Daily Brief Industrials: Zhejiang Expressway Co H, Sanyo Trading, Adani Ports & Special Economic Zone, Japan Elevator Service Holding, Cainiao Smart Logistics Network, J&T Global Express , Carr’s Group PLC and more

• Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
• The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It’s probably unneeded, but it’s there. 
• The stock is cheap. The company will boost its payout ratio. And it isn’t that “heavy” a deal. The Rights Trading Dynamics may be interesting.

• Impressive progress to date – Q1-4 FY9/2023 results were at record highs for the company, demonstrating a sustained track record of above-average profitability and disciplined capital allocation via M&A.
• Business diversification to life sciences has led to sales mix improvement and a more resilient business in our view.
• Company guidance for FY9/2024 indicates a decrease in earnings YoY, attributed to the accumulation of strategic upfront investments for business development. 

Adani Ports and Special Economic Zone’s (APSEZ) H1/23-24 results came in slightly above expectations, with revenue growth of 26% y-o-y exceeding management’s full-year guidance for a 15-20% increase. EBITDA (excluding FX losses) rose by 17%, at the higher end of the 13-17% guidance. Net adjusted leverage improved to 3.4x (FY 2022-23: 4.0x). We expect the company’s leverage to continue improving in FY 2023-24, in line with management’s guidance.

In our view, there remains a small degree of regulatory overhang and negative headline risk facing the broader Adani Group, which may affect group entities’ financing access in the offshore bond market (particularly on an unsecured basis). That said, the group’s access to onshore and bank financing remains intact.

Separately, we note that the Supreme Court hearing regarding the Securities and Exchange Board of India’s (SEBI) investigation on Adani Group has been repeatedly deferred. The Supreme Court requested on November 6th that all parties file final submissions regarding the case by November 8th. We believe the regulatory overhang may only be resolved by the eventual outcome of SEBI’s investigation and the Supreme Court’s judgement. 

• Success of disruptive innovation – we believe Q1-2 FY3/2024 results were ahead of the run-rate for FY guidance, driven by 1) sustained growth in maintenance and repair service contracts, and
• 2) stronger than expected demand for modernization services, resulting in gross margin improvement QoQ in Q2 FY3/2024 via amplified proposal effectiveness and increases in pricing.
• We expect to see JES continue to successfully disrupt the market via innovation, driven by secular growth as building owners convert to reputable independent providers for cost management and structural demand from aging elevators requiring modernization.

• J&T debuted with a rich valuation, but little investor enthusiasm to date
• Focusing on J&T’s valuation alone could be a boon to CaiNiao’s valuation…
• …but, with few other comps, J&T’s lackluster early performance could be a drag

• KEX’s EBIT margin fell to -38% in Q323, but showed Q/Q improvement vs Q223
• Q/Q progress on margin most likely due to KEX initiatives, not market recovery
• Ongoing weakness in Thai domestic express market marginally negative for J&T 

Carr’s Group has announced a fully refreshed executive team, none having been in-situ at the start of 2023. This will enable the executives to have an uninhibited view of the operations, enabling the development and implementation of a strategy reflecting the different opportunities and challenges facing the Engineering and Speciality Agriculture divisions.