Industrials

Applus has long been considered an LBO candidate: arguably cheap (10.8x EV/Fwd EBIT vs. peers >13x) with no dominant shareholders on the register. Apollo, Apax and I Squared/TDR are circling.
My fair-value estimate ranges from €10.51/share (DCF) to €11.33/share (multiples, applying a discount to more profitable peers). There’re two issues regarding a possible LBO: IDIADA contract and debt covenants.
Cost of debt would increase to >4% and the buyer would have to negotiate a temporary increase of covenants to 5x EBITDA (probably in exchange of disposal of O&G business).

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May 19

Daily Brief Industrials: Yunsung F&C, Golden Energy & Resources, ZTO Express, Howmet Aerospace, Illinois Tool Works and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating
Golden Energy: IFA Says Fair & Reasonable. It Is Neither
Golden Energy (GER SP): Art of the Lie as the IFA Says Offer Is Fair and Reasonable
[ZTO Express (ZTO US, BUY, TP US$38) TP Change]: Margin Improves While Capex Intensity Nears Peak
Howmet Aerospace Inc.: Commercial Aerospace Resurgence Is Saving The Day – Key Drivers
Illinois Tool Works Inc.: The Margin Improvements Seem To Be Encouraging – Key Drivers

KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating

By Brian Freitas

There are 8 inclusions and 8 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance to be implemented at the close on 8 June.
There is one surprise on the deletions and there are a few surprise non-deletions. Smaller surprise on some non-inclusions.
Short interest is non-existent on the adds and is a lot larger on the deletes. Shorts on the deletes will be covered in the next few weeks.

Golden Energy: IFA Says Fair & Reasonable. It Is Neither

Responding to SIAS and the SGX, the Widjaja Family revised terms such that Golden Energy (GER SP) shareholders opting for an all-cash payout would receive S$0.973/share, up from S$0.846/share.
The Offer remains low-balled. The Offer should include a similar in-specie of the Stanmore Coal (SMR AU) stake together with a cash-out option. This is the most transparent approach.
The Circular is out and the IFA reckons the Offer is fair & reasonable – despite a fair value of S$0.574/share for Stanmore versus the Exit Offer of A$0.181/share.

Golden Energy (GER SP): Art of the Lie as the IFA Says Offer Is Fair and Reasonable

By Arun George

The IFA has concluded that the Widjaja family’s offer for Golden Energy & Resources (GER SP) is fair and reasonable. The EGM will be held on 9 June.
The IFA has justified its conclusion based on a convoluted methodology that has serious flaws. A fairer SOTP valuation is 37% higher than the IFA’s SOTP valuation range.
Notably, Dian Swastatika Sentosa (DSSA IJ) will abstain from voting on both resolutions. While the prospect of a bump is diminishing, the offeror is yet to declare the offer final.

[ZTO Express (ZTO US, BUY, TP US$38) TP Change]: Margin Improves While Capex Intensity Nears Peak

By Shawn Yang

ZTO reported C1Q23 top-line, IFRS EBIT, and non-IFRS net income (3.1%), 30%, and 30% vs. our est. ZTO raised volume est. to 20-24% YoY;
Margin beat as parcel cost was (8%) vs. our est., but we suggest also due to (1) parcel mix improvements, (2) output-based pay, and (3) lower % of KA customers;
Maintain BUY and raise TP to US$ 38 due improving gross profit per parcel and an end in-sight for CAPEX spending. Our TP implies 24x P/2023E.

Howmet Aerospace Inc.: Commercial Aerospace Resurgence Is Saving The Day – Key Drivers

Howmet Aerospace had a strong first quarter with revenues of $1.6 billion, up 6% sequentially and 21% over the previous year.
Commercial aerospace sales increased 29% year on year, led by Engine Products, Engineered Structures, and Fastening Systems.
Defence Aerospace increased 11% year on year, led by the F-35 program and increases in legacy spares.

Illinois Tool Works Inc.: The Margin Improvements Seem To Be Encouraging – Key Drivers

Illinois Tool Works had a strong start to the year, with results beyond Wall Street expectations.
Because of this, they anticipate a favorable change in the cost margin effect starting in Q2.
Given these strong results, Illinois anticipates performing better than its competitors throughout the remainder of 2023.

