Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Hollysys (HOLI US): Competing Proposal From Founder

Hollysys (HOLI US): The Subtle Third Offer

Hollysys (HOLI US) Suspends Proposal Evaluations As Fourth Bid Emerges

Hollysys Auto Tech Placement - Has Ample Cash, Reasons for the Raising Remain Unclear

Hollysys (HOLI US): CPE Heightens Its Case Amid Shareholding Dispute

Quiddity Advisors

Event-Driven

Hollysys Automation Technologies / Event-Driven

Hollysys Automation Technologies (HOLI US)

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<p>Earlier this month, <a href="https://www.smartkarma.com/entities/hollysys-automation-technolo" target="_blank" data-smartkarma-citation="entities:26078:1" rel="noopener">Hollysys Automation Technolo (HOLI US)</a> <a href="http://hollysys.investorroom.com/2021-05-13-Hollysys-Automation-Technologies-Reports-Unaudited-Financial-Results-for-the-Third-Quarter-and-the-First-Nine-Months-Ended-March-31,-2021" target="_blank" rel="noopener">announced</a> its 3Q21 results, which saw NPAT gaining ~15% yoy to US$15mn, reversing five consecutive down quarters.</p>
<ul>
<li>The industrial automation ("IA") ops, the key revenue and growth driver, finished the third quarter with revenue and new contracts at $67.5mn and $106.7mn, or yoy growth of 97.1% and 68.7. For the first nine months of the FY21, IA revenue and new contracts achieved 44.1% and 34.0% yoy growth.</li>
<li>IA's contribution to revenue is up to 56% for the 9M21 versus 45% for 9M20.</li>
</ul>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/209/393/original/image_8755565231622097482669.png?1622097483" class="editor-image img-responsive" data-smartkarma-image-id="209393"></figure>
<ul>
<li>IA's contribution to revenue is up to 56% for the 9M21 versus 45% for 9M20.</li>
<li>The rail business ops finished the quarter with revenue and new contracts at $30.7mn and $15.7mn, or yoy growth of 7.0% and 215.2%. For 9M21, the rail business revenue and new contracts returned a 7.5% yoy decrease and 10.2% yoy growth, respectively.</li>
<li>The mechanical and electrical solutions business finished the quarter with revenue and new contracts at $11.8mn and $19.6mn, a 34.1% and 1.2% yoy decrease respectively.</li>
<li>Net cash, excluding short-term investments, increased to US$450mn, up from US$341mn as at December 2020. Including STI, net cash was US$623mn vs US$682mn as at 31 December.</li>
<li>To note, NPAT growth was slower than the top line growth.</li>
</ul>
<p>No mention was made with respect to the consortium's Offer. No doubt that omission spurred the latest <a href="https://www.businesswire.com/news/home/20210525006034/en/Buyer-Consortium-Comments-on-Recent-Financial-and-Operational-Information-Released-by-Hollysys-Automation-Technologies" target="_blank" rel="noopener">salvo</a> from CPE Funds Management - who previously <a href="https://www.businesswire.com/news/home/20210413006213/en/Buyer-Consortium-Comments-on-Recent-Financial-and-Operational-Information-Released-by-Hollysys-Automation-Technologies" target="_blank" rel="noopener">critiqued</a> Hollysys' 1H21 results - which highlighted the following:</p>
<ul>
<li>Net operating cash flow for the quarter ended March 31, 2021 was negative $6.4mn, the first negative quarterly operating cash flow in the last 16 consecutive quarters.</li>
<li>Revenue for the quarter ended March 31, 2021 was $109.9mn, representing a 12% decrease from $125.2mn for the comparable pre-pandemic period in 2019.</li>
</ul>
<p>It's hardly a knock-out blow. Yet Hollysys would be better served mentioning, at least, there is no update to the Offer or that it undervalues the company. </p>
<p>Currently trading at a gross spread of 27.6% to the consortium's non-binding proposal of $17.10/share. The street consensus has a fair value of US$19.32/share.</p>
<p>More below the fold.</p>
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Earlier this month, Hollysys Automation Technolo (HOLI US) announced its 3Q21 results, which saw NPAT gaining ~15% yoy to US$15mn, reversing five consecutive down quarters.

The industrial automation ("IA") ops, the key revenue and growth driver, finished the third quarter with revenue and new contracts at $67.5mn and $106.7mn, or yoy growth of 97.1% and 68.7. For the first nine months of the FY21, IA revenue and new contracts achieved 44.1% and 34.0% yoy growth.
IA's contribution to revenue is up to 56% for the 9M21 versus 45% for 9M20.



IA's contribution to revenue is up to 56% for the 9M21 versus 45% for 9M20.
The rail business ops finished the quarter with revenue and new contracts at $30.7mn and $15.7mn, or yoy growth of 7.0% and 215.2%. For 9M21, the rail business revenue and new contracts returned a 7.5% yoy decrease and 10.2% yoy growth, respectively.
The mechanical and electrical solutions business finished the quarter with revenue and new contracts at $11.8mn and $19.6mn, a 34.1% and 1.2% yoy decrease respectively.
Net cash, excluding short-term investments, increased to US$450mn, up from US$341mn as at December 2020. Including STI, net cash was US$623mn vs US$682mn as at 31 December.
To note, NPAT growth was slower than the top line growth.

No mention was made with respect to the consortium's Offer. No doubt that omission spurred the latest salvo from CPE Funds Management - who previously critiqued Hollysys' 1H21 results - which highlighted the following:

Net operating cash flow for the quarter ended March 31, 2021 was negative $6.4mn, the first negative quarterly operating cash flow in the last 16 consecutive quarters.
Revenue for the quarter ended March 31, 2021 was $109.9mn, representing a 12% decrease from $125.2mn for the comparable pre-pandemic period in 2019.

It's hardly a knock-out blow. Yet Hollysys would be better served mentioning, at least, there is no update to the Offer or that it undervalues the company. 
Currently trading at a gross spread of 27.6% to the consortium's non-binding proposal of $17.10/share. The street consensus has a fair value of US$19.32/share.
More below the fold.









Hollysys (HOLI US): CPE's Broadsides Continue