Daily Brief Industrials: Shanghai Electric Group Company, HD Hyundai Marine Solution , ZEEKR, Air China Ltd (H), TAL Education, Base Carbon , Afcons Infrastructure Limited, UFP Industries , Ads-Tec Energy and more

• CSI 300 represents the 300 largest stocks by marketcap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500. There is subjectivity.
• Here we look at potential ADDs/DELs for the CSI 300/500 rebalance in June 2024. With 93% of time passed, I expect 11 changes for CSI300, 50 for CSI 500. 
• Some names have changed since my last insight, but the long/short trades recommended eight weeks ago gained 11.26% since. We make small changes this time.

• Our base case valuation of HD Hyundai Marine Solution is target price of 98,254 won per share, representing an 18% upside from the high end of the IPO price range.
• The company’s ROE averaged 67% in 2022 and 2023. In comparison, the comps’ ROE averaged 10.6% in the same period. [HD Hyundai Marine Solution > Comps]
• Our base case valuation is based on 24.7x P/E (comps’ average) using our estimated net profit of 178.7 billion won for the company in 2024. 

• ZEEKR (ZK US), a premium Chinese BEV manufacturer and a subsidiary of Geely Auto (175 HK), has restarted its IPO process to raise US$500 million by listing on the NYSE.
• We previously discussed the IPO in ZEEKR IPO: The Bull Case and ZEEKR IPO: The Bear Case. 
• The latest SEC filings reinforce the bear case due to weak industry sentiment, rapidly slowing growth, ongoing operating losses and volatile FCF. 

• Air China Ltd (H) (753 HK) had 15.4% interest-bearing debt denominated in USD, vs. 21.3% for China Southern Airlines (1055 HK), making it less exposed to Rmb depreciation. 
• Recovery of international traffic and routes will help to lower unit costs. Air China’s unit costs for FY23 were Rmb4.0445, whereas CSA’s were only Rmb3.2000.
• There is more upside for Air China’s load factor which was down 7.8pp YoY in FY23, compared with -4.7pp for CSA. 

• TAL Education Group (TAL) reported net revenues of USD 373.5 million for its third quarter fiscal year 2024, exhibiting an increase of 60.5% and 63.7% in U.S. dollar and RMB terms.
• Despite the impressive revenue growth, profitability remained a concern with non-GAAP loss from operations and non-GAAP net loss attributable to TAL amounting to USD 10.2 million and USD 1.9 million, respectively.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• Base Carbon reported 2023 results that highlight the milestone year for the company, which saw the first issuance of carbon credits from one of its projects, cash received from the sale of its credits to a third party, and the diversification into carbon removal projects.
• Net profit was $98.3 million, driven by $6.4 million realized and $104.7 million in unrealized gains in its carbon credit projects portfolio.
• Vietnam project expected to deliver ~$29.1 million in cash flow in 2024.

• Afcons Infrastructure Limited (6595396Z IN) is looking to raise US$840m in its upcoming India IPO. The bookrunners are Jefferies, Nomura, ICICI Securities, SBI Capital, DAM Capital, and Nuvama Wealth.
• Afcons Infrastructure Limited (Afcons) is the flagship infrastructure engineering and construction company of the Shapoorji Pallonji group.
• As per the Fitch report, the firm was one of India’s largest international infrastructure companies as per the 2023 ENR top international contractors ranking, based on FY23 international revenue.

• UFP Industries Inc. posted robust financial results for its Q4 2023, despite falling slightly short of its annual target.
• The company’s sales and profit ranked as the third best in its nearly seven decades of operation.
• CEO Matt Missad and CFO Mike Cole laid out UFP’s achievements, plans for 2024, and long-term objectives in their earnings call.

ADS-TEC Energy operates in an emerging market serving the changing grid and power management requirements of an electrifying world. Its key market at present is for battery-buffered ultra-fast charging systems for electric vehicles (EVs). This is starting to produce tangible positive results, with the business EBITDA positive in Q423. Hence, ADS-TEC offers a de-risking investment into the electrification of the energy system, including the growth of EVs through the associated charging infrastructure.