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May 19

Daily Brief Industrials: Yunsung F&C, Golden Energy & Resources, ZTO Express, Howmet Aerospace, Illinois Tool Works and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating
Golden Energy: IFA Says Fair & Reasonable. It Is Neither
Golden Energy (GER SP): Art of the Lie as the IFA Says Offer Is Fair and Reasonable
[ZTO Express (ZTO US, BUY, TP US$38) TP Change]: Margin Improves While Capex Intensity Nears Peak
Howmet Aerospace Inc.: Commercial Aerospace Resurgence Is Saving The Day – Key Drivers
Illinois Tool Works Inc.: The Margin Improvements Seem To Be Encouraging – Key Drivers

KOSDAQ150 Index Rebalance: 8 Changes with Some Surprises; Performance Deteriorating

By Brian Freitas

There are 8 inclusions and 8 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance to be implemented at the close on 8 June.
There is one surprise on the deletions and there are a few surprise non-deletions. Smaller surprise on some non-inclusions.
Short interest is non-existent on the adds and is a lot larger on the deletes. Shorts on the deletes will be covered in the next few weeks.

Golden Energy: IFA Says Fair & Reasonable. It Is Neither

Responding to SIAS and the SGX, the Widjaja Family revised terms such that Golden Energy (GER SP) shareholders opting for an all-cash payout would receive S$0.973/share, up from S$0.846/share.
The Offer remains low-balled. The Offer should include a similar in-specie of the Stanmore Coal (SMR AU) stake together with a cash-out option. This is the most transparent approach.
The Circular is out and the IFA reckons the Offer is fair & reasonable – despite a fair value of S$0.574/share for Stanmore versus the Exit Offer of A$0.181/share.

Golden Energy (GER SP): Art of the Lie as the IFA Says Offer Is Fair and Reasonable

By Arun George

The IFA has concluded that the Widjaja family’s offer for Golden Energy & Resources (GER SP) is fair and reasonable. The EGM will be held on 9 June.
The IFA has justified its conclusion based on a convoluted methodology that has serious flaws. A fairer SOTP valuation is 37% higher than the IFA’s SOTP valuation range.
Notably, Dian Swastatika Sentosa (DSSA IJ) will abstain from voting on both resolutions. While the prospect of a bump is diminishing, the offeror is yet to declare the offer final.

[ZTO Express (ZTO US, BUY, TP US$38) TP Change]: Margin Improves While Capex Intensity Nears Peak

By Shawn Yang

ZTO reported C1Q23 top-line, IFRS EBIT, and non-IFRS net income (3.1%), 30%, and 30% vs. our est. ZTO raised volume est. to 20-24% YoY;
Margin beat as parcel cost was (8%) vs. our est., but we suggest also due to (1) parcel mix improvements, (2) output-based pay, and (3) lower % of KA customers;
Maintain BUY and raise TP to US$ 38 due improving gross profit per parcel and an end in-sight for CAPEX spending. Our TP implies 24x P/2023E.

Howmet Aerospace Inc.: Commercial Aerospace Resurgence Is Saving The Day – Key Drivers

Howmet Aerospace had a strong first quarter with revenues of $1.6 billion, up 6% sequentially and 21% over the previous year.
Commercial aerospace sales increased 29% year on year, led by Engine Products, Engineered Structures, and Fastening Systems.
Defence Aerospace increased 11% year on year, led by the F-35 program and increases in legacy spares.

Illinois Tool Works Inc.: The Margin Improvements Seem To Be Encouraging – Key Drivers

Illinois Tool Works had a strong start to the year, with results beyond Wall Street expectations.
Because of this, they anticipate a favorable change in the cost margin effect starting in Q2.
Given these strong results, Illinois anticipates performing better than its competitors throughout the remainder of 2023.

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May 18

Daily Brief Industrials: Cummins Inc, Ametek Inc, Polar Power, ZTO Express and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Cummins Inc.: What Is Their Core Business Strategy? – Key Drivers
AMETEK Inc.: Acquisition Strategy Paying Off? – Major Drivers
POLA US – Launch of Mobile EV Charging Solution Propels the Company into a New High-Growth Market
ZTO Express Q1 Results Surprise: Despite Lower Pricing, Margins Up Y/Y | Mgmt Raises Volume Guidance

Cummins Inc.: What Is Their Core Business Strategy? – Key Drivers

Cummins had a successful first quarter, marked by a 12% increase in organic revenue growth, as well as higher-than-anticipated quarterly earnings before interest, taxes, depreciation, and amortization, net income, and earnings per share.
The higher EBITDA percentage was mainly driven by higher volumes and improved pricing, despite increased investment in new products and capabilities.
Operating cash flow was an inflow of $495 million, $331 million higher than the first quarter of last year, essentially due to higher earnings.

AMETEK Inc.: Acquisition Strategy Paying Off? – Major Drivers

AMETEK had an outstanding first quarter of 2023 with robust sales and order growth, resulting in an all-around beat.
The company’s first-quarter sales were up 10% over the same period in 2022, with an excellent organic sales growth of 9%, and demand remained solid, with overall orders growing 6% in the quarter.
The primary focus for the company’s strong cash flow remains strategic acquisitions.

