In today’s briefing:
- Recruit (6098) Buyback – Big, But Meh…
- JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Jan 2022
- HCM – Obvious Upgrade Is Obvious… Just Not to the Sell Side
- Komatsu – Strong but Mostly Priced In
- Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
- AIA Engineering: Volumes Disappoint, Recovery to Be Gradual
Recruit (6098) Buyback – Big, But Meh…
- Recruit announced a buyback of up to 34 million shares in an own share tender offer to take place at a price below the current market price.
- This kind of tender offer is almost always meant for Japanese corporate holders as it rarely makes sense for others to participate.
- This is mildly EPS accretive, BVPS decretive, quite ROE accretive, but Recruit can’t really use this method for the rest of its cross-holdings.
JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Jan 2022
- JPX-Nikkei 400 is composed of common stocks listed in the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
- A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year.
- Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-January 2022.
HCM – Obvious Upgrade Is Obvious… Just Not to the Sell Side
- HCM posted a strong set of 3Q results with revenue of ¥246.7bn a touch below our ¥248.5bn estimate and blowing away clueless consensus’ ¥219.2bn.
- That the consensus high was just ¥231bn is an illustration of how poor the sell side understanding of HCM is compared to Komatsu.
- We expect more of the same going forward… strength from HCM and cluelessness from sell side analysts.
Komatsu – Strong but Mostly Priced In
- Komatsu’s 3Q results hit revenue of ¥723bn (+12.5% QoQ, +30.1% YoY) and OP of ¥87.5bn.
- They beat consensus by 9.8% and 19.0% at the revenue and OP levels respectively.
- That puts it on track to hit the high end of our ¥305-325bn OP estimate for the FY but upside is relatively moderate compared to HCM.
Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
US equity markets saw a sharp rally on Friday with the S&P and Nasdaq ending 2.4% and 3.1% higher. Sectoral gains were led by IT and Real Estate, up 4.3% and 3.4% each. US 10Y Treasury yields eased 2bp at 1.79%. European markets recovered with the DAX, CAC and FTSE down 1.3%, 0.8% and 1.2%. Brazil’s Bovespa closed 0.6% higher. In the Middle East, UAE’s ADX was up 0.4% and Saudi TASI closed 0.7% higher on Sunday. Asian markets have opened broadly higher with HSI, STI and Nikkei up 1.3%, 0.5% and 1.5% while Shanghai was down 1%. US IG CDS spreads were 1.3bp wider and HY CDS spreads were 5.1bp tighter, EU Main CDS spreads were 1.7bp wider and Crossover CDS spreads were 5.7bp wider. Asia ex-Japan CDS spreads were 1.6bp wider.
AIA Engineering: Volumes Disappoint, Recovery to Be Gradual
- AIA Engineering (AIA) is India’s largest manufacturer and supplier of high chrome wear, corrosion and abrasion resistance castings used in cement, mining and thermal power plants (or mills)
- Products include tube mill internals (grinding media, shell liners, diaphragm), HRCS castings & crusher parts for cement, mining and power
- Target Price and Valuation: We value AIA at Rs 1895 i.e. 28x P/E on FY24E EPS
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