Industrials

• Toshiba Corp (6502 JP) is ultimately quite skippable. While ¥4,620 seems like “the wrong price” over a 5-year period, it is not clear that is the wrong price now.  
• Global military touches a new high. South Korean defence contractors, such as Hyundai Rotem Company (064350 KS), are big beneficiaries.
• Historically, the “event” which helps Murakami-san get out – with respect to Arclands Corporation (9842 JP)/Arcland Service (3085 JP) – is not one which is suitable for “normal” investors. 

• MIR forecasts China’s industrial robot market growth to accelerate to ~12% y/y in 2023 and will sustain at double digit y/y for the next several years.
• Management sees order growth back to normal in Mar and Apr. 
• Industrial robot sales volume is expected to increase to ~25K in 2023, growing by ~45% y/y. 

• Toshiba Corp (6502 JP) is ultimately quite skippable. While ¥4,620 seems like “the wrong price” over a 5-year period, it is not clear that is the wrong price now.  
• Global military touches a new high. South Korean defence contractors, such as Hyundai Rotem Company (064350 KS), are big beneficiaries.
• Historically, the “event” which helps Murakami-san get out – with respect to Arclands Corporation (9842 JP)/Arcland Service (3085 JP) – is not one which is suitable for “normal” investors. 

• MIR forecasts China’s industrial robot market growth to accelerate to ~12% y/y in 2023 and will sustain at double digit y/y for the next several years.
• Management sees order growth back to normal in Mar and Apr. 
• Industrial robot sales volume is expected to increase to ~25K in 2023, growing by ~45% y/y. 

• On the 21st January 2021, Singapore-based builder and operator of aluminum high-speed boats Penguin International (PBS SP) announced a Voluntary Conditional Offer from its Chairman and Dymon Group at S$.65/share. 
• In Penguin International (PBS SP): Friendly Privatization Deal Might Need A BumpJanaghan Jeyakumar expected a bump in terms. No to be, and the Offeror held 80.05% at the close.
• The Offeror, via a new vehicle, has returned to the fold with a S$0.82/share Offer Price. The Offer is unconditional. This is done.

• Go Air Limited (GO IN)‘s resistance to put its operational woes aside, has come to an end as the company has filed for insolvency.
• In our previous IPO insight, Go Air IPO- In Search Of Smooth Landing we had highlighted several issues that were haunting the company, including the Pratt and Whitney trouble.
• Now that the company has filed for insolvency, the search of smooth landing extends to the shareholders and the lenders.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Vedanta Resources
2. Azure Power Global Ltd
3. Pakuwon Jati
4. Japfa Comfeed Indonesia
5. China Jinmao Holdings

and more…

• Nihon M&A reported 4QFY03/2023 results last week. Revenue increased 86.7% YoY to ¥11.4bn (vs consensus ¥10.0bn) while OP for the quarter more than quadrupled to ¥4.2bn (vs consensus ¥4.9bn).
• Full-Year FY03/2023 revenue of ¥41.3bn and OP of ¥15.3bn were slightly below guidance of ¥42bn and ¥18bn respectively and the company has put aside its medium-term growth plan by 2years.
• We continue to prefer Baycurrent over Nihon M&A Center (2127 JP) in the Japanese consulting/M&A space as Baycurrent continues to make strong progress.

Epwin’s FY22 results highlight both the challenging trading environment but also management’s ability to successfully handle inflationary pressures. Well-established long-term growth trends imply that Epwin is well placed to leverage off increasing demand for its energy efficient and low-maintenance building products. The acquisition of Poly-Pure and Mayfield underscore the company’s ambition and ability to self-finance accretive expansion. We anticipate further deals in the foreseeable future. Epwin trades on a P/E of 8.3x for FY23e versus a long-term average of 10.9x, with upside as and when margins recover further.

Mytilineos released strong Q123 results on 4 May, despite scheduled maintenance in its power business and Q1 being a typically weaker quarter. The year 2023 is likely to be H2 weighted, because scheduled maintenance at Mytilineos’s Ag. Nikolas plant is now complete and its new highly efficient power plant is entering full commercial operation. This strong performance during a period of low energy and metal prices reinforces our view that our FY23 estimates are conservative. EBITDA of €225m was 24% of our FY23 estimate (€931m) and EPS of €1.04 was 27.5%. Net profit after minorities of €143m was up 113% year on year. These results reflect the underlying change to Mytilineos’s synergistic business model to focus on two key activities: Energy (renewables, electricity generation and natural gas supply) and Metallurgy. H223 will see the full operation of its gas plants and continued rollout of renewables – the latter a key focus of its >€2bn capex programme over the next three years.

