In today’s briefing:
- Toshiba – Kioxia Could Be A Break Risk
- Toshiba (6502 JP): Tender Offer Risk/Reward
- JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
- KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
- Recruit Holdings: 4QFY2023 Earnings Preview
- AviChina Industry (2357 HK): Benefiting from the Geopolitical Turmoil
- 10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry
- General Dynamics Corporation: Winning Big With Its Combat Systems – Key Drivers
- Waste Management Inc.: Cleaning Up With Its Pricing Strategy – Key Drivers
- The Boeing Company: Acquisition Of CloudAhoy & Other Developments
Toshiba – Kioxia Could Be A Break Risk
- We believe Kioxia’s results present a significant risk to financing for JIP’s Toshiba bid.
- Recent commentary from companies increasingly points to the potential for an L-shaped recovery rather than a U-shaped one.
- In addition, if conditions remain as challenging as they have been or worsen it is not inconceivable for Kioxia to require more capital.
Toshiba (6502 JP): Tender Offer Risk/Reward
- Toshiba Corp (6502 JP) reports FY2022 results on 12 May. Since the announcement of Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share, there have been no progress updates.
- The spread to the offer is currently 4.2%, suggesting a reasonable probability of success. However, the offer’s success ultimately depends on shareholder backing, particularly from the activists on the register.
- Shareholder support continues to pose a considerable risk as the peers have re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers.
JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
- Activist Strategic Capital has made shareholder noise at civil engineer-road infra company Seikitokyu Kogyo (1898 JP) for years. Two years ago I wrote about Seikitokyu as “A REALLY Cheap Company.”
- When I wrote, it was ¥885/share. 23 months later it was ¥824/share having paid ¥60/share over two years. Despite having bought back 10% of shares outstanding in the interim.
- Today they announced a radical new Shareholder Return Policy. It is worth reading in detail. The insight is labelled BEARISH for a specific reason. That’s a detail too.
KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
- Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
- At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
- The dividend has been “lowered” to ¥200/share, which is higher than expected. That’s for this year.
Recruit Holdings: 4QFY2023 Earnings Preview
- Recruit Holdings (6098 JP) will report FQ4 results on 15th May. Consensus expectations are ¥844.4bn and ¥92.5bn in revenue and EBITDA respectively.
- The company revised its previous guidance in February and expects revenues and OP of ¥823bn and ¥89.2bn respectively for 4QFY03/2023.
- Our revenue forecast for 4QFY03/2023 is in line with Recruit’s guidance, while we expect the company’s adjusted EBITDA to be slightly higher than the guidance.
AviChina Industry (2357 HK): Benefiting from the Geopolitical Turmoil
- AviChina Industry & Technology (2357 HK) remains cheap with 3-year earnings CAGR of 17.4% but only 11x PER. It also trades on 55% discount to value of its A-share subsidiaries.
- Aggregate earnings for its four A-share listed subsidiaries grew a solid 26.8% in 1Q23, even faster than AviChina Industry’s FY23F earnings growth of 21.5%.
- China is expected to increase military spending to narrow the gap against the US going forward. AviChina stays best exposed to such growth in defense demand.
10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry
10 in 10 with Uni-Asia Group – All Aboard the Robust Bulk Carrier Industry
General Dynamics Corporation: Winning Big With Its Combat Systems – Key Drivers
- General Dynamics had a strong quarter and managed an all-around beat with an improving order book position and a company-wide book-to-bill ratio of 0.9:1.
- The Combat Systems group saw particularly robust order activity with a book-to-bill ratio of 5x.
- While Aerospace & Technologies continues to deliver strong cash performance, the Combat Systems group, in particular, produced exceptional free cash flow this quarter.
Waste Management Inc.: Cleaning Up With Its Pricing Strategy – Key Drivers
- Waste Management is off to a good start in 2023, with first-quarter performance exceeding analyst expectations.
- Collection and disposal volume also increased by 0.8% in the first quarter.
- Waste Management believes it is poised for another year of robust financial growth in 2023.
The Boeing Company: Acquisition Of CloudAhoy & Other Developments
- After a series of bad results, Boeing managed a mixed quarter to start the year as its revenues were above Wall Street expectations though company reported wider-than-expected losses.
- However, Boeing still expects to deliver 450 737 airplanes this year and plans to increase its rate to 38 per month later this year.
- The company also delivered 130 commercial airplanes in the quarter, steadily increasing rates across critical programs to meet robust demand.
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