Australia

In this briefing:

1. Retain Sell Recommendations on SYR, ORE, GXY (Flash Note)

1. Retain Sell Recommendations on SYR, ORE, GXY (Flash Note)

In this briefing:

1. Retain Sell Recommendations on SYR, ORE, GXY (Flash Note)
2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

1. Retain Sell Recommendations on SYR, ORE, GXY (Flash Note)

2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

The highlights for December are as follows:

• Panasonic:

• • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
  • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
  • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.

• There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
• CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
• South Korean players had no major battery highlights last month.
• CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

In this briefing:

1. Orica Placement – Not a Game Changer but past Deals Did Well
2. National Storage REIT’s Three-Way Takeover Tussle
3. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top
4. The Guerrilla War Against The PBOC
5. National Storage: A Public/Gaw Tussle

1. Orica Placement – Not a Game Changer but past Deals Did Well

Orica Ltd (ORI AU) is looking to raise US$334m in its placement to acquire Exsa.

The acquisition of Exsa does not look like a game changer, at least in the near term. It will not be EPS accretive in the first full year of ownership. Its past deals (albeit a long time ago), have consistently been positive over the past one week.

2. National Storage REIT’s Three-Way Takeover Tussle

National Storage Reit (NSR AU) is one of Australasia’s largest self-storage providers. NSR is in the middle of a three-way takeover tussle between Gaw Capital, Warburg Pincus and Public Storage (PSA US). On 23 January, NSR disclosed an indicative proposal from Gaw Capital which was later revealed to be $2.20 per stapled security. On 18 February, Warburg Pincus put forward its indicative all-cash offer, at $2.20 per stapled security, before NSR received a subsequent offer from Public Storage at $2.40 per stapled security on 14 February. 

3. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top

Wesfarmers Ltd (WES AU) is looking to sell 65.4m shares in Coles Group Ltd (COL AU). Post selldown, Wesfarners will still have about 10.1% stake in Coles.

The deal scores well on our framework owing to good short-term momentum, relatively better leverage than peers. However, the deal size is large, representing about 21 days of three-month ADV. 

4. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

5. National Storage: A Public/Gaw Tussle

National Storage Reit (NSR AU) closed up 6.3% on the 23 January after announcing a non-binding indicative proposal from Hong Kong-based real estate private equity firm Gaw Capital Partners. No price was mentioned.

Public Storage (PSA US), the largest self-storage REIT in the U.S., has now made an indicative, non-binding proposal of $2.40/stapled security, valuing NSR at ~A$2bn. This is a ~16.5% premium to the undisturbed price ahead of the Gaw announcement.

Pricing under Gaw’s indicative proposal remains non-public, but believed to be A$2.15/stapled security according to various media reports. NSR said Public Storage’s proposal is superior.

Public Storage added in its Form 8-K SEC filing that it “does not intend to provide additional or ongoing disclosure regarding these preliminary negotiations prior to any execution of a definitive agreement and expressly disclaims any obligation to update this information, except as required by law”.

Today NSR closed at the indicative terms, an all-time high, and well in excess of any metric for both local and international peers. This appears to be a transaction with a revaluation bent, but one wonders what’s left on the table.

As always, more below the fold.

In this briefing:

1. National Storage REIT’s Three-Way Takeover Tussle
2. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top
3. The Guerrilla War Against The PBOC
4. National Storage: A Public/Gaw Tussle
5. The US and Developed Countries: Bump in the Road or Cliff Edge?

1. National Storage REIT’s Three-Way Takeover Tussle

National Storage Reit (NSR AU) is one of Australasia’s largest self-storage providers. NSR is in the middle of a three-way takeover tussle between Gaw Capital, Warburg Pincus and Public Storage (PSA US). On 23 January, NSR disclosed an indicative proposal from Gaw Capital which was later revealed to be $2.20 per stapled security. On 18 February, Warburg Pincus put forward its indicative all-cash offer, at $2.20 per stapled security, before NSR received a subsequent offer from Public Storage at $2.40 per stapled security on 14 February. 

2. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top

Wesfarmers Ltd (WES AU) is looking to sell 65.4m shares in Coles Group Ltd (COL AU). Post selldown, Wesfarners will still have about 10.1% stake in Coles.

The deal scores well on our framework owing to good short-term momentum, relatively better leverage than peers. However, the deal size is large, representing about 21 days of three-month ADV. 

3. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

4. National Storage: A Public/Gaw Tussle

National Storage Reit (NSR AU) closed up 6.3% on the 23 January after announcing a non-binding indicative proposal from Hong Kong-based real estate private equity firm Gaw Capital Partners. No price was mentioned.

Public Storage (PSA US), the largest self-storage REIT in the U.S., has now made an indicative, non-binding proposal of $2.40/stapled security, valuing NSR at ~A$2bn. This is a ~16.5% premium to the undisturbed price ahead of the Gaw announcement.

Pricing under Gaw’s indicative proposal remains non-public, but believed to be A$2.15/stapled security according to various media reports. NSR said Public Storage’s proposal is superior.

Public Storage added in its Form 8-K SEC filing that it “does not intend to provide additional or ongoing disclosure regarding these preliminary negotiations prior to any execution of a definitive agreement and expressly disclaims any obligation to update this information, except as required by law”.

Today NSR closed at the indicative terms, an all-time high, and well in excess of any metric for both local and international peers. This appears to be a transaction with a revaluation bent, but one wonders what’s left on the table.

As always, more below the fold.

5. The US and Developed Countries: Bump in the Road or Cliff Edge?

We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.

In this briefing:

1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

The highlights for December are as follows:

• Panasonic:

• • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
  • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
  • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.

• There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
• CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
• South Korean players had no major battery highlights last month.
• CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

In this briefing:

1. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top
2. The Guerrilla War Against The PBOC
3. National Storage: A Public/Gaw Tussle
4. The US and Developed Countries: Bump in the Road or Cliff Edge?
5. Bendigo and Adelaide Bank Placement – Cutting Dividend to a Sustainable Level

1. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top

Wesfarmers Ltd (WES AU) is looking to sell 65.4m shares in Coles Group Ltd (COL AU). Post selldown, Wesfarners will still have about 10.1% stake in Coles.

The deal scores well on our framework owing to good short-term momentum, relatively better leverage than peers. However, the deal size is large, representing about 21 days of three-month ADV. 

2. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

3. National Storage: A Public/Gaw Tussle

National Storage Reit (NSR AU) closed up 6.3% on the 23 January after announcing a non-binding indicative proposal from Hong Kong-based real estate private equity firm Gaw Capital Partners. No price was mentioned.

Public Storage (PSA US), the largest self-storage REIT in the U.S., has now made an indicative, non-binding proposal of $2.40/stapled security, valuing NSR at ~A$2bn. This is a ~16.5% premium to the undisturbed price ahead of the Gaw announcement.

Pricing under Gaw’s indicative proposal remains non-public, but believed to be A$2.15/stapled security according to various media reports. NSR said Public Storage’s proposal is superior.

Public Storage added in its Form 8-K SEC filing that it “does not intend to provide additional or ongoing disclosure regarding these preliminary negotiations prior to any execution of a definitive agreement and expressly disclaims any obligation to update this information, except as required by law”.

Today NSR closed at the indicative terms, an all-time high, and well in excess of any metric for both local and international peers. This appears to be a transaction with a revaluation bent, but one wonders what’s left on the table.

As always, more below the fold.

4. The US and Developed Countries: Bump in the Road or Cliff Edge?

We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.

5. Bendigo and Adelaide Bank Placement – Cutting Dividend to a Sustainable Level

Bendigo And Adelaide Bank (BEN AU) is looking to raise about US$168m in its placement to support growth and increase buffer for CET1 capital ratio requirements.

