INDUSTRIALS Archives | Page 174 of 295 | Smartkarma

• Today, YFO (WK1 Limited) filed an amendment to its Large Shareholder Filing saying it had increased its stake from 27.19% to 28.51%. GK Yamauchi No10 Family Office bought 1.32%.
• Almost immediately, Toyo Construction (1890 JP) said YFO had likely conducted an illegal act according to US Securities Exchange Act of 1934, Rule 14e-5. This is likely hogwash.
• YFO is upping its stake for a zero premium tender and Toyo is fighting old battles. And the stock chugs higher.

• Auckland City Council plans to sell 7% of Auckland Intl Airport (AIA NZ)  to fund its budget requirements for 2023-24.
• Auckland City Mayor has been talking about selling the stake since at least Dec 2022 and hence, the deal is already very well flagged.
• In this note, we will talk about the possible placement and other deal dynamics.

• Takuma presents an undervalued investment opportunity with strong financials, and a robust balance sheet. The focus on environmental solutions position it to capitalize on the demand for carbon neutrality.
• The recent involvement of AVI Japan as activist investors adds an exciting catalyst to Takuma’s investment case. We expect AVI to work with management to unlock further value.
• Takuma’s management is targeting enhanced profitability by transitioning from a more volatile EPC model to a recurring revenue-driven approach centred on O&M. Attractive valuations underpin our bullish view.

• China Railway Signal & Communication (3969 HK) (CRSC) has achieved good share price performance YTD, but we think there is more room to go for the rest of the year.
• We like its steady domestic growth, exposure to overseas recovery, strong order backlog, and net cash position. 1Q23 new contracts reached Rmb13.7bn, an impressive 35.8% YoY growth.
• Unlike the highly-geared infrastructure construction peers, CRSC’s net cash equals 52% of the share price. On such basis, its P/B of 0.7x relative to ROE of 9-10% is inexpensive.

• The S&P 500 has marginally surpassed the 4300-4325 area which we have anticipated would cap upside for 2023. 
• As noted in our 6/6/23 Compass, we are vigilant at these levels given we expect inflation to remain elevated, but we cannot be bearishif the SPX is above 4165-4200
• Breadth has continued to improve within the Russell 2000, and the $IWM is approaching our first target of $190 following the breakout above $180. Also see breadth improving within SPX.

• The SPDR® S&P 500 ETF Trust is primed to receive support from lower implied risk premiums amid an interest rate slowdown from the Federal Reserve.
• However, a broad-based analysis suggests that the S&R 500 and the SPDR S &P 500ETF Trust are potentially undervalued.
• The S&P 500’s (SP500) year-to-date surge might have surprised many, as the talk of the town at the turn of the year was geared toward a sustained market drawdown until an interest rate pivot occurred.

• In this insight, we discuss the increasing likelihood of delisting of five preferred stocks in Korea at end of June.
• These five preferred stocks are as follows: Samsung Heavy Industries Pref, SK Networks Pref, DB Hitek Pref, Hyundai BNG Steel Pref, and Heungkuk Fire & Marine Insurance Pref 2B. 
• Because the combined market cap of these five preferred shares is 37 billion won, it will have only a minor, positive impact on their common counterparts.

• Secom’s share price has surged by 8% following shareholder proposals submitted by Dalton Investments, raising expectations for potential approval of a 10% share buyback and its impact on stock price.
• Secom, operating in a mature industry with limited growth prospects, faces challenges in deploying capital and maintaining consistent earnings growth, leading to an accumulation of capital on its balance sheet.
• While Dalton’s proposals may not gain sufficient support to pass at the upcoming AGM, the potential involvement of other activists warrant a bullish outlook.

• Recruit’s share price been up +13% YTD and gained more than 22% over the last 30-days with the US Dept of Labour releasing job data for April 2023.
• Job openings were 10.1m in April 2023 vs estimates of c. 9.4m which created positive sentiment over labour market’s resilience to economic turmoil. However, April numbers were 13.5% down YoY.
• Recruit Holdings (6098 JP) is currently trading at a lofty FY+2 EV/EBIT multiple of 17.9x despite earnings expectations deteriorating, we are set to benefit nicely on the short side.

• In this insight, we discuss the increasing likelihood of delisting of five preferred stocks in Korea at end of June.
• These five preferred stocks are as follows: Samsung Heavy Industries Pref, SK Networks Pref, DB Hitek Pref, Hyundai BNG Steel Pref, and Heungkuk Fire & Marine Insurance Pref 2B. 
• Because the combined market cap of these five preferred shares is 37 billion won, it will have only a minor, positive impact on their common counterparts.

