IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

CIMC Vehicle Group Co Ltd / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/cimc-vehicle-group-co-ltd" target="_blank" data-smartkarma-citation="entities:28012:1" rel="noopener">CIMC Vehicle Group Co Ltd (1706044D HK)</a>, a subsidiary of <a href="https://www.smartkarma.com/entities/china-international-marine-cntnrs-gp-ltd" target="_blank" data-smartkarma-citation="entities:11752:1" rel="noopener">China International Marine Cntnrs Gp (2039 HK)</a> ​(63% shareholder), is the largest semi-trailer manufacturer with a 10.3% global market share as measured by sales volume, according to Frost &amp; Sullivan. It announced its IPO price range of HK$6.38-8.08 per share. At the mid-point of the IPO price range, CIMC Vehicles will raise net proceeds of HK$1.8 billion ($228 million), resulting in a market cap of HK$12.8 billion ($1.7 billion).</p><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/cimc-vehicles-group-ipo-initiation-a-long-haul" target="_blank" rel="noopener">our initiation note</a> and <a href="https://www.smartkarma.com/insights/cimc-vehicles-group-ipo-an-unsustainable-start-to-the-year" target="_blank" rel="noopener">PHIP update note</a>, we stated that CIMC Vehicles’ fundamentals are mixed, which needs to be reflected in the proposed IPO valuation. Overall, our valuation analysis suggests that the CIMC Vehicles’ IPO is attractive at the proposed IPO price range. </p></div>

CIMC Vehicle Group Co Ltd (1706044D HK), a subsidiary of China International Marine Cntnrs Gp (2039 HK) ​(63% shareholder), is the largest semi-trailer manufacturer with a 10.3% global market share as measured by sales volume, according to Frost &amp; Sullivan. It announced its IPO price range of HK$6.38-8.08 per share. At the mid-point of the IPO price range, CIMC Vehicles will raise net proceeds of HK$1.8 billion ($228 million), resulting in a market cap of HK$12.8 billion ($1.7 billion).In our initiation note and PHIP update note, we stated that CIMC Vehicles’ fundamentals are mixed, which needs to be reflected in the proposed IPO valuation. Overall, our valuation analysis suggests that the CIMC Vehicles’ IPO is attractive at the proposed IPO price range. 

CIMC Vehicles Group IPO: A Reasonable Valuation

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/8416" target="_blank" data-smartkarma-citation="entities:8416:1">Komatsu Ltd (6301 JP)</a> reported earnings after the close on 26 Apr, the last trading day before the extended Golden Week holiday due to the change to the Reiwa era. Results were in line but forecasts were conservative as usual with the headline guidance for OP down 15.3% YoY and 16.3% below consensus. Much of this was conservative forex assumptions and excluding forex impacts the implied guidance is down 6.8% YoY. The company projects significant weakness in Asia and China in particular. On the whole we feel guidance is relatively conservative and we break down regional trends below.</p>

Komatsu Ltd (6301 JP) reported earnings after the close on 26 Apr, the last trading day before the extended Golden Week holiday due to the change to the Reiwa era. Results were in line but forecasts were conservative as usual with the headline guidance for OP down 15.3% YoY and 16.3% below consensus. Much of this was conservative forex assumptions and excluding forex impacts the implied guidance is down 6.8% YoY. The company projects significant weakness in Asia and China in particular. On the whole we feel guidance is relatively conservative and we break down regional trends below.