Overall, the deal scored poorly on our framework owing to the weak earnings momentum, poor track record but cushioned by its undemanding valuation and decent price momentum of late. Recent results demonstrated some improvement but the cut in dividend weighs on near-term sentiment.

In this briefing:

1. The Guerrilla War Against The PBOC
2. National Storage: A Public/Gaw Tussle
3. The US and Developed Countries: Bump in the Road or Cliff Edge?
4. Bendigo and Adelaide Bank Placement – Cutting Dividend to a Sustainable Level
5. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

1. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

2. National Storage: A Public/Gaw Tussle

National Storage Reit (NSR AU) closed up 6.3% on the 23 January after announcing a non-binding indicative proposal from Hong Kong-based real estate private equity firm Gaw Capital Partners. No price was mentioned.

Public Storage (PSA US), the largest self-storage REIT in the U.S., has now made an indicative, non-binding proposal of $2.40/stapled security, valuing NSR at ~A$2bn. This is a ~16.5% premium to the undisturbed price ahead of the Gaw announcement.

Pricing under Gaw’s indicative proposal remains non-public, but believed to be A$2.15/stapled security according to various media reports. NSR said Public Storage’s proposal is superior.

Public Storage added in its Form 8-K SEC filing that it “does not intend to provide additional or ongoing disclosure regarding these preliminary negotiations prior to any execution of a definitive agreement and expressly disclaims any obligation to update this information, except as required by law”.

Today NSR closed at the indicative terms, an all-time high, and well in excess of any metric for both local and international peers. This appears to be a transaction with a revaluation bent, but one wonders what’s left on the table.

As always, more below the fold.

3. The US and Developed Countries: Bump in the Road or Cliff Edge?

We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.

4. Bendigo and Adelaide Bank Placement – Cutting Dividend to a Sustainable Level

Bendigo And Adelaide Bank (BEN AU) is looking to raise about US$168m in its placement to support growth and increase buffer for CET1 capital ratio requirements.

Overall, the deal scored poorly on our framework owing to the weak earnings momentum, poor track record but cushioned by its undemanding valuation and decent price momentum of late. Recent results demonstrated some improvement but the cut in dividend weighs on near-term sentiment.

5. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

In this briefing:

1. Shipping Investors Edgy as Low-Sulphur Regulation Takes Effect.
2. Retain Sell Recommendations on SYR, ORE, GXY (Flash Note)
3. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
4. ALK – Maidan Roswell Resource Due This Month (Flash Note)

1. Shipping Investors Edgy as Low-Sulphur Regulation Takes Effect.

• Container Shipping: Despite the Uncertainty, We Expect the Market to Continue in Much of the Same Manner in 2020 as It Did in 2019. Lines Will Remain Price-Takers as the Supply-Demand Fundamentals Will Work Against Them Although They Should Be Able to Remain Profitable as Long as Operating Costs Are Kept in Check. It Will Be a Tightrope Act and the Capacity Levers of Idling and Void Sailings Will Be Pulled Frequently.

• Port Operators: Port Sector Celebrated the Reduction in the Global Trade Tension. Index Gained C.4% in the Last Quarter of 2019. Now with the US and China Finalizing the Phase 1 of Trade Deal and Phase 2 Moving Towards the End of 2020 (Post the US Presidential Election), We Believe Other Policy Decisions and Geopolitical Agendas to Take the Centre Stage, Shaping the Direction of the Global Trade.

• Dry Bulk Shipping: Initial Chaos over Scrubbers and Unavailability of Low-Sulphur Bunker at Many Ports Across the Globe Will Push up Earnings for Dry Carriers in the Initial Months of 2020. More than 2% of the Dry Bulk Fleet Is Now at Yards to Install Scrubbers, and We Expect This Trend to Continue in 2020 as Well, Squeezing Effective Supply. Meanwhile, Vessels Without Scrubbers Will Sail on LSFO Which, We Expect, Will Be Sold at a Premium of USD 200-300 Per Tonne. These Vessels Will Slow-Steam to Save on High Bunker Costs, a Phenomenon Which Will Further Reduce Vessel Supply.

