adds are new listings, there will be some reverse funding flow.
There appears to be little pre-positioning on the adds while there is a bigger buildup on the deletes.

SSE180 Index Rebalance: Small Impact but Not Widely Tracked

There are 18 changes for the SSE180 Index that will be implemented at the close of trading on 9 June.
The impact on the stocks is small but this is not a widely tracked index, so there could still be opportunities for some high risk/reward basket trades.
With Northbound Stock Connect eligibility no longer drawing on the SSE180 Index constituents, the index could lose relevance over time.

JD Industrials IPO: The Bull Case

JD Industrials (2231713D CH)/JDI, a leading industrial supply chain technology and service provider in China, has filed for a US$1bn IPO. JD.com Inc (ADR) (JD US) owns a 77.95% stake.
JDI is the largest industrial supply chain technology and service provider in China in terms of GMV, customer coverage and SKU offerings in 2022, according to CIC.
The key elements of the bull case rest on large addressable markets, market share gains, robust product revenue growth underpinned by key accounts, improving underlying margin and strong cash generation.

Rockwell Automation: The Strategic Partnership with Autonox Robotics Could Be A Game Changer – Key Drivers

It was a successful second quarter for Rockwell Automation, as the company outperformed market expectations in terms of both sales and earnings.
The company’s strong execution, focus on business resiliency, and improved electronic component availability contributed to double-digit sales and margin growth.
Despite the uncertain economic environment, Rockwell Automation’s differentiated offerings continued to experience robust demand, with organic sales surpassing expectations.

Textron Inc.: Major Contracts With The U.S

It was a mixed first quarter for Textron as the company failed to meet the revenue expectations of Wall Street given the lower revenues observed at Bell.
Despite the Aviation, Industrial, and Systems segments offsetting the decline, Textron’s revenues were below expectations though it did manage an earnings beat.
Textron Aviation received an initial award on the US Navy Multi-engine Training System contract, and fleet utilization remained strong, contributing to aftermarket revenue growth.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Toyo Construction, Silk Laser, Sing Tao, GK Goh Holdings

There are 38 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
There were no new deals were discussed on Smartkarma this week.
Key updates took place for Toyo Construction (1890 JP), Silk Laser Australia (SLA AU), Sing Tao News Corp (1105 HK), and GK Goh Holdings (GKG SP).

Last Week In Event SPACE: Rakuten Bank/Group, Cathay/Swire Pacific, Japan Post

Rakuten Bank (5838 JP)‘s TOPIX inclusion is this week. And the Real World Float has gotten smaller since the offering. And some of those people aren’t going to sell near-term.
Swire Pacific (A) (19 HK)‘s P/B is back down to 0.31x as Cathay Pacific Airways (293 HK) tackles alleged language bias by flight attendants.
Understanding real money demand on the Rakuten (4755 JP) story is key. If there is any, that makes deal overhang smaller than it looks.

Revision of the Corporate Governance Code Requires Substantive Discussion, Not Individual Issues

By Aki Matsumoto

Companies were occupied with meeting the raised standards, and there was little substantive discussion of how corporate governance should be implemented to achieve the corporation’s goal of maximizing shareholder interests.
A few companies have made steady progress, but we cannot expect corporate governance initiatives to go further than they are now if left to the efforts of well-intentioned companies.
Unless the benchmark is changed from TOPIX to another index with a smaller number of components, it will be nearly impossible to find a satisfactory engagement for a passive fund.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 27

Daily Brief Industrials: Roper Technologies, American Airlines Group and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Roper Technologies Inc.: A Disciplined Approach to Capital Deployment – Key Drivers
American Airlines Group Inc.: Improving Premium Cabin Demand Is A Positive Sign – Key Drivers

Roper Technologies Inc.: A Disciplined Approach to Capital Deployment – Key Drivers

Roper had a strong quarter which happened to be an all-around beat.
With a solid start to the year, Roper increased its full-year organic growth outlook and EPS guidance, further reinforcing its strong position in the market.
Roper Technologies’ backlog at the end of the first quarter of 2023 was $4.4 billion, up 14% from the end of the fourth quarter of 2022.

American Airlines Group Inc.: Improving Premium Cabin Demand Is A Positive Sign – Key Drivers

In 2023, American Airlines Group got off to a good start with revenues above expectations in the latest quarterly result as well as an earnings beat.
In addition to delivering a profit for the quarter, the American Airlines team outperformed its initial EPS projection of roughly breakeven.
American Airlines is also satisfied with its domestic and short-haul international unit revenue results.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

May 27

Daily Brief Industrials: Roper Technologies, American Airlines Group and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Roper Technologies Inc.: A Disciplined Approach to Capital Deployment – Key Drivers
American Airlines Group Inc.: Improving Premium Cabin Demand Is A Positive Sign – Key Drivers

Roper Technologies Inc.: A Disciplined Approach to Capital Deployment – Key Drivers

Roper had a strong quarter which happened to be an all-around beat.
With a solid start to the year, Roper increased its full-year organic growth outlook and EPS guidance, further reinforcing its strong position in the market.
Roper Technologies’ backlog at the end of the first quarter of 2023 was $4.4 billion, up 14% from the end of the fourth quarter of 2022.

American Airlines Group Inc.: Improving Premium Cabin Demand Is A Positive Sign – Key Drivers