Daily Briefs

Simpson Manufacturing Company showcased mixed results in its First Quarter 2024 financial performance amidst a challenging housing market landscape particularly marked by variability in the U.S. and Europe.
The company reported a modest year-over-year decline in net sales totaling $530.6 million.
Despite increased sales volumes in North America, which rose by 8% due to a flat U.S. housing market, broad gains were offset by the timing and calculation of volume discounts connected with previous price reductions.

Jabil Inc.: How Much Will Their Revenues Grow Given The Focus On AI & Data Center Markets? – Major Drivers

Jabil recently disclosed its financial outcomes for the third quarter of the fiscal year 2024, delivering robust figures that reflect its strategic maneuvers and adjustment to changing market dynamics.
The company posted revenues of approximately $6.8 billion, surpassing expectations by $265 million.
This was aided by significant contributions from the connected devices and networking and storage sectors, which outperformed anticipations.

Payment Companies – Updated Sector Overview and Potential IPOs

By Victor Galliano

We update Klarna’s and Stripe’s IPO valuations based on recent share transactions; Indian payments company Pine Labs is also reported to be looking to IPO
Our 2Q24 recommended shares performance was very mixed, with it being a mainly challenging quarter for long investors in payment companies
We retain Visa as a core holding and also keep PagSeguro and Shift4 as buys, replacing PayPal with European value play Nexi; we keep our sell rating on Affirm

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Jun 28

Daily Brief India: LG Electronics, Dr. Reddy’s Laboratories, Adani Ports & Special Economic Zone and more

By Smartkarma Daily Briefs | Daily Briefs, India

In today’s briefing:

Initial Thoughts on LG Electronics India IPO
Dr. Reddy’s Laboratories (DRRD IN): Nicotinell Acquisition to Fortify Consumer Healthcare Business
Morning Views Asia: Adani Ports & Special Economic Zone, Bharti Airtel

Initial Thoughts on LG Electronics India IPO

By Douglas Kim

According to local media, LG Electronics is reviewing for a potential IPO of LG Electronics India. LG Electronics has approached JP Morgan and Morgan Stanley to be potential IPO underwriters.
If LG Electronics’ Indian subsidiary is listed, it is expected to be able to raise at least $500 million from the stock market.
Post IPO, the market value of LG Electronics India is estimated to be between $2.1 billion (3 trillion won) and $4.3 billion (6 trillion won).

Dr. Reddy’s Laboratories (DRRD IN): Nicotinell Acquisition to Fortify Consumer Healthcare Business

By Tina Banerjee

Dr. Reddy’s Laboratories (DRRD IN) has signed a definitive agreement with Haleon (HLN LN) to acquire latter’s global portfolio of consumer healthcare brands in the nicotine replacement therapy outside US.
The company will acquire the portfolio for a total consideration of £500M ($633M). In 2023, the portfolio generated ~£217M ($274M) revenue. Purchase consideration values the business at EV/sales of 2.3x.
The acquisition will not stretch the balance sheet as Dr. Reddy’s has a cash balance of $990M as on March 31, 2024. The transaction is expected to complete in 4Q24.

Morning Views Asia: Adani Ports & Special Economic Zone, Bharti Airtel

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
Bharti Airtel
Lippo Malls Indonesia Retail Trust
Vedanta Resources

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Jun 28

Daily Brief China: China Traditional Chinese Medicine, Brilliance China Automotive, China Merchants China Direct Investments, Oriental Watch, Atour Lifestyle Holdings, Asia High Yield Bond Index, New World Development and more

By Smartkarma Daily Briefs | China, Daily Briefs

In today’s briefing:

TCM (570 HK): Where’s The Floor?
Brilliance China (1114 HK): Reversing Out of Passive Portfolios
CMCDI (133 HK): Buybacks And Management Fees Into Focus
Oriental Watch FY24: Weaker H2, Value Intact But Outlook Challenging
[Atour Lifestyle (ATAT US, BUY, TP US$36) Target Price Change]: 618-Commerce Sales Set a New Record
Bond Market Monitor: No Rate Hikes
Morning Views Asia: New World Development, Softbank Group

TCM (570 HK): Where’s The Floor?

By David Blennerhassett

Just plain ugly. China Traditional Chinese Medicine (570 HK) (“TCM”) fell 11.7% yesterday. It’s down another 7.9%, on large volume, as I type. The stock is now ~35% below terms
Depending on who you talk to, the sudden move was triggered by a couple of event pods dumping stock; or the incoming CNPGC chairman is not supportive. Or perhaps both.
Since rumours surfaced early Feb as to an Offer, a basket of TCM’s peers are up 8% on average. The HSI is up 15%. TCM’s downside from here appears limited.

