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>Following a rally since early Feb, we believe the market has already priced in the upcoming recovery of machinery demand.</li><li>We see little upside potential in the near term, as (1) the recovery could be more seasonal (MoM) than structural (YoY), with sales of excavator (proxy for the sector) likely falling short of expectation in Mar; (2) We expect the strong credit growth will only translate into a moderate recovery of excavator demand this year (+10% YoY in our industry assumption).</li><li>Therefore, we are selective in our universe, and prefer only AWP (the only type of machinery that stands out by achieving 15% YoY growth in Jan). </li></ul>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.

Following a rally since early Feb, we believe the market has already priced in the upcoming recovery of machinery demand.We see little upside potential in the near term, as (1) the recovery could be more seasonal (MoM) than structural (YoY), with sales of excavator (proxy for the sector) likely falling short of expectation in Mar; (2) We expect the strong credit growth will only translate into a moderate recovery of excavator demand this year (+10% YoY in our industry assumption).Therefore, we are selective in our universe, and prefer only AWP (the only type of machinery that stands out by achieving 15% YoY growth in Jan). 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 – Near-Term Recovery More Seasonal than Structural

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>In last week's Compass (July 26) we discussed positive signals that we believe suggested the lows for this bear market may have already been established, or that downside is limited.</li>
<li>We continue to see more evidence that supports this claim; as a result, we are upgrading our outlook to neutral.</li>
<li>The SPX is reversing topside its 4-month downtrend, and the Russell 2000 (IWM), Russell Micro-Caps (IWC), and Russell 2000Growth (IWO) are each reversing topside their 9-month downtrends; the bottom's in.</li>
</ul>


In last week's Compass (July 26) we discussed positive signals that we believe suggested the lows for this bear market may have already been established, or that downside is limited.
We continue to see more evidence that supports this claim; as a result, we are upgrading our outlook to neutral.
The SPX is reversing topside its 4-month downtrend, and the Russell 2000 (IWM), Russell Micro-Caps (IWC), and Russell 2000Growth (IWO) are each reversing topside their 9-month downtrends; the bottom's in.


S&P 500 Reverses 4-Month Downtrend; Upgrading Consumer Discretionary to Market Weight

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> selling its <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (9618 HK)</a> shares was expected. The beginning of an open-ended share repurchase programme of Prosus and <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> shares was a welcome surprise.</li>
<li>Dye &amp; Durham has reduced its Offer price for <a href="https://www.smartkarma.com/entities/link-administration-holdings-ltd" target="_blank" data-smartkarma-citation="entities:970:1" rel="noopener">Link Administration (LNK AU)</a> to $4.30/share, down from $5.50/share. It still may get board support.</li>
<li>A 40-45% discount is about the narrowest <a href="https://www.smartkarma.com/entities/bank-of-kyoto" target="_blank" data-smartkarma-citation="entities:5248:1" rel="noopener">Bank of Kyoto (8369 JP)</a> should get to. For that, there is probably 15-20% upside. But like all holdco trades, trade the range.</li>
</ul>



Prosus (PRX NA) selling its JD.com (9618 HK) shares was expected. The beginning of an open-ended share repurchase programme of Prosus and Naspers (NPN SJ) shares was a welcome surprise.
Dye &amp; Durham has reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share. It still may get board support.
A 40-45% discount is about the narrowest Bank of Kyoto (8369 JP) should get to. For that, there is probably 15-20% upside. But like all holdco trades, trade the range.


Last Week in Event SPACE: Prosus/Naspers, Link Admin, Bank of Kyoto, Tassel, Toshiba

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<ul>
<li>UK Secretary of State has said <a href="https://www.smartkarma.com/entities/parker-hannifin-corp" target="_blank" data-smartkarma-citation="entities:6289:1" rel="noopener">Parker-Hannifin</a> has addressed competition and national security concerns over its takeover of <a href="https://www.smartkarma.com/entities/meggitt-plc" target="_blank" data-smartkarma-citation="entities:22044:1" rel="noopener">Meggitt PLC</a>. Public consultation is pending, after which clearance is almost sure.</li>
<li>As in the case of Ultra Electronics, it would be hard to justify the UK blocking a defence deal from a company based in a key ally, in my view.</li>
<li>The market believes there will be a deal. As of 29 June, gross spread is 1.25%, estimated annual return (assuming settlement on 26 October) is 3.98%.</li>
</ul>


UK Secretary of State has said Parker-Hannifin has addressed competition and national security concerns over its takeover of Meggitt PLC. Public consultation is pending, after which clearance is almost sure.
As in the case of Ultra Electronics, it would be hard to justify the UK blocking a defence deal from a company based in a key ally, in my view.
The market believes there will be a deal. As of 29 June, gross spread is 1.25%, estimated annual return (assuming settlement on 26 October) is 3.98%.


