Smartkarma Daily Briefs

• As discussed in Itoki (7972) Mammoth Buyback Coming Imminently After 35% Jump, the company was going to do a mega ToSTNeT-3 buyback between then and end-Feb. That happened this morning.
• The company bought back 7.966mm shares (13.96%) for ¥15.9bn. That should have cleared out the bulk of the risk of the original warrant holders who bought in 2020. But…
• The dilution/accretion don’t offset perfectly, and there is a clause suggesting how this might play out from here. But we can infer things from other data we now have.

• We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
• Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK) , Uchi Technologies (UCHI MK) , and The Keepers Holdings (KEEPR PM).
• We recently added Ginebra San Miguel (GSMI PM) / Sai Gon Cargo Service (SCS VN) to our list of companies under coverage, along with Plover Bay Technologies (1523 HK).  

• We cut our SIA operating profit by 9% to S$2.6bn in FY24 and by 17% to S$1.5bn in FY25 versus consensus of S$2.1bn.
• SIA’s cost control is under-examined and we publish a deep dive on a concerning level of inflation relative to key peers, which actually escalated in 3Q24.
• Cargo broke even in peak season, and Scoot’s margins present a conundrum as it may need to be further utilization to help SIA with cost management.

• January pricing momentum improved, helped by more operating days & re-routes
• Throughput growth remained strong last month, including +18% into WC ports
• Near term reality far rosier than downbeat view from industry giant Maersk

• The CNMV authorizes the partial takeover bid of Gubel S.L., for 15% of the shares of Prosegur (PSG SM) at €1.83/share. Acceptance period until 19 March, although extension possible to 13 May.
• I recommend long and tender, both because of the current spread and the fact that its already low liquidity and low free float will be even lower after closing.
• I believe the proration risk is minimal. Spread is 2.95%/12.43% (gross/annualised, assuming settlement on 23 May).

• QANTM Intellectual Property Ltd (ASX:QIP) owns a group of intellectual property (IP) services businesses operating under the independent brands of Davies Collison Cave (DCC), FPA Patent Attorneys and Sortify.tm.
• It is a major player in the mature and regulated Australian patent, trade marks and IP legal services market with ~14.4% market share (H1 FY24) in its key patents segment (67% of service revenue) and a diversified mix of local and foreign clients.
• The company has reported a significantly better-than- forecast H1 FY24 result, driven by stronger revenue, productivity gains and cost improvements. 

• Investment firms are using Ten East to diversify personal portfolios
• Business Breakdowns podcast explores successful businesses like Heiko in niche markets
• Heiko operates in the aerospace industry, offering cost-saving solutions for aircraft parts and repairs, similar to generic drugs in the pharmaceutical industry

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• QANTM Intellectual Property Ltd (ASX:QIP) owns a group of intellectual property (IP) services businesses operating under the independent brands of Davies Collison Cave (DCC), FPA Patent Attorneys and Sortify.tm.
• It is a major player in the mature and regulated Australian patent, trade marks and IP legal services market with ~14.4% market share (H1 FY24) in its key patents segment (67% of service revenue) and a diversified mix of local and foreign clients.
• The company has reported a significantly better-than-forecast H1 FY24 result, driven by stronger revenue, productivity gains and cost improvements.

• iPower reported 2QFY24 revenue of $16.8 million versus $19.3 million a year ago, driven primarily by continued inventory tightening at its main online retail partner.
• Nevertheless, gross margin improved to 43.6% from 41.4% Y/Y, driven by a favorable product mix, lower warehouse costs, and service revenue.
• The secular inventory tightening, following the supply disruptions of 2022, has now run its course, and might have been exacerbated this quarter by iPower’s main retail online partner end of the year considerations.

• Q1-4 FY12/23 results were weaker than our estimates with the company revising down FY guidance.
• Orders for the mainstay electric discharge machines fell 24% YoY in Q4 FY12/23 with China demand remaining sluggish.
• However, there are positive indications that the company aims to transform its business model by conducting cost reductions, streamlining the balance sheet, and bringing greater focus to its business strategy. 

• In More Hong Kong Stocks Priced For Liquidation, I flagged thirteen stocks the market is all-but implying are priced for liquidation. 
• One of the cut-off points in that analysis was a requirement for stocks to trade at least US$1mn/day. Removing that constraint uncovers shipping services play COSCO International Holdings (517 HK) (CSI).
• CSI’s market cap accounts for ~86% of its 1H23 net cash position. Earlier this month, CSI announced another positive profit warning. Those numbers should be out late-March.

• LG Display’s tight stock rights trading prompts a need to assess potential trading opportunities. Taihan Electric Wire’s concurrent capital increase warrants close observation.
• Watch for a potentially wider spread in Taihan Electric Wire’s stock rights trading from the 22nd, given local institutional demand focus on LG Display may create a buying vacuum.
• Observers speculate on a CJ CGV-like pattern at LG Display. With no current market movements, predicting such a scenario is difficult. Nonetheless, I’ll monitor closely and share any developments.

• On the 28 November 2023, SOE-backed CIMC Vehicle Group Co Ltd (1839 HK) announced a conditional H-share buyback at a $7.00/H-share, a forgettable 8.6% premium to last close.
• This Voluntary Offer followed by a Merger by Absorption requires shareholder approval and SAFE signing off. The SAFE condition was satisfied on the 26th Jan.
• Last night, CIMC announced the CBP investigation into the evasion of  U.S. anti-dumping and countervailing duties was extended. There is no mentioned in interim accounts or HKEx of this investigation.