POLA US – Launch of Mobile EV Charging Solution Propels the Company into a New High-Growth Market

By Water Tower Research

Polar Power announced that it is currently accepting pre-orders for its upcoming range of mobile Combined Charging System Electric Vehicle Chargers, which should become available before the conclusion of 1Q24.
According to Allied Market Research, the global portable EV charger market size is expected to be valued at $63.2 million in 2025, and is projected to reach $388.9 million by 2035, growing at a CAGR of 20.1% from 2026 to 2035.
By utilizing mobile EV chargers, customers can obtain enough power to travel to the nearest charging station.

ZTO Express Q1 Results Surprise: Despite Lower Pricing, Margins Up Y/Y | Mgmt Raises Volume Guidance

By Daniel Hellberg

ZTO Express (ZTO US) parcel volume increased by 20.5% Y/Y in Q1, better than market growth
Unit prices fell by 3.7%, slightly worse than peers in Q1 2023, and Revenue missed consensus
EPS beat expectations on lower unit costs, and management raised full-year volume target

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May 18

Daily Brief Industrials: Cummins Inc, Ametek Inc, Polar Power, ZTO Express and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Cummins Inc.: What Is Their Core Business Strategy? – Key Drivers
AMETEK Inc.: Acquisition Strategy Paying Off? – Major Drivers
POLA US – Launch of Mobile EV Charging Solution Propels the Company into a New High-Growth Market
ZTO Express Q1 Results Surprise: Despite Lower Pricing, Margins Up Y/Y | Mgmt Raises Volume Guidance

Cummins Inc.: What Is Their Core Business Strategy? – Key Drivers

Cummins had a successful first quarter, marked by a 12% increase in organic revenue growth, as well as higher-than-anticipated quarterly earnings before interest, taxes, depreciation, and amortization, net income, and earnings per share.
The higher EBITDA percentage was mainly driven by higher volumes and improved pricing, despite increased investment in new products and capabilities.
Operating cash flow was an inflow of $495 million, $331 million higher than the first quarter of last year, essentially due to higher earnings.

AMETEK Inc.: Acquisition Strategy Paying Off? – Major Drivers

AMETEK had an outstanding first quarter of 2023 with robust sales and order growth, resulting in an all-around beat.
The company’s first-quarter sales were up 10% over the same period in 2022, with an excellent organic sales growth of 9%, and demand remained solid, with overall orders growing 6% in the quarter.
The primary focus for the company’s strong cash flow remains strategic acquisitions.

POLA US – Launch of Mobile EV Charging Solution Propels the Company into a New High-Growth Market

By Water Tower Research

Polar Power announced that it is currently accepting pre-orders for its upcoming range of mobile Combined Charging System Electric Vehicle Chargers, which should become available before the conclusion of 1Q24.
According to Allied Market Research, the global portable EV charger market size is expected to be valued at $63.2 million in 2025, and is projected to reach $388.9 million by 2035, growing at a CAGR of 20.1% from 2026 to 2035.
By utilizing mobile EV chargers, customers can obtain enough power to travel to the nearest charging station.

ZTO Express Q1 Results Surprise: Despite Lower Pricing, Margins Up Y/Y | Mgmt Raises Volume Guidance

By Daniel Hellberg

ZTO Express (ZTO US) parcel volume increased by 20.5% Y/Y in Q1, better than market growth
Unit prices fell by 3.7%, slightly worse than peers in Q1 2023, and Revenue missed consensus
EPS beat expectations on lower unit costs, and management raised full-year volume target

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May 17

Daily Brief Industrials: Penguin International, JD Industrials, Caverion Corp, TAV Havalimanlari Holding AS, Volkswagen (Pref), Braille Energy Systems and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Penguin Int’l (PBS SP): Chairman & Dymon’s Bumped & Final Offer
JD Industrials Pre-IPO: Pure Platform for Third Parties and Strong Support from Related Parties
Triton/Caverion: Drawing to a Close
TAV Airports (TAVHL TI): Mkt Leader, Best Growth Profile, Currency Hedged, Strong Mgmt
Liquid Universe of European Ordinary and Preferred Shares: May‘23 Report
BES: A Micro-Cap That Punches Above its Weight

Penguin Int’l (PBS SP): Chairman & Dymon’s Bumped & Final Offer

On the 4 May, Singapore-based builder and operator of aluminum high-speed boats Penguin International (PBS SP) announced a Voluntary Unconditional Offer from its Chairman and Dymon Group at S$.82/share.
The Offer Price was a lifetime high and likely sufficient to push for compulsory acquisition. However, the Offerors have now sweetened terms to S$0.83/share.
As to be expected, this is trading to terms. Volume remains light.

