Daily Brief Industrials: Adani Ports & Special Economic Zone, Hanjin KAL Corp, Braille Energy Systems and more

Adani Ports and Special Economic Zone’s (APSEZ) FY 2022-23 results were in line with expectations, with revenue and EBITDA exceeding management’s guidance. That said, cargo volume growth slightly missed estimates. Leverage was largely stable (despite heavy outlays for acquisition and capex), thanks to strong earnings improvement. For FY 2023-24, we anticipate the company will generate FCF of INR 50-60 bn, assuming APSEZ does not make any material new acquisitions.

Management reiterated that the company’s priority is to deleverage in FY 2023-24, and guided for Net Debt/EBITDA to improve to 2.5x (from 3.1x in FY 2022-23). There are recent media reports that the Adani Group has committed to USD 10 bn of investments in Vietnam. Management clarified that the investments are meant to be carried out over the medium to long term.

We believe the fallout for Adani Group from Hindenburg Research’s short-sell report in late January 2023 is largely over. We view positively that the group has been addressing some of Hindenburg’s allegations by reducing leverage and raising equity to repay share-backed loans.

• There is a relatively high probability (70-80%+) that the FTCs in Europe and the United States will officially block the merger between Korean Air and Asiana Airlines in 2H 2023. 
• This could result in the Korea Development Bank (KDB) selling its 10.58% stake in Hanjin KAL Corp which could result in a fight for the control of Hanjin Kal.
• Our NAV analysis of Hanjin Kal suggests NAV of 3.8 trillion won or implied target price of 57,259 won per share, representing 13% upside from current levels.

• Braille Energy Systems reported Q2 financial results that were in line with our expectations.
• Revenue came in at $1.1M (+3% YoY, +26% QoQ) compared to our estimate of $1.1M.
• We are maintaining our BUY rating and $0.15/share target price on Braille Energy Systems.