• LNG Shipping: Spot LNG Shipping Rates Have Continued to Decline Recently on Account of Softening Asian LNG Demand and Higher Inventory Levels in Asia. China’s Coal to Gas Switch Momentum Has Come Down Due to the Slowing Economy. The LNG Shipping Stocks Under Our Coverage Remained Flat on an Average in FY19 and 4Q19.

• LPG Shipping: The Outlook for Global Seaborne LPG Volumes Is Positive, with LPG Charter Rates Expected to Remain Firm in Early 2020 as Heavy Fixing Activity Out of the US Gulf – in Light of a Strong US-Asia Propane Price Arbitrage in December 2019 – Has Kept Vessel Availability Low. In December 2019, VLGC Earnings Were Around USD 1.8mn Per Month – Nearly Three Times from USD 606,000 Per Month in December 2018. High LPG Demand on US-Asia Trade and Limited Vessel Availability Might Further Drive Earnings in 2020.

• Crude Tanker Shipping: Drewry Expects 2020 to Be a Strong Year for the Crude Tanker Market, Supported by Growing Long-Haul Trade, the Positive Impact of IMO 2020 and Truncated Supply Because of Geopolitics. Although Record Highs Seen in October 2019 Are Unlikely to Be Repeated, We Expect the Market to Carry Some of the Recent Firmness into 2020. The Main Driver of Rising Tonnage Demand in the Crude Tanker Market Will Be Strong Growth in Long-Haul Trade from the Atlantic to Asia. Burgeoning Growth in Crude Production in the US, Brazil and Norway Is Likely to Result in Deeper Production Cuts by OPEC+ in 2020, Which in Turn Will Force Asian Buyers to Import Crude from Farther Afield.

• Product Tanker Shipping: Product Tanker Spot Rates Surged in 4Q19 on the Back of IMO-Related Demand and Geopolitical Tensions. We Expect Refined Product Trade to Benefit from the Demand for IMO-Compliant Fuel as Only 10% of the Global Active Merchant Fleet Are Fitted with Scrubbers. We Expect the Results of Product Companies in 4Q19 to Positively Benefit from Improving Product Tanker Prospects.

2. Retain Sell Recommendations on SYR, ORE, GXY (Flash Note)

3. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

The highlights for December are as follows:

• Panasonic:

• • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
  • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
  • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.

• There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
• CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
• South Korean players had no major battery highlights last month.
• CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

4. ALK – Maidan Roswell Resource Due This Month (Flash Note)

• All assays for Roswell now received, including 84m @ 4.06g/t Au
• Maiden Resource for Roswell expected this month
• Difficulties at San Antonio have postponed Resource est. until March
• Roswell/Antonio Resources critical for continuation of Tomingley operations
• Awaiting new Boda drilling results
• Retain a strong Alkane Resources (ALK AU) BUY Recommendation

In this briefing:

1. National Storage: A Public/Gaw Tussle
2. The US and Developed Countries: Bump in the Road or Cliff Edge?
3. Bendigo and Adelaide Bank Placement – Cutting Dividend to a Sustainable Level
4. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
5. Market Monitor: A Corona Hangover

1. National Storage: A Public/Gaw Tussle

National Storage Reit (NSR AU) closed up 6.3% on the 23 January after announcing a non-binding indicative proposal from Hong Kong-based real estate private equity firm Gaw Capital Partners. No price was mentioned.

Public Storage (PSA US), the largest self-storage REIT in the U.S., has now made an indicative, non-binding proposal of $2.40/stapled security, valuing NSR at ~A$2bn. This is a ~16.5% premium to the undisturbed price ahead of the Gaw announcement.