• On the 21st January 2021, Singapore-based builder and operator of aluminum high-speed boats Penguin International (PBS SP) announced a Voluntary Conditional Offer from its Chairman and Dymon Group at S$.65/share. 
• In Penguin International (PBS SP): Friendly Privatization Deal Might Need A BumpJanaghan Jeyakumar expected a bump in terms. No to be, and the Offeror held 80.05% at the close.
• The Offeror, via a new vehicle, has returned to the fold with a S$0.82/share Offer Price. The Offer is unconditional. This is done.

• Go Air Limited (GO IN)‘s resistance to put its operational woes aside, has come to an end as the company has filed for insolvency.
• In our previous IPO insight, Go Air IPO- In Search Of Smooth Landing we had highlighted several issues that were haunting the company, including the Pratt and Whitney trouble.
• Now that the company has filed for insolvency, the search of smooth landing extends to the shareholders and the lenders.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Vedanta Resources
2. Azure Power Global Ltd
3. Pakuwon Jati
4. Japfa Comfeed Indonesia
5. China Jinmao Holdings

and more…

• Nihon M&A reported 4QFY03/2023 results last week. Revenue increased 86.7% YoY to ¥11.4bn (vs consensus ¥10.0bn) while OP for the quarter more than quadrupled to ¥4.2bn (vs consensus ¥4.9bn).
• Full-Year FY03/2023 revenue of ¥41.3bn and OP of ¥15.3bn were slightly below guidance of ¥42bn and ¥18bn respectively and the company has put aside its medium-term growth plan by 2years.
• We continue to prefer Baycurrent over Nihon M&A Center (2127 JP) in the Japanese consulting/M&A space as Baycurrent continues to make strong progress.

Epwin’s FY22 results highlight both the challenging trading environment but also management’s ability to successfully handle inflationary pressures. Well-established long-term growth trends imply that Epwin is well placed to leverage off increasing demand for its energy efficient and low-maintenance building products. The acquisition of Poly-Pure and Mayfield underscore the company’s ambition and ability to self-finance accretive expansion. We anticipate further deals in the foreseeable future. Epwin trades on a P/E of 8.3x for FY23e versus a long-term average of 10.9x, with upside as and when margins recover further.

Mytilineos released strong Q123 results on 4 May, despite scheduled maintenance in its power business and Q1 being a typically weaker quarter. The year 2023 is likely to be H2 weighted, because scheduled maintenance at Mytilineos’s Ag. Nikolas plant is now complete and its new highly efficient power plant is entering full commercial operation. This strong performance during a period of low energy and metal prices reinforces our view that our FY23 estimates are conservative. EBITDA of €225m was 24% of our FY23 estimate (€931m) and EPS of €1.04 was 27.5%. Net profit after minorities of €143m was up 113% year on year. These results reflect the underlying change to Mytilineos’s synergistic business model to focus on two key activities: Energy (renewables, electricity generation and natural gas supply) and Metallurgy. H223 will see the full operation of its gas plants and continued rollout of renewables – the latter a key focus of its >€2bn capex programme over the next three years.

• Toshiba is trading at a 12-13% annualised return on the arb when using the expected Tender Offer Start Date proposed in the Takeover Announcement on 23 March 2023.
• On Day 1-2 post-announcement, Toshiba traded at an 11-13% annualised spread. Since the announcement, a 12-name Peer Basket is up 11+% meaning Toshiba back end risk has shrunk.
• Forward consensus EPS ratios have fallen, in part due to the shift forward one fiscal year by comps. We’ll see where those lie in a week when earnings come.

• Penguin International (PBS SP) has disclosed a voluntary unconditional offer from Dymon Asia, Executive Chairman and Managing Director at S$0.82 per share, a 15.5% premium to the undisturbed price. 
• The offer price is attractive, represents an 8-year share price high, and is shy of the 10-year high of S$0.825. It is also 26.2% higher than the 2021 offer.
• The offeror aims to privatise Penguin. Hitting the 90% compulsory acquisition threshold implies a minority acceptance rate of around 44%, which is eminently achievable due to an attractive offer.

