In today’s briefing:
- Disco (6146 JP): YoY Growth Headed Toward Zero
- Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance
- Komatsu (6301) | Back Test Suggests 56% Upside from Here
- COSCO Shipping Energy (1138 HK): Stay Away at the Moment
- Kinetic&Globalvia/Go-Ahead: Increased Offer
- Back From the Grave
Disco (6146 JP): YoY Growth Headed Toward Zero
- After beating guidance every quarter last fiscal year, Disco fell short in the three months to June.
- Management is guiding for the usual seasonal rebound in 2Q, but year-on-year growth rates are forecast to drop sharply – most likely on their way to negative territory in 2H.
- Disco has stopped disclosing orders data, reducing visibility for investors. 2Q results are likely to be the next catalyst. We see no reason to jump in now.
Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance
- Since our first bullish note on GrafTech International Ltd (EAF US) the stock is down -31% due to softer ASP’s and cost inflation. We believe these headwinds will persist.
- Deleveraging continues with net debt declining from 1.1 bn to 865 mn USD YoY, but the pace has slowed due to negative working capital changes resulting in lower OCF.
- Factoring in a 12% drop in ASP YoY, the stock trades at 6.3x FY23 and 4.7x EV-EBITDA, pushing our thesis of debt deleveraging/capital return further out.
Komatsu (6301) | Back Test Suggests 56% Upside from Here
- At 1.1x PB, Komatsu’s stock price has already discounted a severe recession
- Our back test suggests a 56% return over 12-months from this level (100% hit rate)
- We see little risk of balance sheet impairment and believe the stock is trading at attractive valuations for long-term investors
COSCO Shipping Energy (1138 HK): Stay Away at the Moment
- At 0.71x 12-month forward P/B multiple, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) has overly discounted the earnings recovery for FY22 and FY23.
- VLCC rate has rebounded since end-Jun but are still at unexciting US$10,000/day level only. This is below an estimated cash breakeven level of US$25,000/day for its fleet.
- Tanker demand-supply balance looks to be at equilibrium over the next 12 months, leaving limited potential for significant surge in rate. This opens room for earnings disappointment, in our view.
Kinetic&Globalvia/Go-Ahead: Increased Offer
- On 4 August, the consortium sweetened the offer by 50p, 3.3%, to 1,550p/share, comprising 1,450p+100p special dividend (conditional upon Scheme becoming Effective); 13.3x Fwd P/E and 7.9x EV/Fwd EBIT.
- Still below below the 8.6x EV/Fwd EBIT offered by DWS for Stagecoach, but the market believes that the deal will complete. Irrevocable undertakings plus letters of intent represent 26.86%.
- Gross spread is 1.04%, 8.66% estimated annual return (assuming settlement and paying of the special dividend on 22 September). Reiterate long GOG LN.
Back From the Grave
- Things have gone from bad to worse at Nikola over the past year.
- The Commercial Battery and Hydrogen Truck maker, once considered the SPAC poster child, has been shrouded in controversy after defrauding investors and delaying production on several occasions.
- After seeing its stock crushed, Nikola has strung together a succession of wins to stage a comeback in recent months. Can the company maintain its momentum and deliver on its original vision?
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