Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

Harmonic Drive Systems / Equity Capital Markets

<ul>
<li>Today, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> announced it would sell 4.379mm shares (4.55%) of <a href="https://www.smartkarma.com/entities/harmonic-drive-systems-inc" target="_blank" data-smartkarma-citation="entities:10238:1" rel="noopener">Harmonic Drive Systems (6324 JP)</a> in an overseas placement. </li>
<li>This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.</li>
<li>Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too. </li>
</ul>


Today, Toyota Motor (7203 JP) announced it would sell 4.379mm shares (4.55%) of Harmonic Drive Systems (6324 JP) in an overseas placement. 
This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.
Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too. 


Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Thematic (Sector/Industry)

<ul><li>For Chinese machinery manufacturers, penetration overseas remains a longterm driver.</li><li>That said, with growth trend reversing since mid-2023 after 2-3 years of extraordinary growth, the way to overseas expansion will likely be bumpy in 2024E, especially when the overseas competitors are recovering from the supply chain bottleneck.</li><li>Geographically, we expect strong demand to continue in the US and the Middle East, but weakness in Europe and China. </li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

For Chinese machinery manufacturers, penetration overseas remains a longterm driver.That said, with growth trend reversing since mid-2023 after 2-3 years of extraordinary growth, the way to overseas expansion will likely be bumpy in 2024E, especially when the overseas competitors are recovering from the supply chain bottleneck.Geographically, we expect strong demand to continue in the US and the Middle East, but weakness in Europe and China. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Construction Machinery / HDT – 2024 Outlook

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>Major breakouts for UK's FTSE 100, STOXX Europe 50, and Germany's DAX (among others) continue to support our belief that non-U.S. equities are likely to outperform in the months/years ahead.</li>
<li>We continue to recommend adding exposure to China/Hong Kong, and to add exposure/remain overweight Europe and the UK; these remain our favorite areas to invest in the year ahead.</li>
<li>The UK/Europe and Hong Kong/China make up the majority of today's individual stock buy recommendations. Industrials, Materials, and Consumer Discretionary Sectors are all bullish and highlighted today -- add exposure.</li>
</ul>


Major breakouts for UK's FTSE 100, STOXX Europe 50, and Germany's DAX (among others) continue to support our belief that non-U.S. equities are likely to outperform in the months/years ahead.
We continue to recommend adding exposure to China/Hong Kong, and to add exposure/remain overweight Europe and the UK; these remain our favorite areas to invest in the year ahead.
The UK/Europe and Hong Kong/China make up the majority of today's individual stock buy recommendations. Industrials, Materials, and Consumer Discretionary Sectors are all bullish and highlighted today -- add exposure.


UK's FTSE 100, STOXX Europe 50 Breaking Out; Non-U.S. Outperformance to Continue, Buys in Cyclicals

Event-Driven

<ul>
<li>In February 2021 <a href="https://www.smartkarma.com/entities/nabtesco-corp" target="_blank" data-smartkarma-citation="entities:13176:1" rel="noopener">Nabtesco Corp (6268 JP)</a> announced it would sell half of its stake in <a href="https://www.smartkarma.com/entities/harmonic-drive-systems-inc" target="_blank" data-smartkarma-citation="entities:10238:1" rel="noopener">Harmonic Drive Systems (6324 JP)</a> to concentrate on its own products and growth. </li>
<li>It was a not-very-well-held secret Nabtesco had invested wanting to own HDS. HDS didn't want to be owned. Eventually Nabtesco gave up. So they sold over time into low float.</li>
<li>Now they are letting go of the other half. Sale structure means ongoing pressure.</li>
</ul>


In February 2021 Nabtesco Corp (6268 JP) announced it would sell half of its stake in Harmonic Drive Systems (6324 JP) to concentrate on its own products and growth. 
It was a not-very-well-held secret Nabtesco had invested wanting to own HDS. HDS didn't want to be owned. Eventually Nabtesco gave up. So they sold over time into low float.
Now they are letting go of the other half. Sale structure means ongoing pressure.


Nabtesco and Harmonic Drive - The Second Half of Splitsville So Pressure to Continue

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

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

Harmonic Drive Systems / Equity Bottom-Up

<ul>
<li>Demand for speed reduction gears is rebounding from the COVID downturn, but sales and profits are likely to be restrained by an increasingly difficult operating environment.</li>
<li>HDS faces growing competition from Nidec in Japan and Leaderdrive in China, both of which want to lead the market. For HDS, a return to peak margins is unlikely.</li>
<li>The shares have dropped 31% since last September, but at 81x EPS guidance are still quite expensive. Consider alternative factory automation investments. </li>
</ul>


Demand for speed reduction gears is rebounding from the COVID downturn, but sales and profits are likely to be restrained by an increasingly difficult operating environment.
HDS faces growing competition from Nidec in Japan and Leaderdrive in China, both of which want to lead the market. For HDS, a return to peak margins is unlikely.
The shares have dropped 31% since last September, but at 81x EPS guidance are still quite expensive. Consider alternative factory automation investments. 


Harmonic Drive Systems (6324 JP): Consider the Competition

Japan

Nabtesco Corporation manufactures Aircraft and Hydraulic products, Precision equipment, and transportation equipment. The Company's products include landing gear system for aircrafts, railroad vehicle brake system, and precision reduction gears for industrial robots.

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Nabtesco (6268 JP)

Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering

Toyota is selling a US$125mm stake in Harmonic Drive Systems. That's 4.55%. Not overwhelming but it will increase the ownership of the target...

Travis Lundy

China Construction Machinery / HDT – 2024 Outlook

That said, with growth trend reversing since mid-2023 after 2-3 years of extraordinary growth, the way to overseas expansion will likely be bumpy...

CMB International

UK's FTSE 100, STOXX Europe 50 Breaking Out; Non-U.S. Outperformance to Continue, Buys in Cyclicals

Recent major breakouts for the FTSE 100, STOXX Europe 50, and Germany's DAX (among others) continue to support our belief that non-U.S. equities...

Vermilion Research

Nabtesco and Harmonic Drive - The Second Half of Splitsville So Pressure to Continue

Nabtesco (6268) is selling the other half of its original stake in Harmonic Drive Systems (6324). The sale is a big part of Real World Float. HDS...

Travis Lundy

Harmonic Drive Systems (6324 JP): Consider the Competition

Sales are rebounding, but the stock is expensive and profits are likely to be capped by growing competition from Nidec and Leaderdrive. Consider...

Scott Foster

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