Brilliance China (1114 HK): Reversing Out of Passive Portfolios

By Brian Freitas

Brilliance China Automotive (1114 HK) is up 220% on a total return basis since we first published our insight in August 2023.
The company paid a special dividend in April this year and will pay a large special dividend of HK$4.3/share going ex-div on 3 July.
The resultant drop in market cap will result in deletion of the stock from large global passive portfolios at the close on 3 July.

CMCDI (133 HK): Buybacks And Management Fees Into Focus

By David Blennerhassett

The recent news on China Merchants China Direct Investments (133 HK) was director Elizabeth Kan narrowly getting re-elected. Of interest, ISS recommended shareholders vote AGAINST. Glass Lewis was FOR re-election.
The key takeaway here is that the majority of the minorities want change. The next development may occur in the lead up to the management agreement renewal in November.
In addition, Argyle Street Management, CMSCI’s key shareholder activist, is also requesting the company buy back 20% of shares outstanding at 90% of NAV.

Oriental Watch FY24: Weaker H2, Value Intact But Outlook Challenging

By Sameer Taneja

Oriental Watch (398 HK) reported revenue/profits down 2%/15% YoY for the full year (vs our expectation of 10%). H2 revenue/profitability fell 12%/22% YoY due to a weak Q4.
Cash and investments fell from 1.1 bn to 920 mn HKD, owing to dividend payments, increased inventories, and reduced payables. Cash represents 55% of market capitalization.
The company maintains a 100% dividend payout, but dividends declined in line with earnings to 51.5 cents (FY23: 60 cents), representing a 15% dividend yield.

[Atour Lifestyle (ATAT US, BUY, TP US$36) Target Price Change]: 618-Commerce Sales Set a New Record

By Eric Wen

Atour recorded steep product sales growth during 618. We raised our C2Q24 revenue by 7.5% and full year by 5.1%, driven by (1) stronger pillow sales during the 618 promotions;
Thanks to retail, Atour’s RevPAR after including retail sales maintained positive growth of 1.7% YoY, although pure hotel RevPAR dropped 2.9% YoY due to a decline in hotel price.
We raise TP by US$1 to US$36/ADS and keep the rating as BUY, factoring in the strong growth momentum of Atour’s retail business.

Bond Market Monitor: No Rate Hikes

By Warut Promboon

As we are entering the second half of 2024, inflation has remained sticky as expected.
The lingering fear of a global recession has been mitigating rising shipping and production costs and, as a result, kept inflation in check.
We see more opportunities in selected Chinese bonds in industries away from property and local government financing vehicle (LGFV) sectors and believe non-Asia emerging bonds offer better value.

Morning Views Asia: New World Development, Softbank Group

New World Development
Softbank Group

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Jun 28

Daily Brief Japan: Aisin , Timee Inc, MS&AD Insurance, IHI Corp, Japan Post Holdings, Softbank Group, TSE Tokyo Price Index TOPIX, New World Development and more

By Smartkarma Daily Briefs | Daily Briefs, Japan

In today’s briefing:

Big Aisin (7259) Offering Sets Stage for First Toyota Group Full Unwind
Aisin Corp Placement – US$1.1bn Selldown by Toyota and DENSO
Aisin (7259 JP): A US$1.1 Billion Secondary Offering
Timee Pre-IPO – The Negatives – Competition Could Stiffen
MS&AD Insurance – Sell Stocks to Zero; Drive Growth, Dividends. HFD on Policy Sales, Accelerating
IHI (7013 JP): 30% Upside Potential as Aerospace and Defense Rebound
Return to Sender: Japan Post Holdings (6178.T) – Entering the Modern Age
Softbank Group – Event Flash – Launches Four-Part USD And EUR Bond Offering – Lucror Analytics
In TSE as a Whole, There Are Far More Companies Whose Traditional Issues Have Not Been Resolved
Morning Views Asia: New World Development, Softbank Group

Big Aisin (7259) Offering Sets Stage for First Toyota Group Full Unwind

By Travis Lundy

Today (27 June 2024) after the close, Aisin (7259 JP) announced three Toyota Group companies (Toyota, Toyota Industries, and Denso) would sell shares in Aisin in a ¥180bn offering.
This is ALL of Denso’s holdings, 63% of Toyota Industries stake, and ~12% of Toyota’s stake. Separately, Aisin announced a 17mm share (6.3%) ¥100bn buyback and a 3:1 split Oct1.
The recent yuho shows us the progress of Aisin’s promised selldown of crossholdings. There are three large chunks left. One is easy. The climb to capital allocation credibility easier too.