JD Industrials Pre-IPO: Pure Platform for Third Parties and Strong Support from Related Parties

By Ming Lu

JD Industrials is a pure trading platform for third party wholesalers.
The company avoids the competition with its clients and the risk of overdue account receivable.
JD Industrials has brand support from JD.com and logistics support form JD Logistics.

Triton/Caverion: Drawing to a Close

Crayfish/Triton’s purchase price is the highest and now officially preferred by Caverion Corp (CAV1V FH)‘s Board of directors. The offer period for both offers expires on 17 May.
Caverion’s board advisors believe the offer will be finalized between October and February. Shares trade above Bain’s alternative consideration (lower chance to succeed) and Triton has already secured 29.9%.
Spread to Triton’s offer is 4%/7.9% (gross, annualised assuming settlement by 30 November), however the free float has been massively reduced, hence the liquidity too.

TAV Airports (TAVHL TI): Mkt Leader, Best Growth Profile, Currency Hedged, Strong Mgmt

By Vijay Lohia, CFA

TAV Airports is the #1 airport terminal operator in Turkey with a 31% passenger market share and 28% market share in commercial flights.
TAV has one of the best growth profile among peer group with expected 3 yr revenue CAGR of 10%-14% and EBITDA CAGR of 12%-18%.
Potential upside of over 50% in one year and over 200% in 4-5 years.

Liquid Universe of European Ordinary and Preferred Shares: May‘23 Report

Since mid-April, spreads have generally widened across our liquid universe (12 have widened, 7 tightened). German spreads are tightening.
Recommended trades long ordinary / short preferred shares: Fuchs Petrolub, SSAB Svenska Stal, Roche.
Recommended trades long preferred / short ordinary shares: Carlsberg, Media-for-Europe, Sixt, VW, Grifols, Atlas Copco.

BES: A Micro-Cap That Punches Above its Weight

By Atrium Research

Braille Battery is a market leader in performance batteries for motorsports and racing vehicles.
Braille Battery has posted a 56% sales CAGR over the last four years and is soon to be profitable
BES will be launching a residential battery backup power system in the coming quarters with potential to gain major market share

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May 17

Daily Brief Industrials: Penguin International, JD Industrials, Caverion Corp, TAV Havalimanlari Holding AS, Volkswagen (Pref), Braille Energy Systems and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Penguin Int’l (PBS SP): Chairman & Dymon’s Bumped & Final Offer
JD Industrials Pre-IPO: Pure Platform for Third Parties and Strong Support from Related Parties
Triton/Caverion: Drawing to a Close
TAV Airports (TAVHL TI): Mkt Leader, Best Growth Profile, Currency Hedged, Strong Mgmt
Liquid Universe of European Ordinary and Preferred Shares: May‘23 Report
BES: A Micro-Cap That Punches Above its Weight

Penguin Int’l (PBS SP): Chairman & Dymon’s Bumped & Final Offer

On the 4 May, Singapore-based builder and operator of aluminum high-speed boats Penguin International (PBS SP) announced a Voluntary Unconditional Offer from its Chairman and Dymon Group at S$.82/share.
The Offer Price was a lifetime high and likely sufficient to push for compulsory acquisition. However, the Offerors have now sweetened terms to S$0.83/share.
As to be expected, this is trading to terms. Volume remains light.

JD Industrials Pre-IPO: Pure Platform for Third Parties and Strong Support from Related Parties

By Ming Lu

JD Industrials is a pure trading platform for third party wholesalers.
The company avoids the competition with its clients and the risk of overdue account receivable.
JD Industrials has brand support from JD.com and logistics support form JD Logistics.

Triton/Caverion: Drawing to a Close

Crayfish/Triton’s purchase price is the highest and now officially preferred by Caverion Corp (CAV1V FH)‘s Board of directors. The offer period for both offers expires on 17 May.
Caverion’s board advisors believe the offer will be finalized between October and February. Shares trade above Bain’s alternative consideration (lower chance to succeed) and Triton has already secured 29.9%.
Spread to Triton’s offer is 4%/7.9% (gross, annualised assuming settlement by 30 November), however the free float has been massively reduced, hence the liquidity too.

TAV Airports (TAVHL TI): Mkt Leader, Best Growth Profile, Currency Hedged, Strong Mgmt

By Vijay Lohia, CFA

TAV Airports is the #1 airport terminal operator in Turkey with a 31% passenger market share and 28% market share in commercial flights.
TAV has one of the best growth profile among peer group with expected 3 yr revenue CAGR of 10%-14% and EBITDA CAGR of 12%-18%.
Potential upside of over 50% in one year and over 200% in 4-5 years.

Liquid Universe of European Ordinary and Preferred Shares: May‘23 Report