Daily Brief Industrials: GS Engineering & Construction, China Communications Construction, Kubota Corp and more

In today’s briefing:

KOSPI Size Index Series Rebalancing in September: Eight Strong Targets

Eight stocks are highly likely to migrate with a substantial passive flow. Compared to the early phase of the screening period, GS Engineering & Construction newly made the list.
Most names should show a quite substantial passive flow (x ADTV). In particular, KCC Corp and BGF Retail deserve our special attention for their expected passive impact.
The flow occurs on high potential migration stocks about 20 days before the effective date. So I would start building Long/Short Basket positions with the above eight names around mid-August.

China Communications Construction (1800 HK) sealed Rmb371bn of new contract in 2Q22, or a 35.2% YoY growth, representing a sharp acceleration from just 4.9% in 1Q22.
We estimate backlog is now around Rmb3.5trn and this equals to 5.2x FY21 revenue. This should have improved from 4.6x at end-FY21 and provides CCCC a secured pipeline.
CCCC is well positioned to gain more contracts in 2H22 as driven by the local government special purpose bonds issue. Such issue reached Rmb1.5trn, or a 166.1% growth, in Jun.

Kubota was a key beneficiary of stay-at-home demand in the US over the past two years
The pull-forward in demand is now normalising, while the macro environment has also turned more difficult
We think Kubota will miss full year analyst numbers and expect the stock to trade lower to 1.2x book

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