Aisin Corp Placement – US$1.1bn Selldown by Toyota and DENSO

By Clarence Chu

Denso Corp (6902 JP), Toyota Motor (7203 JP) and Toyota Industries (6201 JP) are looking to raise US$1.1bn from selling some of their stakes in Aisin (7259 JP).
While the deal appears well-flagged, given that it is part of the cross-shareholding unwind theme in Japan, the timing of such a selldown isn’t always certain.
In this note, we will talk about the placement and run the deal through our ECM framework.

Aisin (7259 JP): A US$1.1 Billion Secondary Offering

By Arun George

Aisin (7259 JP) has announced a secondary offering of up to 38.9 million shares (including overallotment) and a buyback worth a maximum of JPY100 billion or 17 million shares.
Denso Corp (6902 JP), Toyota Industries (6201 JP), and Toyota Motor (7203 JP) are the selling shareholders. The offering aims to reconfigure the company’s shareholder mix and reduce cross-shareholdings.
Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 8 and 10 July (likely 8 July).

Timee Pre-IPO – The Negatives – Competition Could Stiffen

By Clarence Chu

Timee Inc (215A JP) is looking to raise US$290m from its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan.
In this note, we will talk about the not so positive aspects of the deal.

MS&AD Insurance – Sell Stocks to Zero; Drive Growth, Dividends. HFD on Policy Sales, Accelerating

By Daniel Tabbush

The new excitement of the MS&AD story is the company’s commitment to sell down all of its cross-shareholdings and to use proceeds to fund growth and dividends.
ROE is already far higher now than in recent years, and this can continue with rising dividends.
Monthly insurance sales figures give a good window on the core business, with growth rates in May YoY and YTD accelerating.

IHI (7013 JP): 30% Upside Potential as Aerospace and Defense Rebound

By Scott Foster

Japan’s rising defense budget and military collaboration with the US and Europe should support a high level of orders for the foreseeable future.
Defense is the growth driver, but other divisions should hold up well due to the ongoing rationalization of operations.
Profits should rebound this year and rise further in FY Mar-26, bringing the P/E down to 9X or less. The weak yen is a large positive.

Return to Sender: Japan Post Holdings (6178.T) – Entering the Modern Age

By Rikki Malik

The company’s targets are underwhelming given the opportunity but low expectations built in
A revamped strategy to increase profitability and shareholder returns is “radical” for this old-school company
Execution is key for certain parts of the plan, but the market can do the rest

Softbank Group – Event Flash – Launches Four-Part USD And EUR Bond Offering – Lucror Analytics

By Trung Nguyen

Softbank Group (SBG) has launched a four-part benchmark-sized bond offering comprising USD and EUR notes. The proceeds will mainly be used for debt repayment, including the redemption of foreign currency-denominated bonds, as well as for general corporate purposes, including the maintenance of a cash position for the redemption of outstanding notes due over the next two years along with new investments. In particular, SBG will redeem its USD 766.8 mn 4.75% 2024 bonds (due September) early at par.

In TSE as a Whole, There Are Far More Companies Whose Traditional Issues Have Not Been Resolved

By Aki Matsumoto

The reversal of foreign and cross-held shares in shareholding ratio is the main catalyst for today’s change. Companies with high foreign ownership gradually accepted the proposals of overseas investors.
The issues of low profit margins, high policy shareholdings, excess cash on hand, and consequently low ROE are still unresolved in many companies, while some companies did successful through engagement.
More companies will seek compromise with shareholders by enhancing shareholder returns in the face of the fact that the gap between cost of capital and return on capital wasn’t filled.

Morning Views Asia: New World Development, Softbank Group

New World Development
Softbank Group

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Jun 28

Daily Brief Industrials: Timee Inc, IHI Corp, Adani Ports & Special Economic Zone, Simpson Manufacturing Co, Inc, Asia High Yield Bond Index, Acuity Brands, Severfield PLC, Resideo Technologies Inc, MillerKnoll and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Timee Pre-IPO – The Negatives – Competition Could Stiffen
IHI (7013 JP): 30% Upside Potential as Aerospace and Defense Rebound
Morning Views Asia: Adani Ports & Special Economic Zone, Bharti Airtel
Simpson Manufacturing Co.: Will The Expansion of Capacity Amid Strong North American Growth Pay Off? – Major Drivers
Bond Market Monitor: No Rate Hikes
Acuity Brands: How Will The Ongoing Product and Service Innovation Impact Future Growth? – Major Drivers
Severfield – Poised for expansion
Resideo Technologies Inc.: Will The Acquisition of Snap One to Enhance Smart Living Solutions Be A Game Changer? – Major Drivers
MillerKnoll, Inc. – 4QFY24 Adjusted EPS of $0.67 Tops WTR Estimate of $0.55 on Strong Margins

