Brief Industrials: NYT: Property Tax Expense Pressured 4Q18 Earnings to Its Trough in 2018 and more

In this briefing:

1. NYT: Property Tax Expense Pressured 4Q18 Earnings to Its Trough in 2018
2. Ecopro BM IPO: Valuation Analysis
3. Shimadzu (7701 JP): 3Q Results Suggest a Trading Range
4. Eclipx (ECX AU): Worth a Punt that McMillan Merger Goes Through

1. NYT: Property Tax Expense Pressured 4Q18 Earnings to Its Trough in 2018

NYT reported 4Q18 net profit of Bt90m (-11%YoY, -24%QoQ), the lowest level in the past eight quarters. The 2018 result was in-line with our forecast.

• A drop in 4Q18 earnings was caused by one-time expense on property tax, which we expected at around Bt10-13m.
• 4Q18 revenue also remained flat at Bt368m (-1%YoY, +3.5%YoY) as number of vehicles that passed through the A5 terminal slightly dropped along the country’s car export unit to 281,853 units (-3%YoY, -5%QoQ).
• The company announced Bt0.30 of annual dividend or equivalent to 5.7% (XD on 3th of May 2019)

We maintain our 2019-20E earnings forecast and still rank NYT as a BUY with a target price of *Bt7.60 based on DCF (8.8%WACC, 1%TG) which implies 20xPE’2019E

*We make no changes to forecast, recommendation, and target price at the time of result announcement.

2. Ecopro BM IPO: Valuation Analysis

• The bookbuilding of the Ecopro BM Co Ltd (247540 KS) IPO starts on February 14th. Ecopro BM Co Ltd (247540 KS) specializes in making cathode active materials for rechargeable batteries that are used in EVs and electrical energy storage systems (ESS). Ecopro BM is the second largest global player after Sumitomo in the NCA high nickel-based cathode materials with market share of nearly 35%.
• Our base case valuation of the company suggests a market cap of 1.2 trillion won or implied price per share of 56,003 won, which is 31% higher than the high end of the IPO price range of 42,900 won. Therefore, we would take this deal. We used an estimated P/E of 25.3x (10% premium to the comps’ average of 23x) and an estimated net profit of 49.3 billion won in 2019 to derive our base case valuation. The high end of the valuation sensitivity analysis is 67,764 won, which would be 58% higher than the high end of the IPO price range of 42,900 won. 
• Ecopro BM has stronger sales growth and operating margins than its peers. However, its peers have stronger balance sheet with slightly higher returns on equity. We would give special points to the company’s stronger sales growth which is an indication of greater customer demand. Therefore, we think it is appropriate to provide a 10-20% premium valuation to Ecopro BM versus its peers based on the P/E analysis. 

3. Shimadzu (7701 JP): 3Q Results Suggest a Trading Range

Shimadzu’s 3Q results were good enough to reassure long-term investors, but not good enough to be called a buy signal. Sales and operating profit were up 4.5% and 4.6% year-on-year, respectively, in the three months to December, an improvement over 2Q but well below the double-digit increases recorded in 1Q and last fiscal year.  Forex losses and other factors led to a 2.2% decline in net profit. 

Sales were up in Japan, Europe and Asia ex-Japan and ex-China, but down in America,  China and Other Regions. Sales of core Analytical & Measuring Instruments were up 2.4%, operating profit on those sales was up 4.1% and the operating margin rose to +15.4% from +15.1% the previous year.

Sales of Industrial Machinery were down 5.7%, but operating profit on those sales was up 2.7% and the division generated a +9.7% operating margin vs. +9.0% the previous year. Sales of turbo-molecular pumps, primarily to semiconductor equipment makers, were down 14.3%.

Medical System sales were up 10.6% and the division generated a +1.5% operating margin vs. + 0.1% the previous year. Aircraft Equipment sales were up 12.1% but the division made a -0.5% operating loss vs. +1.2% profit the previous year. 

At ¥2,659 (Friday, February 8 closing price), the shares are selling at 24x our EPS estimate for FY Mar-19 and 12x EV/EBITDA. The five-year historical P/E range is 13x – 30x, the EV/EBITDA range is 6x – 16x. Over the next several quarters, we expect continued weakness in Industrial Machinery to offset single-digit growth in Instruments, keeping overall growth low. 

4. Eclipx (ECX AU): Worth a Punt that McMillan Merger Goes Through

On 29 January 2019, Eclipx (ECX AU) issued an unexpected trading update citing a soft 1H19 performance and that FY19 NPATA will be more second-half weighted than in the past. In response to Eclipx’s trading update, Mcmillan Shakespeare (MMS AU) said it needs to do further work resulting in the rescheduling of the first court hearing of 1 February 2019.