Daily Brief Industrials: Toshiba Corp, Siemens Gamesa Renewable Energy, S.A., Zoomlion Heavy Industry H, ACCO Brands and more

• Toshiba reported 1Q results today missing at both the revenue and OP lines. 
• While revenue was barely above consensus the company generate a ¥4.8bn operating loss rather than the ¥22bn OP consensus was projecting. 
• 1Q is seasonally weak so the loss itself would not be concerning except for how widespread deterioration was.

• Q3 2022 results were received as weak by the market. Guidance was (again) revised downwards. Otherwise, the takeover bid continues in the process of authorization by the CNMV.
• I don’t expect any relevant changes in the offer: Siemens Energy already has control, operating problems persist and the financial position continues to deteriorate. Downwards risks to consensus estimates persist.
• Gross spread is 0.33%. The estimated annual return is 1.63% (assuming settlement on 24 October). Sell on strength/tender during the offer in case there’s a (low probability) improvement in the offer.

We view Zoomlion as “High Risk” on the LARA scale, mainly due to its moderate financial profile. The company has concentrated exposure to China’s construction machinery segment, which is in turn reliant on infrastructure and construction spending in the country. Furthermore, a downturn in the property sector has had an indirect impact on Zoomlion. Globally, the industry is dominated by a few MNCs.

Zoomlion has a strong domestic market position, and is the world’s seventh-largest heavy machinery manufacturer. The company enjoys a close affiliation with the Chinese government, with its largest shareholder being a SOE. This improves Zoomlion’s access to refinancing capital. We expect the construction machinery industry to benefit from rising replacement demand and infrastructure development.

Our Credit Bias on Zoomlion is “Stable”, reflecting the company’s stable revenue. That said, we remain cautious about the likelihood of overdue risks resulting from the tough economic conditions. Additionally, capex has increased significantly and is expected to remain high, given the need to construct relocated plants and upgrade the company’s products. Overall investor sentiment is supported by Zoomlion’s operating track record and its largest shareholder, Hunan Xing Xiang Investment (a SOE). This may facilitate continued access to domestic debt markets.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• Strong back to school sell-in was not enough to offset the impact of a weaker Euro and slowdown in video game spending
• The weaker Euro to the US Dollar was expected in our numbers when we revised them in July. However, the drop off was more meaningful than expected
• The decline in video game accessory sales also put pressure on the quarter with ACCO now expecting a “reset” in the segment’s performance