Timee Pre-IPO – The Negatives – Competition Could Stiffen

By Clarence Chu

Timee Inc (215A JP) is looking to raise US$290m from its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan.
In this note, we will talk about the not so positive aspects of the deal.

IHI (7013 JP): 30% Upside Potential as Aerospace and Defense Rebound

By Scott Foster

Japan’s rising defense budget and military collaboration with the US and Europe should support a high level of orders for the foreseeable future.
Defense is the growth driver, but other divisions should hold up well due to the ongoing rationalization of operations.
Profits should rebound this year and rise further in FY Mar-26, bringing the P/E down to 9X or less. The weak yen is a large positive.

Morning Views Asia: Adani Ports & Special Economic Zone, Bharti Airtel

Adani Ports & Special Economic Zone
Bharti Airtel
Lippo Malls Indonesia Retail Trust
Vedanta Resources

Simpson Manufacturing Co.: Will The Expansion of Capacity Amid Strong North American Growth Pay Off? – Major Drivers

Simpson Manufacturing Company showcased mixed results in its First Quarter 2024 financial performance amidst a challenging housing market landscape particularly marked by variability in the U.S. and Europe.
The company reported a modest year-over-year decline in net sales totaling $530.6 million.
Despite increased sales volumes in North America, which rose by 8% due to a flat U.S. housing market, broad gains were offset by the timing and calculation of volume discounts connected with previous price reductions.

Bond Market Monitor: No Rate Hikes

By Warut Promboon

As we are entering the second half of 2024, inflation has remained sticky as expected.
The lingering fear of a global recession has been mitigating rising shipping and production costs and, as a result, kept inflation in check.
We see more opportunities in selected Chinese bonds in industries away from property and local government financing vehicle (LGFV) sectors and believe non-Asia emerging bonds offer better value.

Acuity Brands: How Will The Ongoing Product and Service Innovation Impact Future Growth? – Major Drivers

Acuity Brands, a leader in the lighting and building management solutions industry, showcased a robust fiscal second quarter for 2024, emphasizing solid execution across its operational and financial metrics.
All segments of the business were reported to be contributing positively, with emphasis on the adjusted operating profit, margin expansion, and increased adjusted diluted earnings per share.
The company has strategically aligned its portfolio, focusing on margin accretive products and efficient capital allocation to stimulate value creation.

Severfield – Poised for expansion

By Edison Investment Research

The highlight of Severfield’s FY24 results was the 14% increase in underlying operating profit despite declining revenue. This gives a clue to the increasing quality of earnings as the company captures future projects and benefits from its internal digitalisation programme, Project Horizon. Furthermore, the Indian JV rapidly improved profit and is expanding capacity to meet growing demand. The balance sheet offers scope for both the £10m share buyback and potential M&A. Our forecasts are unchanged, and we introduce FY27 estimates. The 7.2x FY25e P/E is undemanding.

Resideo Technologies Inc.: Will The Acquisition of Snap One to Enhance Smart Living Solutions Be A Game Changer? – Major Drivers

Resideo Technologies Inc. reported its first quarter 2024 financial performance, showcasing an effective blend of strategic initiatives and operational adjustments aimed at long-term value creation and margin improvement, despite a backdrop of modestly declining revenue.
The company’s revenue for the quarter stood at $1.49 billion, marking a 4% decrease compared to the previous year, primarily due to divestiture impacts.
However, the adjusted EBITDA was relatively stable year-over-year, highlighting effective cost management and operational efficiency.

MillerKnoll, Inc. – 4QFY24 Adjusted EPS of $0.67 Tops WTR Estimate of $0.55 on Strong Margins

By Water Tower Research

EPS topped our estimate and consensus on margin strength.
MillerKnoll posted 4QFY24 EPS of $0.67 versus $0.40 in 4QFY23 on continued margin strength even as the macro environment remains challenging.
Adjusted EPS beat consensus of $0.54 and our estimate of $0.55.