On October 28, <a href="https://www.smartkarma.com/entities/meggitt-plc" target="_blank" data-smartkarma-citation="entities:22044:1" rel="noopener">Meggitt PLC (MGGT LN)</a> published Q3 trading update and downgraded guidance for FY 2021: it expects FY 2021 organic revenue to be 5% below FY 2020 on an organic basis (FY 2020 revenue was £1.68 billion), due to supply chain disruption and softer defence trends. Meggitt added that it expects underlying operating profit of between £170 million and £190 million (vs. £192 million in FY 2020).
The UK government ordered a probe into the takeover offer on national security grounds. The CMA is required to investigate the proposed transaction and report to the Secretary of State by March 18, 2022. Meggitt looks forward to engaging constructively with the CMA on its review. In mid-August, the Secretary of State ordered a similar probe into the takeover of <a href="https://www.smartkarma.com/entities/ultra-electronics-holdings-plc" target="_blank" data-smartkarma-citation="entities:22196:1" rel="noopener">Ultra Electronics Holdings (ULE LN)</a> by Cobham, and gave the CMA until January 18, 2022 to investigate the proposed deal.
<a href="https://www.smartkarma.com/entities/parker-hannifin-corp" target="_blank" data-smartkarma-citation="entities:6289:1" rel="noopener">Parker Hannifin (PH US)</a> is an industrial buyer, and does not intend to dismantle Meggitt as it has happened with Cobham (Cobham was quickly dismantled after the takeover by Advent).
Boris is seeking allies beyond the EU, so I do not think the UK Government will block a deal from an American company with committed financing. Rather the Government will ask for guarantees that jobs/technology/manufacturing stay within the UK. With committed deal financing and almost sure green light from the UK Government, there are high chances that this deal will complete.
Meggitt currently trades at 18.8x EV/Fwd EBITDA (vs. the 10.3x median of comparables, source: Capital IQ consensus) and 3.4% FCF yield reflecting the bid premium. The spread is relentlessly tightening.
Gross spread is 6.2% for a deal that can take up to a year to close (and quite possibly 6-9 months). Recommendation is long MGGT LN, TP is 800p as per the Parker-Hannifin offer.

On October 28, Meggitt PLC (MGGT LN) published Q3 trading update and downgraded guidance for FY 2021: it expects FY 2021 organic revenue to be 5% below FY 2020 on an organic basis (FY 2020 revenue was £1.68 billion), due to supply chain disruption and softer defence trends. Meggitt added that it expects underlying operating profit of between £170 million and £190 million (vs. £192 million in FY 2020).
The UK government ordered a probe into the takeover offer on national security grounds. The CMA is required to investigate the proposed transaction and report to the Secretary of State by March 18, 2022. Meggitt looks forward to engaging constructively with the CMA on its review. In mid-August, the Secretary of State ordered a similar probe into the takeover of Ultra Electronics Holdings (ULE LN) by Cobham, and gave the CMA until January 18, 2022 to investigate the proposed deal.
Parker Hannifin (PH US) is an industrial buyer, and does not intend to dismantle Meggitt as it has happened with Cobham (Cobham was quickly dismantled after the takeover by Advent).
Boris is seeking allies beyond the EU, so I do not think the UK Government will block a deal from an American company with committed financing. Rather the Government will ask for guarantees that jobs/technology/manufacturing stay within the UK. With committed deal financing and almost sure green light from the UK Government, there are high chances that this deal will complete.
Meggitt currently trades at 18.8x EV/Fwd EBITDA (vs. the 10.3x median of comparables, source: Capital IQ consensus) and 3.4% FCF yield reflecting the bid premium. The spread is relentlessly tightening.
Gross spread is 6.2% for a deal that can take up to a year to close (and quite possibly 6-9 months). Recommendation is long MGGT LN, TP is 800p as per the Parker-Hannifin offer.

Parker-Hannifin/Meggitt: Update and Spread

United States

Parker-Hannifin Corporation manufactures motion control products, including fluid power systems, electromechanical controls, and related components.  The Company also produces fluid purification, fluid flow, process instrumentation, air conditioning, refrigeration, and electromagnetic shielding and thermal management products.

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Parker Hannifin (PH US)

China Construction Machinery – Near-Term Recovery More Seasonal than Structural

Following a rally since early Feb, we believe the market has already priced in the upcoming recovery of machinery demand.

CMB International

S&P 500 Reverses 4-Month Downtrend; Upgrading Consumer Discretionary to Market Weight

We continue to see more evidence suggesting the lows are in; as a result, we are upgrading our outlook to neutral. 4-month downtrend reversal for...

Vermilion Research

Last Week in Event SPACE: Prosus/Naspers, Link Admin, Bank of Kyoto, Tassel, Toshiba

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Parker-Hannifin/Meggitt: Ready to Fly

The UK Secretary of Defence will be soon in a position to clear the deal. Court and shareholder meetings should happen on 21 September. The deal...

Jesus Rodriguez Aguilar

Parker-Hannifin/Meggitt: Update and Spread

6.2% gross spread for a deal very likely to complete. TP is 800p. Meggitt currently trades at 18.8x EV/Fwd EBITDA (vs. the 10.3x median of...

Jesus Rodriguez Aguilar

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