• Ventia (VNT AU) completed an A$300m placement overnight with Apollo and CIMIC Group Ltd (CIM AU) selling around 14% of the shares outstanding at a small discount to the close.
• The placement will significantly increase Ventia (VNT AU)‘s float and make the stock a high probability inclusion to the S&P/ASX 200 (AS51 INDEX) at the June rebalance.
• We now expect two changes to the S&P/ASX 200 (AS51 INDEX) in June and the impact on the stocks is over 5.5 days of ADV to trade.

• Ventia (VNT AU)‘s two largest shareholders, Apollo Global Management and CIMIC Group, aim to raise around US$166m via a secondary block deal. 
• The deal is a slightly large one to digest at 12.5 days of three month ADV, 23 days of ADV and about 11.5% of current mcap. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Growatt Technology (1833969D CH) is looking to raise about US$400m in its upcoming Hong Kong IPO, after downsizing from an earlier US$1bn float in Nov 2022.
• Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption, as well as energy digitalization. 
• In this note, we will provide a quick peer comparison update and our latest thoughts on valuation.

• China Communications Construction (1800 HK) should see more valuation upside as it narrows the discount to book through more asset disposal, spin-off, restructuring and securitisation.
• Healthy 1Q23 earnings demonstrated underlying business strength. We expect new contract growth to accelerate in the rest of this year. Backlog estimated to cover 4.7x FY23F revenue.
• Gross margin has stabilised in 1Q23 when compared with 1Q in previous years. Contribution from concessions will improve as traffic recovers and projects get mature. 

• Coldspace, an Indonesian integrated cold chain solutions provider, today announced the completion of a US$3.8 million seed funding round
• With this funding, Coldspace plans to expand its service capacity, including greater capacity for cold storage, reefer trucks, fulfilment, and geographic expansions
• The company offers businesses and consumers cold storage facilities and reefer trucks through its own inventory as well as a third-party aggregated marketplace of cold chain partners empowered through the company’s tech stack.

• The use of electric vehicles (EVs) is on the rise in various parts of the world, including India.

• In recent years, companies have been racing to accelerate the adoption of the electrified tech in the country.

• BluSmart Mobility, for instance, provides a ride-hailing service with 3,500 EVs operating in Delhi and Bengaluru. The company is also developing an EV charging hub infrastructure.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Ports & Special Economic Zone

• Toshiba is trading at a 12-13% annualised return on the arb when using the expected Tender Offer Start Date proposed in the Takeover Announcement on 23 March 2023.
• On Day 1-2 post-announcement, Toshiba traded at an 11-13% annualised spread. Since the announcement, a 12-name Peer Basket is up 11+% meaning Toshiba back end risk has shrunk.
• Forward consensus EPS ratios have fallen, in part due to the shift forward one fiscal year by comps. We’ll see where those lie in a week when earnings come.

• Penguin International (PBS SP) has disclosed a voluntary unconditional offer from Dymon Asia, Executive Chairman and Managing Director at S$0.82 per share, a 15.5% premium to the undisturbed price. 
• The offer price is attractive, represents an 8-year share price high, and is shy of the 10-year high of S$0.825. It is also 26.2% higher than the 2021 offer.
• The offeror aims to privatise Penguin. Hitting the 90% compulsory acquisition threshold implies a minority acceptance rate of around 44%, which is eminently achievable due to an attractive offer.

• Ventia (VNT AU) completed an A$300m placement overnight with Apollo and CIMIC Group Ltd (CIM AU) selling around 14% of the shares outstanding at a small discount to the close.
• The placement will significantly increase Ventia (VNT AU)‘s float and make the stock a high probability inclusion to the S&P/ASX 200 (AS51 INDEX) at the June rebalance.
• We now expect two changes to the S&P/ASX 200 (AS51 INDEX) in June and the impact on the stocks is over 5.5 days of ADV to trade.