Komatsu: Regional Mining and Construction Trends in Charts

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/182/original/2019-04-29_12-24-09.png?1556508262" class="editor-image img-responsive" data-smartkarma-image-id="86182"></figure><p>Source: Japan Analytics</p>
</div><p><strong>EARLY DAYS</strong> - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of this 76 % have been annual results for the fiscal year ended March 2019.  Also, there have been 328 initial forecasts for the year to March 2020, 227 initial interim forecasts and 228 intra-year revisions. With the long holiday break, there will be an avalanche of announcements from the 7th May onwards. In this Insight, we shall look at the trends apparent in the results so far released.  In the last month, our Market Composite trailing-twelve-month (TTM) data series is unchanged for Operating Income, while Net Income has increased by ¥0.2t. <strong>With 13% of March-year-end companies have issued FY2020 forecasts, aggregate forecast Operating Income is ¥0.7t lower and is in line with TTM Operating Income. Forecast Net Income is ¥0.6 lower and is 4% below TTM Net Income. </strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/411/original/2019-04-30_13-26-24.png?1556598396" class="editor-image img-responsive" data-smartkarma-image-id="86411"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/412/original/File%202019-04-30%2013%2010%2017.jpeg?1556598417" class="editor-image img-responsive" data-smartkarma-image-id="86412"></figure><div class="content-caption">Source: Japan Analytics, Pictet Asset Management</div><p><strong>MARGIN SLIPPAGE</strong> -<strong> </strong>With revenues remaining relatively robust, margins are declining fast that at any time since 2016. The forecast operating margin is now 42 basis points below the 2018 peak level, while the slippage in net margins is 78 basis points. Although the sample is not the same, to IBES consensus estimates have current downtrend bottoming out in the second half of the year with net margins recovering to 6.6% in 2021. We consider this overly optimistic. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/187/original/2019-04-29_12-32-53.png?1556508784" class="editor-image img-responsive" data-smartkarma-image-id="86187"></figure><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/190/original/2019-04-29_12-51-24.png?1556509893" class="editor-image img-responsive" data-smartkarma-image-id="86190"></figure><p>Source: Japan Analytics</p>
</div><p style="text-align: left;"><strong>RESULTS &amp; REVISION SCORES</strong> - Our scoring methodology for results and forecasts/revisions incorporates rates of change and other momentum factors and has historically provided a better fit with changes in aggregate market value. Although the Market Composite Results Score has remained stable in the last week at 2.21, we expect the score to end this results 'season' closer to zero as indicated by the trend in the Forecast/Revision Score. The latter has declined for six quarters in a row and the current quarter will make it seven. <strong>Although our data series only covers the last forty quarters and is perhaps too short for generalisations, it would be unusual for the Forecasts/Revision Score series to have an eighth down quarter in a row. Perhaps the market's robust recovery from the Christmas Day low is anticipating such an outcome. </strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/086/193/original/2019-04-29_13-17-03.png?1556511439" class="editor-image img-responsive" data-smartkarma-image-id="86193"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>USDJPY NEUTRAL</strong> - In the past, one of the principal drivers of both scores has been changes in the US dollar/Yen exchange rate. The chart above merges both scores to create a cleaner timeline, and key turning points in <a href="https://www.smartkarma.com/entities/22826" target="_blank" data-smartkarma-citation="entities:22826:1">JUSDJPY CURNCY</a> highlighted. With the currency cross trading in a narrow range, there is little support or stimulus in the next six months. However, any sustained weakness in the Yen, such as occurred from September 2016, will be another confirmation that a cycle low has been reached. </p><div class="content-highlight"><p>In the<strong> DETAIL</strong> section below, we update our  Sector Results &amp; Revision Scores and look at the best and worst large-cap company results over the seven trading days.</p></div>


Source: Japan Analytics
EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of this 76 % have been annual results for the fiscal year ended March 2019.  Also, there have been 328 initial forecasts for the year to March 2020, 227 initial interim forecasts and 228 intra-year revisions. With the long holiday break, there will be an avalanche of announcements from the 7th May onwards. In this Insight, we shall look at the trends apparent in the results so far released.  In the last month, our Market Composite trailing-twelve-month (TTM) data series is unchanged for Operating Income, while Net Income has increased by ¥0.2t. With 13% of March-year-end companies have issued FY2020 forecasts, aggregate forecast Operating Income is ¥0.7t lower and is in line with TTM Operating Income. Forecast Net Income is ¥0.6 lower and is 4% below TTM Net Income. Source: Japan Analytics, Pictet Asset ManagementMARGIN SLIPPAGE - With revenues remaining relatively robust, margins are declining fast that at any time since 2016. The forecast operating margin is now 42 basis points below the 2018 peak level, while the slippage in net margins is 78 basis points. Although the sample is not the same, to IBES consensus estimates have current downtrend bottoming out in the second half of the year with net margins recovering to 6.6% in 2021. We consider this overly optimistic. 
Source: Japan Analytics
RESULTS &amp; REVISION SCORES - Our scoring methodology for results and forecasts/revisions incorporates rates of change and other momentum factors and has historically provided a better fit with changes in aggregate market value. Although the Market Composite Results Score has remained stable in the last week at 2.21, we expect the score to end this results 'season' closer to zero as indicated by the trend in the Forecast/Revision Score. The latter has declined for six quarters in a row and the current quarter will make it seven. Although our data series only covers the last forty quarters and is perhaps too short for generalisations, it would be unusual for the Forecasts/Revision Score series to have an eighth down quarter in a row. Perhaps the market's robust recovery from the Christmas Day low is anticipating such an outcome. Source: Japan AnalyticsUSDJPY NEUTRAL - In the past, one of the principal drivers of both scores has been changes in the US dollar/Yen exchange rate. The chart above merges both scores to create a cleaner timeline, and key turning points in JUSDJPY CURNCY highlighted. With the currency cross trading in a narrow range, there is little support or stimulus in the next six months. However, any sustained weakness in the Yen, such as occurred from September 2016, will be another confirmation that a cycle low has been reached. In the DETAIL section below, we update our  Sector Results &amp; Revision Scores and look at the best and worst large-cap company results over the seven trading days.

