Daily Brief Industrials: Keisei Electric Railway Co, Angel Robotics , Shanghai REFIRE Group, Grab Holdings , SITC International, Trex Company, HEICO Corp, Talgo SA, Capita PLC, Republic Services and more

• Over two decades, Keisei Electric Railway Co (9009 JP) has been the subject of softer and harder activist efforts to have Keisei monetise its stake in affiliate Oriental Land (4661).
• The most recent efforts were by Palliser last fall, briefly discussed here two weeks ago when Keisei announced a buyback. 
• Today, Keisei announced (Japanese only) an Accelerated Block Offering of 1% of Oriental Land shares. The accompanying announcement is worth reading. It’s pretty clear.

• Our base case valuation of Angel Robotics is target price of 20,277 won per share, which represents a 35% upside from the high end of the IPO price range. 
• We estimate sales of 9 billion won in 2024 (up 75.2% YoY) and 14.9 billion won in 2025 (up 65.3% YoY). Our estimates are more conservative than the company’s estimates.
• We like the strong sales growth of Angel Robotics. Many investors are likely to view this positively in this IPO. LG Electronics and Samsung Electronics are customers of Angel Robotics. 

• Shanghai REFIRE Group (SRG) is looking to raise around US$100m in its upcoming Hong Kong IPO. The bookrunner for the deal is CICC.
• SRG designs, develops, manufactures, and sells hydrogen fuel cell systems, hydrogen production systems, and related components, as well as provides fuel cell engineering and technical services.
• According to Frost & Sullivan (F&S), it ranked first in the hydrogen fuel cell system market in China, with a market share of 25.9%.

• This is our first report on transportation and fintech platform provider, Grab Holdings Inc.
• The company had a pivotal year in 2023, delivering on key goals and achieving profitability in adjusted EBITDA since the third quarter and earning a positive net profit in the fourth quarter.
• The company experienced a series of enhancements, including a successful rebuild of their mobility business which had been vastly impacted by the pandemic.

• The 72.5% decline in SITC International (1308 HK)‘s FY23 earnings is disappointing but should already reflected in the share price given the profit warning. Instead, this may be the trough.  
• Spot freight rates for key intra-Asia routes have already recovered since 3Q23, with the YTD level higher than the 2H23 average. The 1H24 result may show a sequential rebound.
• Even assuming flat YoY earnings in FY24, it still sits on a 9% dividend yield. The projected ROE of over 24% and net cash position mean 1.6-1.7x P/B undemanding.

• Trex Company, the outdoor living products manufacturer reported solid performance for both the quarter and full year 2023, surpassing their revenue guidance.
• The strong results were credited to its mid-single-digit channel sell-through growth and new product offerings, demonstrating the strength and resilience of the Trex brand.
• In the fourth quarter, the company introduced numerous products that expanded its portfolio in existing categories and extended into complementary adjacencies.

• In its recent results, Heico is showing a significant growth trajectory in its recent financial results.
• This growth can be attributed to a couple of key factors, but there are also a number of risks and potential downsides that investors should be aware of.
• In terms of positives, HEICO’s first quarter of fiscal 2024 showed dramatic improvement over the first quarter of fiscal 2023.

• According to Expansion, the Hungarian Ganz-MaVag Euroe Zrt consortium is giving final touches to the offer for Talgo SA (TLGO SM) after obtaining verbal approval from the lenders.
• The Minister of Transport assured that the Spanish Government will do everything possible to prevent the consortium from taking over Talgo due to hidden interests of the Viktor Órban Government.
• However, the Government would need to justify its decision thoroughly to avoid potential legal challenges. For now, I would remain in the sidelines due to uncertainties about development and timing.

Capita faced numerous cash drags in FY23, notably £20m in costs associated with a cyber incident, a £30m pension deficit contribution and a £20m increase in technology capex, which depressed the adjusted free cash outflow before disposals to £116m (£42.4m outflow in FY22). Despite these challenges, the implementation of a rigorous cost efficiency programme and the strategic divestment of non-core assets have the potential to fuel a turnaround. Some £160m of annualised cost savings are expected to be realised by mid-2025 (part reinvested for growth), aimed at bolstering a significant improvement in operating margins. As margins improve, shifting to faster-growing market segments with a more competitive cost base could catalyse a reduction in the valuation discount.

• Republic Services (RSG) had a strong finish to 2023 highlighting its successful strategy designed for business growth.
• The company’s revenue for the year grew by 11%, which includes a 5% increase from its acquisitions.
• RSG generated 13% adjusted EBITDA growth and margin expansion of 60 basis points, as well as reporting adjusted earnings per share of $5.61.