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Jun 28

Daily Brief Energy/Materials: Tesla , Copper, Crude Oil, Serica Energy, Lake Victoria Gold , Valeura Energy Inc, Pan American Silver, Zephyr Energy and more

By Smartkarma Daily Briefs | Daily Briefs, Energy & Materials Sector

In today’s briefing:

Tesla Charges Ahead: Energy Storage Leader Drives Record Revenue in Booming Industry
Copper Primer: What We Like About Copper And What to Play
[ETP 26/2024] Oil Prices Drop on Surprise Inventory Build; Oil Majors Slide but Retain Gains
Serica Energy Plc (AIM: SQZ): Initiating Coverage
Serica Energy Plc (AIM: SQZ): Operations on Track. High Net Cash.
LVG: Making Progress on Imwelo
Valeura Energy (TSX: VLE): Operational Blip Offers an Opportunity for Investors
Pan American Silver – Investor day takeaways
Zephyr Energy Plc (AIM: ZPHR): Reducing the cost of debt. Testing at State 36-2R to start imminently

Tesla Charges Ahead: Energy Storage Leader Drives Record Revenue in Booming Industry

By Uttkarsh Kohli

Tesla Tops Storage: Tesla dominates North American battery storage (25% market share) as renewables rise, deploying a record 4,053 MWh in Q1 2024.
Explosive Industry Growth: U.S. battery storage market projected for a staggering 30.5% CAGR until 2030, driven by clean energy transition.
Forefront of Innovation: CATL revealed TENER, a mass-producible energy storage system with zero degradation for five years achieving 430Wh/L density. Innovation to continue fueling growth.

Copper Primer: What We Like About Copper And What to Play

By Sameer Taneja

Top miners like BHP Group Ltd (BHP AU) and Teck Resources (TECK US) are signaling their long-term bullish copper intent through their recent corporate actions.
Copper may experience short periods of oversupply, but its long-term outlook makes it one of the best commodities we cover in terms of return potential.
Our best plays in the copper space are Southern Copper (SCCO US), Teck Resources (TECK US) and Freeport Mcmoran (FCX US)

[ETP 26/2024] Oil Prices Drop on Surprise Inventory Build; Oil Majors Slide but Retain Gains

By Suhas Reddy

An unexpected increase in US crude oil and gasoline inventories pushed oil prices down but the ongoing conflicts capped the downside.
Growing natural gas output dampens Henry Hub’s uptrend. Europe will ban transshipments of Russian LNG in its ports from March 2025.
Chevron’s Wheatstone LNG facility in Australia resumed full production. Wells Fargo lowered its target price on Shell but raised it on Occidental.

Serica Energy Plc (AIM: SQZ): Initiating Coverage

Serica Energy is a ~US800 mm market cap company with >40 mboe/d production and 140 mmboe of 2P reserves in the UK North Sea.
The investment case is about value and generous shareholder distributions.
The strategy is to maximize the value of two key producing hubs, depending on the UK’s tax policy, to develop a third one at Buchan Horst and to grow via M&A.

Serica Energy Plc (AIM: SQZ): Operations on Track. High Net Cash.

2023 production to date was 43,781 boe/d. very close to our expectations of 44.3 mboe/d.
Production in June at the Bruce Hub of 25,771 boe/d was particularly strong following the recent Light Well Intervention Vessel campaign.
This partially offsets the low production in May at the Triton Hub following a trip of a compressor that shut down production for three weeks (the production at Triton has been restored since then).

LVG: Making Progress on Imwelo

By Atrium Research

LVG has received the tax assessment from the Tanzanian Revenue Authority, one of the final steps from the acquisition of the Imwelo Mining License.
Once the Mining License is officially transferred, it will trigger the second tranche of investment from the TAIFA group.
Barrick Gold continues to explore the area surrounding the Tembo licenses, exciting us as LVG will share in Barrick’s success.

Valeura Energy (TSX: VLE): Operational Blip Offers an Opportunity for Investors

Production at Wassana has been suspended following the discovery of a crack within one of the MOPU’s steel jack-up legs that could pose a risk to the structural integrity of the MOPU.
The company is conducting further inspections and analysis to plan next steps.
Further visibility is expected in the coming weeks.

Pan American Silver – Investor day takeaways

By Edison Investment Research

Pan American Silver (PAAS) recently held an investor day focusing on strategy, key projects, exploration, ESG and capital allocation. In this note we summarise key takeaways from the event. Our valuation and financial estimates remain unchanged ahead of the Q224 results in August.

Zephyr Energy Plc (AIM: ZPHR): Reducing the cost of debt. Testing at State 36-2R to start imminently