• There is room for FY23 result of Cathay Pacific Airways (293 HK) to beat market expectations on stronger traffic volume and better yield performance.  
• Resumption of more capacity, from 70% of the pre-pandemic level at end-FY23, will drive FY24 earnings with ROE at 12-13%, putting it on an inexpensive 0.65x P/B. 
• Its associate Air China Ltd (H) (753 HK) will also benefit from the release of pent-up demand in the domestic market and the recovery in international travel. 

• The market seems to be dancing to its own tune and is likely to continue.
• EUREKAFO’s distributors are dissatisfied, MANYAVAR’s reported numbers failed to match up to the on-ground optimism. 
• LTFH’s “strong” retail playbook keeps performing, and SGMART’s website raises concerns about its operations. 

• We refresh estimates on AF-KLM, IAG, Lufthansa following Singapore Airlines’s effective profit warning, noting higher fuel prices make margin protection more difficult.
• Our 2024 EBIT estimates are 7% ahead of consensus at €2.0bn for AF-KLM, 6% ahead at €3.6bn for IAG and 5% behind at €2.5bn for Lufthansa.
• Lufthansa has highest-in-class capacity growth, with its biggest focus on APAC while APAC yield weakness prompts margin management concerns as ground handlers strike.

With November’s purchase of Astutis, January’s sale of MiExact and the proposed Healthcare business disposal, Wilmington is now firmly focused on opportunities within the large global governance, risk and compliance (GRC) market. The group’s significant cash resource should enable further M&A to accelerate growth across the GRC landscape, while investment in technology platforms and AI capabilities improves revenue and operating margin prospects in the core activities. H124 organic revenue growth (continuing business) was up 7%, with a 12% gain in adjusted EPS. FY24 results to June are expected in line with market forecasts. Given the improving quality of earnings we regard the valuation as undemanding.

• In More Hong Kong Stocks Priced For Liquidation, I flagged thirteen stocks the market is all-but implying are priced for liquidation. 
• One of the cut-off points in that analysis was a requirement for stocks to trade at least US$1mn/day. Removing that constraint uncovers shipping services play COSCO International Holdings (517 HK) (CSI).
• CSI’s market cap accounts for ~86% of its 1H23 net cash position. Earlier this month, CSI announced another positive profit warning. Those numbers should be out late-March.

• LG Display’s tight stock rights trading prompts a need to assess potential trading opportunities. Taihan Electric Wire’s concurrent capital increase warrants close observation.
• Watch for a potentially wider spread in Taihan Electric Wire’s stock rights trading from the 22nd, given local institutional demand focus on LG Display may create a buying vacuum.
• Observers speculate on a CJ CGV-like pattern at LG Display. With no current market movements, predicting such a scenario is difficult. Nonetheless, I’ll monitor closely and share any developments.

• On the 28 November 2023, SOE-backed CIMC Vehicle Group Co Ltd (1839 HK) announced a conditional H-share buyback at a $7.00/H-share, a forgettable 8.6% premium to last close.
• This Voluntary Offer followed by a Merger by Absorption requires shareholder approval and SAFE signing off. The SAFE condition was satisfied on the 26th Jan.
• Last night, CIMC announced the CBP investigation into the evasion of  U.S. anti-dumping and countervailing duties was extended. There is no mentioned in interim accounts or HKEx of this investigation.

• There is room for FY23 result of Cathay Pacific Airways (293 HK) to beat market expectations on stronger traffic volume and better yield performance.  
• Resumption of more capacity, from 70% of the pre-pandemic level at end-FY23, will drive FY24 earnings with ROE at 12-13%, putting it on an inexpensive 0.65x P/B. 
• Its associate Air China Ltd (H) (753 HK) will also benefit from the release of pent-up demand in the domestic market and the recovery in international travel. 

• The market seems to be dancing to its own tune and is likely to continue.
• EUREKAFO’s distributors are dissatisfied, MANYAVAR’s reported numbers failed to match up to the on-ground optimism. 
• LTFH’s “strong” retail playbook keeps performing, and SGMART’s website raises concerns about its operations. 

• We refresh estimates on AF-KLM, IAG, Lufthansa following Singapore Airlines’s effective profit warning, noting higher fuel prices make margin protection more difficult.
• Our 2024 EBIT estimates are 7% ahead of consensus at €2.0bn for AF-KLM, 6% ahead at €3.6bn for IAG and 5% behind at €2.5bn for Lufthansa.
• Lufthansa has highest-in-class capacity growth, with its biggest focus on APAC while APAC yield weakness prompts margin management concerns as ground handlers strike.

With November’s purchase of Astutis, January’s sale of MiExact and the proposed Healthcare business disposal, Wilmington is now firmly focused on opportunities within the large global governance, risk and compliance (GRC) market. The group’s significant cash resource should enable further M&A to accelerate growth across the GRC landscape, while investment in technology platforms and AI capabilities improves revenue and operating margin prospects in the core activities. H124 organic revenue growth (continuing business) was up 7%, with a 12% gain in adjusted EPS. FY24 results to June are expected in line with market forecasts. Given the improving quality of earnings we regard the valuation as undemanding.