In today’s briefing:
- Nabtesco and Harmonic Drive – The Second Half of Splitsville So Pressure to Continue
- KODEX Battery ETF Rebalancing & SungEel Hitech Trading Situation
- S&P/ASX Index Rebalance Preview: Shrinking Number of Changes in Dec
- Tokyo Electron (8035 JP): Sell into the Bear Market Bounce
- DAX/MDAX/SDAX Quiddity Leaderboard Dec 22: Washtec Is a High-Impact Name
- Dongfang Electric (1072 HK) And CIMC Enric (3669 HK): Two Stocks for the Next Five Years
- Escorts Kubota (ESCORTS IN) | Costly Market Share Gains & AR Concerns
- Thermax (TMX IN): Strong Order Book Entails Visibility Amid Margin Pressure
- Edizione & KKR/Atlantia: What Now?
- Daiei Kankyo Pre-IPO – Steady, at Best
Nabtesco and Harmonic Drive – The Second Half of Splitsville So Pressure to Continue
- 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.
KODEX Battery ETF Rebalancing & SungEel Hitech Trading Situation
- Given SunEel’s market cap and the level of relevance to the rechargeable battery business, KODEX will likely include it this time around.
- If you are looking for a short-selling opportunity, I recommend adjusting the timing after this KODEX ETF passive event.
- If you are long targeting the KOSDAQ 150 inclusion, I recommend taking a slightly longer holding window to additionally target the passive inflow of the KODEX ETF.
S&P/ASX Index Rebalance Preview: Shrinking Number of Changes in Dec
- Volatile stock prices could mean one change for the S&P/ASX 50 Index and one change for the S&P/ASX 200 (AS51 INDEX) at the December rebalance.
- Atlas Arteria (ALX AU) could replace Lendlease Group (LLC AU) in the S&P/ASX 50 Index, while Monadelphous (MND AU) could replace St Barbara Ltd (SBM AU) in the S&P/ASX 200.
- Short interest on St Barbara Ltd (SBM AU) has spiked in the last few weeks and there could be short covering ahead of implementation of the changes.
Tokyo Electron (8035 JP): Sell into the Bear Market Bounce
- Tokyo Electron (TEL) has cut sales guidance for 2H of FY Mar-23 by more than 25% and operating profit guidance by more than 50%.
- Half of the reduction in sales guidance is due U.S. sanctions on China. Management does not expect demand to pick up until the second half of next year.
- The share price has risen by more than 30% in the past five weeks after a slight decline in U.S. inflation. Projected valuations are not particularly attractive.
DAX/MDAX/SDAX Quiddity Leaderboard Dec 22: Washtec Is a High-Impact Name
- In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.
- Roughly half of the 20-trading day reference period for the December 2022 Rebalance is now complete.
- Among the names identified as potential index changes, Washtec (WSU GR) appears to be a very high impact name with around 50+ days of volume to buy.
Dongfang Electric (1072 HK) And CIMC Enric (3669 HK): Two Stocks for the Next Five Years
- China’s ambition to build into a strong manufacturing country as revealed in 20th Party Congress should place Dongfang Electric (1072 HK) and CIMC Enric Holdings (3899 HK) in excellent positions.
- The leadership in power and new energy equipment industry, improving gross margin outlook, well-covered order book and undemanding multiples are the key merits of Dongfang Electric (1072 HK).
- CIMC Enric Holdings (3899 HK)‘s good presence in clean energy, chemical/environmental and liquid food segments, global product competitiveness, secured order backlog and net cash position are its major edges.
Escorts Kubota (ESCORTS IN) | Costly Market Share Gains & AR Concerns
- Escorts Kubota Limited (ESCORTS IN) reported a 69 bps YoY gain in market share, but a -540 bps drop in EBITDA margins in spite of a 2% price hike.
- We believe the product and management issues highlighted earlier, are likely to ensure both margins and market share do not cross 10% for FY23.
- As per the FY22 Annual Report, auditors have received whistle-blower complaints, but no details are disclosed. Credit-impaired trade receivables are also increasing. Stock is not cheap and hence the caution.
Thermax (TMX IN): Strong Order Book Entails Visibility Amid Margin Pressure
- In Q2FY23, Thermax (TMX IN) recorded strong revenue growth of 41% y/y to Rs20.8bn, driven by strong growth across all the three segments.
- The company bore the brunt of high raw material prices as EBIT margins saw a 900 bps decline y/y to 6.9%. However, EBIT margin improved 200 bps over Q1FY23.
- The order book of the company grew 46% y/y to Rs94.8bn. Order book is well diversified across sectors. Domestic orders comprised ~84% of the order book.
Edizione & KKR/Atlantia: What Now?
- Schema Alfa now holds 87.350% of Atlantia and has waived the 90% Threshold Condition. The offer will be reopened 21-25 November at same terms (settlement 2 December).
- Schema Alfa has no obligation to acquire the shares of minority shareholders, moreover it could call an EGM to seek approval for a merger with Atlantia and delist Atlantia.
- Gross spread is 0.09%. Accept offer, considering this was almost a knock-out bid with minimal interloper risk and the most likely scenario is delisting by the end of the year.
Daiei Kankyo Pre-IPO – Steady, at Best
- Daiei Kankyo (9336 JP) (DK), a waste management company, aims to raise around US$280m in its Japan IPO.
- Daiei Kankyo is involved in the waste management and related businesses in Japan. The core of its operations consists of its waste management and recycling business.
- In this note, we talk about the company’s past performance.
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