Pricing under Gaw’s indicative proposal remains non-public, but believed to be A$2.15/stapled security according to various media reports. NSR said Public Storage’s proposal is superior.

Public Storage added in its Form 8-K SEC filing that it “does not intend to provide additional or ongoing disclosure regarding these preliminary negotiations prior to any execution of a definitive agreement and expressly disclaims any obligation to update this information, except as required by law”.

Today NSR closed at the indicative terms, an all-time high, and well in excess of any metric for both local and international peers. This appears to be a transaction with a revaluation bent, but one wonders what’s left on the table.

As always, more below the fold.

2. The US and Developed Countries: Bump in the Road or Cliff Edge?

We are in the camp that believes the US economy will hit a recessionary speed-bump in 2020. This isn’t because of the coronavirus fallout but because of signals that emerged through 2019. Over the years we have relied on a series of indicators which have a good track record in forecasting US downturns, regardless of elections or public health.

3. Bendigo and Adelaide Bank Placement – Cutting Dividend to a Sustainable Level

Bendigo And Adelaide Bank (BEN AU) is looking to raise about US$168m in its placement to support growth and increase buffer for CET1 capital ratio requirements.

Overall, the deal scored poorly on our framework owing to the weak earnings momentum, poor track record but cushioned by its undemanding valuation and decent price momentum of late. Recent results demonstrated some improvement but the cut in dividend weighs on near-term sentiment.

4. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

5. Market Monitor: A Corona Hangover

The year of rats brought us the elephant in the room, a new strain of Coronavirus (COVID-19) which is an ironic germ cousin of the black death (from rats in the 14^th century). The virus has already infected and killed more people than SARS in 2003. All the leading indicators that we track (EXHIBIT 4) pointed to a decline in global trade activities. We expect Asian central banks to cut rates and offer fiscal stimulus (i.e. tax cuts and cash giveaways) to boost the economy.

COVID-19 has somehow made the main news as the Middle East tension between the US and Iran, BREXIT, and the US President impeachment disappear into the background. On the flip side, we still believe this Corona phobia will turn into a buying opportunity in the end.

We are no medical experts, but we believe the economic impact will first be deeply-felt in countries/territories which have more infections relative to its population such as China, Macau, Singapore, and Hong Kong. The negative impact will be on countries with more trade and tourist links to China such as Thailand, South Korea, Taiwan, Australia, and Japan. We identify India and Indonesia as two Asian economics with less correlation to China’s economic slowdown (of which we lowered our GDP forecast to 5.0% from 5.8% in 2020).

We continue to favor EM equities and bonds (rated from “BB-“ to “BBB-”). As we believe bond valuations remain stretched, securities selection is key, and a buying opportunity on the sell-off event, especially stemming from the event risk (i.e. COVID-19), will reward value investors.

Our preference toward EM equites and bonds reflects improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). In a year of rising geopolitical risk, we still favour defensive industries such as healthcare, infrastructure, utilities, and other non-cyclical businesses over hospitality, real estate, transport, retails, mining, oil & gas, and discretionary consumer goods industries.

In this briefing:

1. Retain Sell Recommendations on SYR, ORE, GXY (Flash Note)
2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
3. ALK – Maidan Roswell Resource Due This Month (Flash Note)

1. Retain Sell Recommendations on SYR, ORE, GXY (Flash Note)

2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

The highlights for December are as follows:

• Panasonic:

• • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
  • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
  • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.

• There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
• CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
• South Korean players had no major battery highlights last month.
• CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

3. ALK – Maidan Roswell Resource Due This Month (Flash Note)

• All assays for Roswell now received, including 84m @ 4.06g/t Au
• Maiden Resource for Roswell expected this month
• Difficulties at San Antonio have postponed Resource est. until March
• Roswell/Antonio Resources critical for continuation of Tomingley operations
• Awaiting new Boda drilling results
• Retain a strong Alkane Resources (ALK AU) BUY Recommendation