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

Hitachi Construction Machinery / Equity Bottom-Up

<p>We consider the tone of HCM's setsumeikai to have been largely positive. While guidance looked very weak, on a constant currency basis the company expects earnings to grow with strong results in the mining and value chain businesses offsetting <em>potential</em> weakness in China and Europe. While unit sales in China look a little frothy with local manufacturers becoming very aggressive on pricing, on the whole we believe the market has prematurely priced in a downturn while we expect mining demand to support continued strong results.</p>

We consider the tone of HCM's setsumeikai to have been largely positive. While guidance looked very weak, on a constant currency basis the company expects earnings to grow with strong results in the mining and value chain businesses offsetting potential weakness in China and Europe. While unit sales in China look a little frothy with local manufacturers becoming very aggressive on pricing, on the whole we believe the market has prematurely priced in a downturn while we expect mining demand to support continued strong results.

HCM: Setsumeikai Positive and Earnings Should Grow on Constant Currency Basis

<p><a href="https://www.smartkarma.com/entities/19433" target="_blank" data-smartkarma-citation="entities:19433:1">Hitachi Construction Machinery (6305 JP)</a> is down 41% since its early Feb 2018 peak. This is despite consensus OP estimates having risen 28% since that period. Consensus is forecasting 1.6% growth in OP next FY and we also expect low-mid single digit growth. Given valuations, however, we believe the market may be pricing in a significant earnings decline and thus believe there is potential upside for the stock.</p>

Hitachi Construction Machinery (6305 JP) is down 41% since its early Feb 2018 peak. This is despite consensus OP estimates having risen 28% since that period. Consensus is forecasting 1.6% growth in OP next FY and we also expect low-mid single digit growth. Given valuations, however, we believe the market may be pricing in a significant earnings decline and thus believe there is potential upside for the stock.

HCM: 4Q Unlikely to Surprise but We Do Not Expect an Earnings Decline Next Year

Japan

KOMATSU LTD. manufactures and sells construction and mining machinery, including excavators, bulldozers, and wheel loaders.  The Company, operating on a global scale, also produces forklift trucks and engineering equipment such as press system.

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Komatsu Ltd (6301 JP)

CIMC Vehicles Group IPO: A Reasonable Valuation

CIMC Vehicle Group Co Ltd (1706044D HK), a subsidiary of China International Marine Cntnrs Gp (2039 HK) (63% shareholder), is the largest...

Arun George

Komatsu: Regional Mining and Construction Trends in Charts

Komatsu Ltd (6301 JP) reported earnings after the close on 26 Apr, the last trading day before the extended Golden Week holiday due to the change...

Mio Kato

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of...

Campbell Gunn

HCM: Setsumeikai Positive and Earnings Should Grow on Constant Currency Basis

We consider the tone of HCM's setsumeikai to have been largely positive. While guidance looked very weak, on a constant currency basis the company...

Mio Kato

HCM: 4Q Unlikely to Surprise but We Do Not Expect an Earnings Decline Next Year

Hitachi Construction Machinery (6305 JP) is down 41% since its early Feb 2018 peak. This is despite consensus OP estimates having risen 28% since...

Mio Kato

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CIMC Vehicles Group IPO: A Reasonable Valuation

CIMC Vehicle Group Co Ltd (1706044D HK), a subsidiary of China International Marine Cntnrs Gp (2039 HK) ​(63% shareholder), is the largest...

Arun George

Komatsu: Regional Mining and Construction Trends in Charts

Komatsu Ltd (6301 JP) reported earnings after the close on 26 Apr, the last trading day before the extended Golden Week holiday due to the change...

Mio Kato

🇯🇵 Japan • Spring Results & Revisions Flash - Early Days

EARLY DAYS - In the last seven trading days, 473 Japanese companies have reported quarterly results, 11% of the 3,830 that are currently listed. Of...

Campbell Gunn

HCM: Setsumeikai Positive and Earnings Should Grow on Constant Currency Basis

We consider the tone of HCM's setsumeikai to have been largely positive. While guidance looked very weak, on a constant currency basis the company...

Mio Kato

HCM: 4Q Unlikely to Surprise but We Do Not Expect an Earnings Decline Next Year

Hitachi Construction Machinery (6305 JP) is down 41% since its early Feb 2018 peak. This is despite consensus OP estimates having risen 28% since...

Mio Kato

CIMC Vehicle Group Co Ltd (1706044D HK), a subsidiary of China International Marine Cntnrs Gp (2039 HK) (63% shareholder), is the largest...