Daily Brief Industrials: Itoki Corp, Sai Gon Cargo Service , Singapore Airlines, Evergreen Marine Corp, Prosegur, Qantm Intellectual Property, HEICO Corp, iPower , Sodick Co Ltd and more

• As discussed in Itoki (7972) Mammoth Buyback Coming Imminently After 35% Jump, the company was going to do a mega ToSTNeT-3 buyback between then and end-Feb. That happened this morning.
• The company bought back 7.966mm shares (13.96%) for ¥15.9bn. That should have cleared out the bulk of the risk of the original warrant holders who bought in 2020. But…
• The dilution/accretion don’t offset perfectly, and there is a clause suggesting how this might play out from here. But we can infer things from other data we now have.

• We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
• Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK) , Uchi Technologies (UCHI MK) , and The Keepers Holdings (KEEPR PM).
• We recently added Ginebra San Miguel (GSMI PM) / Sai Gon Cargo Service (SCS VN) to our list of companies under coverage, along with Plover Bay Technologies (1523 HK).  

• We cut our SIA operating profit by 9% to S$2.6bn in FY24 and by 17% to S$1.5bn in FY25 versus consensus of S$2.1bn.
• SIA’s cost control is under-examined and we publish a deep dive on a concerning level of inflation relative to key peers, which actually escalated in 3Q24.
• Cargo broke even in peak season, and Scoot’s margins present a conundrum as it may need to be further utilization to help SIA with cost management.

• January pricing momentum improved, helped by more operating days & re-routes
• Throughput growth remained strong last month, including +18% into WC ports
• Near term reality far rosier than downbeat view from industry giant Maersk

• The CNMV authorizes the partial takeover bid of Gubel S.L., for 15% of the shares of Prosegur (PSG SM) at €1.83/share. Acceptance period until 19 March, although extension possible to 13 May.
• I recommend long and tender, both because of the current spread and the fact that its already low liquidity and low free float will be even lower after closing.
• I believe the proration risk is minimal. Spread is 2.95%/12.43% (gross/annualised, assuming settlement on 23 May).

• QANTM Intellectual Property Ltd (ASX:QIP) owns a group of intellectual property (IP) services businesses operating under the independent brands of Davies Collison Cave (DCC), FPA Patent Attorneys and Sortify.tm.
• It is a major player in the mature and regulated Australian patent, trade marks and IP legal services market with ~14.4% market share (H1 FY24) in its key patents segment (67% of service revenue) and a diversified mix of local and foreign clients.
• The company has reported a significantly better-than- forecast H1 FY24 result, driven by stronger revenue, productivity gains and cost improvements. 

• Investment firms are using Ten East to diversify personal portfolios
• Business Breakdowns podcast explores successful businesses like Heiko in niche markets
• Heiko operates in the aerospace industry, offering cost-saving solutions for aircraft parts and repairs, similar to generic drugs in the pharmaceutical industry

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• QANTM Intellectual Property Ltd (ASX:QIP) owns a group of intellectual property (IP) services businesses operating under the independent brands of Davies Collison Cave (DCC), FPA Patent Attorneys and Sortify.tm.
• It is a major player in the mature and regulated Australian patent, trade marks and IP legal services market with ~14.4% market share (H1 FY24) in its key patents segment (67% of service revenue) and a diversified mix of local and foreign clients.
• The company has reported a significantly better-than-forecast H1 FY24 result, driven by stronger revenue, productivity gains and cost improvements.

• iPower reported 2QFY24 revenue of $16.8 million versus $19.3 million a year ago, driven primarily by continued inventory tightening at its main online retail partner.
• Nevertheless, gross margin improved to 43.6% from 41.4% Y/Y, driven by a favorable product mix, lower warehouse costs, and service revenue.
• The secular inventory tightening, following the supply disruptions of 2022, has now run its course, and might have been exacerbated this quarter by iPower’s main retail online partner end of the year considerations.

• Q1-4 FY12/23 results were weaker than our estimates with the company revising down FY guidance.
• Orders for the mainstay electric discharge machines fell 24% YoY in Q4 FY12/23 with China demand remaining sluggish.
• However, there are positive indications that the company aims to transform its business model by conducting cost reductions, streamlining the balance sheet, and bringing greater focus to its business strategy.