Daily Brief Industrials: Golden Energy & Resources, Advantest Corp, Sinotrans, Carr’s Group PLC, Virgin Orbit Holdings and more

• Dian Swastatika Sentosa (DSSA IJ)/DSS shareholders have approved the sale of DSS’ 77.49% stake in Golden Energy & Resources (GER SP) to the Widjaja family. 
• No objection has also been received from the OJK and IDX. The make-for-break condition is the GEAR shareholder approval of the distribution resolution, which DSS will abstain from voting on. 
• Minorities and SIAS rightly claim that the revised offer remains light. A bump to the offer, particularly to the delisting offer price is S$0.181, is required for a done deal. 

• FY Mar-24 guidance – sales down 14%, operating profit down 37% – is not extreme compared with previous cycles. 
• History shows that downturns at Advantest can last for two or even three years, not just one. Weak economic conditions add to this possibility.
• The share price has rebounded from the recent sell-off, but optimism is unwarranted. Historical valuation ranges suggest potential downside of 20% or more.

• While meeting expectations in 1Q23, Sinotrans (598 HK) has relied on a 105.2% surge in other income, mostly government subsidies. Without them, pre-tax profit would have dropped 21%.
• For most business areas, volume has come down YoY and QoQ, highlighting challenging operating environment. JV contribution, mostly DHL-Sinotrans, has also declined 11.5% YoY.
• While we like its long-term fundamentals and undemanding multiples, we have concerns on near-term headwinds and weakened earnings quality; and risks of profit downgrades.  

As flagged in its February update, the Speciality Agriculture division of Carr’s Group experienced a weaker trading environment from November onwards, while trading in the Engineering division was initially slower than anticipated. This resulted in a 23% drop in adjusted operating profit year-on-year in H123 to £5.8m. Management expects trading conditions for the Speciality Agriculture division to improve later this calendar year, while a strong Engineering order book supports good divisional performance in H223 and FY24. We downgrade our FY23 and FY24 adjusted PBT estimates by 5% for both years.

• A federal bankruptcy court approved bidding procedures for the sale of Virgin Orbit’s assets.
• Bidders have until May 4 to submit indications of interest, with a deadline for formal bids of May 15.
• The auction is expected to take place on May 18, with the sale on May 24.