Industrials: JMT Network Services, China Southern Airlines, MonotaRO Co Ltd, Asia High Yield Bond Index, Ultra Electronics Holdings, Kerry Express Thailand, KNR Constructions, Hock Seng Lee and more

• The market cap review period for the June rebalance of the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) starts in a couple of weeks.
• Using the last close, we see JMT Network Services (JMT) and Bangkok Life Assurance (BLA) as potential inclusions, replacing Ratch Group PCL (RATCH TB) and KCE Electronics PCL (KCE TB).
• Ratch Group PCL is the lowest ranked index constituent and needs to move 15% higher to avoid deletion. Passive trackers will need to sell nearly 4 days of ADV.

• While China Southern Airlines (1055 HK) saw passenger traffic up 17.3% in Jan, this is at the expense of higher capacity, leading to a 1.8pp YoY passenger load contraction. 
• Its cargo traffic underperformed both CEA and Air China with a YoY decline; and this is disappointing in a period of time where airfreight rate is at record-breaking level.  
• We see reduced local travel demand, higher operating costs, weaker cargo business, pressure on yield and higher base of comparison key challenges in 2022, and prefer Air China Ltd (753 HK). 

• New target price 2,150 yen; Reiterate our Hold rating

• On February 3, the company announced FY12/21 consolidated OP of 24.1bn yen (+23.1% YoY, OPM 12.7%), slightly below the company’s guidance of 24.7bn yen

• Mita Securities’ earnings forecast: Lowering our OPM assumptions

• The deal is expected to be referred for thorough analysis given political sensitivities as Ultra Electronics Holdings (ULE LN) is a key supplier to the UK’s army. Shorts are increasing.
• The review should fall under the old rules though. My standalone fair value estimate (DCF based) is 3,184p. (vs. 2,950p comps-based implied valuation and 3,325p median Capital IQ consensus TP).
• Long ULE LN, TP 3,500p, plus 16p interim. Upside is 17.2%. I just don’t see the UK Government blocking a friendly defence deal from an investor coming from a key ally.

• We anticipate KEX earnings performance to experience net loss for at least in the next two quarters while expecting to see market consolidation within the express delivery industry in Thailand
• First net loss since listed at Bt604m in 4Q21 pressured by aggressive price cutting strategy and cost arise from spare resources on labour and transportation. This resulted 
• Report Bt47m net profit in 2021 (-98%YoY) due to a price war which resulted in a drastic fall in average selling price. (contracted 20-25%YoY in 2021)

• KNR Constructions is one of the leading companies in the roads and highways sector having executed 6,000+ lane km of projects across 12 states in India
• The company also has an established presence in irrigation and urban water infrastructure management.
• Target Price and Valuation: We value KNR at Rs 360/share

• Unconditional voluntary cash offer of MYR1.35/sh
• No intention to maintain listing status
• Offer price is fair
• Challenging near-term outlook

The unconditional voluntary take-over offer for the remaining 87m shares (15.81%) in HSL for MYR1.35/shr by Hock Seng Lee Enterprise Sdn Bhd (HSLE) is 39% above our previous TP of MYR0.97, but in-line with its current share price. We believe the offer price is fair, which implies 15x FY22E PER and 0.8x P/BV (5-year mean). HSL’s net cash was MYR213m end-Sep 2021. We lift our TP to reflect the offer price; maintain HOLD.