• Ventia (VNT AU)‘s two largest shareholders, Apollo Global Management and CIMIC Group, aim to raise around US$166m via a secondary block deal. 
• The deal is a slightly large one to digest at 12.5 days of three month ADV, 23 days of ADV and about 11.5% of current mcap. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Growatt Technology (1833969D CH) is looking to raise about US$400m in its upcoming Hong Kong IPO, after downsizing from an earlier US$1bn float in Nov 2022.
• Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption, as well as energy digitalization. 
• In this note, we will provide a quick peer comparison update and our latest thoughts on valuation.

• China Communications Construction (1800 HK) should see more valuation upside as it narrows the discount to book through more asset disposal, spin-off, restructuring and securitisation.
• Healthy 1Q23 earnings demonstrated underlying business strength. We expect new contract growth to accelerate in the rest of this year. Backlog estimated to cover 4.7x FY23F revenue.
• Gross margin has stabilised in 1Q23 when compared with 1Q in previous years. Contribution from concessions will improve as traffic recovers and projects get mature. 

• Coldspace, an Indonesian integrated cold chain solutions provider, today announced the completion of a US$3.8 million seed funding round
• With this funding, Coldspace plans to expand its service capacity, including greater capacity for cold storage, reefer trucks, fulfilment, and geographic expansions
• The company offers businesses and consumers cold storage facilities and reefer trucks through its own inventory as well as a third-party aggregated marketplace of cold chain partners empowered through the company’s tech stack.

• The use of electric vehicles (EVs) is on the rise in various parts of the world, including India.

• In recent years, companies have been racing to accelerate the adoption of the electrified tech in the country.

• BluSmart Mobility, for instance, provides a ride-hailing service with 3,500 EVs operating in Delhi and Bengaluru. The company is also developing an EV charging hub infrastructure.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Ports & Special Economic Zone

• According to the Stockholm International Peace Research Institute (SIPRI), total global military expenditure increased by 3.7% in real terms in 2022, to reach a new high of $2,240bn.
• A number of European states significantly increased their military spending following Russia’s invasion of Ukraine. Elsewhere, Japan’s 2022 military spending accounts for 1.1% of GDP, the highest level since 1960.
• South Korea had four companies inside the world’s top 100 arms manufacturers in 2021. These conglomerates are expected to move up the ranking in 2022. 

• Lian Beng (LBG SP)/LBG disclosed a revised final voluntary unconditional offer from the Ong family at S$0.68 per share, a 9.7% premium to the previous offer of S$0.62 per share. 
• The final offer price remains unattractive in comparison to peer multiples and precedent transactions. The offer is open and closes on 26 May.
• The Ong Family aims to privatise LBG. Hitting the 90% compulsory acquisition threshold implies a minority acceptance rate of around 64%, which could prove to be a challenge.

• On the 11th April, construction firm Lian Beng (LBG SP) announced an Offer from the controlling Ong family of S$0.62/share, a 59.7% discount to the November 2022 NAV of S$1.538/share.
• After media articles judged the Offer price as being too low – it is – the Ongs have now bumped the Offer Price 9.7% to S$0.68/share and declared terms final.
• It’s still the wrong price. Yet Lian Beng is illiquid, And the revised price is a lifetime high.

• According to the Stockholm International Peace Research Institute (SIPRI), total global military expenditure increased by 3.7% in real terms in 2022, to reach a new high of $2,240bn.
• A number of European states significantly increased their military spending following Russia’s invasion of Ukraine. Elsewhere, Japan’s 2022 military spending accounts for 1.1% of GDP, the highest level since 1960.
• South Korea had four companies inside the world’s top 100 arms manufacturers in 2021. These conglomerates are expected to move up the ranking in 2022. 

• Lian Beng (LBG SP)/LBG disclosed a revised final voluntary unconditional offer from the Ong family at S$0.68 per share, a 9.7% premium to the previous offer of S$0.62 per share. 
• The final offer price remains unattractive in comparison to peer multiples and precedent transactions. The offer is open and closes on 26 May.
• The Ong Family aims to privatise LBG. Hitting the 90% compulsory acquisition threshold implies a minority acceptance rate of around 64%, which could prove to be a challenge.

• On the 11th April, construction firm Lian Beng (LBG SP) announced an Offer from the controlling Ong family of S$0.62/share, a 59.7% discount to the November 2022 NAV of S$1.538/share.
• After media articles judged the Offer price as being too low – it is – the Ongs have now bumped the Offer Price 9.7% to S$0.68/share and declared terms final.
• It’s still the wrong price. Yet Lian Beng is illiquid, And the revised price is a lifetime high.

• Dian Swastatika Sentosa (DSSA IJ)/DSS shareholders have approved the sale of DSS’ 77.49% stake in Golden Energy & Resources (GER SP) to the Widjaja family. 
• No objection has also been received from the OJK and IDX. The make-for-break condition is the GEAR shareholder approval of the distribution resolution, which DSS will abstain from voting on. 
• Minorities and SIAS rightly claim that the revised offer remains light. A bump to the offer, particularly to the delisting offer price is S$0.181, is required for a done deal. 

• FY Mar-24 guidance – sales down 14%, operating profit down 37% – is not extreme compared with previous cycles. 
• History shows that downturns at Advantest can last for two or even three years, not just one. Weak economic conditions add to this possibility.
• The share price has rebounded from the recent sell-off, but optimism is unwarranted. Historical valuation ranges suggest potential downside of 20% or more.

• While meeting expectations in 1Q23, Sinotrans (598 HK) has relied on a 105.2% surge in other income, mostly government subsidies. Without them, pre-tax profit would have dropped 21%.
• For most business areas, volume has come down YoY and QoQ, highlighting challenging operating environment. JV contribution, mostly DHL-Sinotrans, has also declined 11.5% YoY.
• While we like its long-term fundamentals and undemanding multiples, we have concerns on near-term headwinds and weakened earnings quality; and risks of profit downgrades.  

As flagged in its February update, the Speciality Agriculture division of Carr’s Group experienced a weaker trading environment from November onwards, while trading in the Engineering division was initially slower than anticipated. This resulted in a 23% drop in adjusted operating profit year-on-year in H123 to £5.8m. Management expects trading conditions for the Speciality Agriculture division to improve later this calendar year, while a strong Engineering order book supports good divisional performance in H223 and FY24. We downgrade our FY23 and FY24 adjusted PBT estimates by 5% for both years.

• A federal bankruptcy court approved bidding procedures for the sale of Virgin Orbit’s assets.
• Bidders have until May 4 to submit indications of interest, with a deadline for formal bids of May 15.
• The auction is expected to take place on May 18, with the sale on May 24.

• Dian Swastatika Sentosa (DSSA IJ)/DSS shareholders have approved the sale of DSS’ 77.49% stake in Golden Energy & Resources (GER SP) to the Widjaja family. 
• No objection has also been received from the OJK and IDX. The make-for-break condition is the GEAR shareholder approval of the distribution resolution, which DSS will abstain from voting on. 
• Minorities and SIAS rightly claim that the revised offer remains light. A bump to the offer, particularly to the delisting offer price is S$0.181, is required for a done deal. 

• FY Mar-24 guidance – sales down 14%, operating profit down 37% – is not extreme compared with previous cycles. 
• History shows that downturns at Advantest can last for two or even three years, not just one. Weak economic conditions add to this possibility.
• The share price has rebounded from the recent sell-off, but optimism is unwarranted. Historical valuation ranges suggest potential downside of 20% or more.

• While meeting expectations in 1Q23, Sinotrans (598 HK) has relied on a 105.2% surge in other income, mostly government subsidies. Without them, pre-tax profit would have dropped 21%.
• For most business areas, volume has come down YoY and QoQ, highlighting challenging operating environment. JV contribution, mostly DHL-Sinotrans, has also declined 11.5% YoY.
• While we like its long-term fundamentals and undemanding multiples, we have concerns on near-term headwinds and weakened earnings quality; and risks of profit downgrades.  

As flagged in its February update, the Speciality Agriculture division of Carr’s Group experienced a weaker trading environment from November onwards, while trading in the Engineering division was initially slower than anticipated. This resulted in a 23% drop in adjusted operating profit year-on-year in H123 to £5.8m. Management expects trading conditions for the Speciality Agriculture division to improve later this calendar year, while a strong Engineering order book supports good divisional performance in H223 and FY24. We downgrade our FY23 and FY24 adjusted PBT estimates by 5% for both years.

• A federal bankruptcy court approved bidding procedures for the sale of Virgin Orbit’s assets.
• Bidders have until May 4 to submit indications of interest, with a deadline for formal bids of May 15.
• The auction is expected to take place on May 18, with the sale on May 24.