• Secom’s share price has surged by 8% following shareholder proposals submitted by Dalton Investments, raising expectations for potential approval of a 10% share buyback and its impact on stock price.
• Secom, operating in a mature industry with limited growth prospects, faces challenges in deploying capital and maintaining consistent earnings growth, leading to an accumulation of capital on its balance sheet.
• While Dalton’s proposals may not gain sufficient support to pass at the upcoming AGM, the potential involvement of other activists warrant a bullish outlook.

• Recruit’s share price been up +13% YTD and gained more than 22% over the last 30-days with the US Dept of Labour releasing job data for April 2023.
• Job openings were 10.1m in April 2023 vs estimates of c. 9.4m which created positive sentiment over labour market’s resilience to economic turmoil. However, April numbers were 13.5% down YoY.
• Recruit Holdings (6098 JP) is currently trading at a lofty FY+2 EV/EBIT multiple of 17.9x despite earnings expectations deteriorating, we are set to benefit nicely on the short side.

• Surpassing the pre-COVID average of 49%, the NAV discount currently stands at 61%, implying potential 12% market-neutral returns in the short-term through the recovery of the core transportation business.
• Activist investor influence in distributing Keisei Electric’s ¥1,980bn Oriental Land (4661 JP) stake to existing shareholders could unleash over 150% potential upside, surpassing the earlier mentioned 12% gain.
• Thus, there is high likelihood of Keisei Electric Railway Co (9009 JP)‘s continued outperformance over Oriental Land in the medium term.

• Three years ago, Seino Holdings (9076 JP) delivered a lot of its cash back to shareholders in a big buyback. They bought back almost 15mm shares (7.5%).
• Since then, they’ve bought another 2.5%. In February, they changed their Dividend Policy to max(2.4% DOE, 30% payout ratio). Then they set a cap and floor on the dividend.
• Four months later they have a new MTMP, and a new Dividend Policy. Simple. 4.0%+ DOE. Div +70% vs last year. Oh… and there’s an 11% buyback. 

• Deere managed to exceed analyst expectations in terms of revenue as well as earnings.
• Revenues and net sales were up and price realization was positive.
• Deere viewed production and precision ag net revenue to rise.

• Heico delivered a mixed set of results for the previous quarter, with revenues well below analyst expectations but managed an earnings beat.
• The operating income of The Flight Support Group increased, reflecting the improved gross profit margin and net sales growth.
• The improved gross margin replicates higher net sales within Heico’s Specialty Products as well as Aftermarket Replacement Parts product lines.

• Parker-Hannifin delivered a solid result and managed an all-around beat in the last quarter.
• Organic sales increased by roughly 12% in the quarter, extending the company’s track record of double-digit organic growth quarters.
• Given these strong results, the company anticipates 4% organic growth for the next quarter, with segment operating margins of roughly 22.6%.

• Surpassing the pre-COVID average of 49%, the NAV discount currently stands at 61%, implying potential 12% market-neutral returns in the short-term through the recovery of the core transportation business.
• Activist investor influence in distributing Keisei Electric’s ¥1,980bn Oriental Land (4661 JP) stake to existing shareholders could unleash over 150% potential upside, surpassing the earlier mentioned 12% gain.
• Thus, there is high likelihood of Keisei Electric Railway Co (9009 JP)‘s continued outperformance over Oriental Land in the medium term.

• Three years ago, Seino Holdings (9076 JP) delivered a lot of its cash back to shareholders in a big buyback. They bought back almost 15mm shares (7.5%).
• Since then, they’ve bought another 2.5%. In February, they changed their Dividend Policy to max(2.4% DOE, 30% payout ratio). Then they set a cap and floor on the dividend.
• Four months later they have a new MTMP, and a new Dividend Policy. Simple. 4.0%+ DOE. Div +70% vs last year. Oh… and there’s an 11% buyback. 

• Deere managed to exceed analyst expectations in terms of revenue as well as earnings.
• Revenues and net sales were up and price realization was positive.
• Deere viewed production and precision ag net revenue to rise.

• Heico delivered a mixed set of results for the previous quarter, with revenues well below analyst expectations but managed an earnings beat.
• The operating income of The Flight Support Group increased, reflecting the improved gross profit margin and net sales growth.
• The improved gross margin replicates higher net sales within Heico’s Specialty Products as well as Aftermarket Replacement Parts product lines.

• Parker-Hannifin delivered a solid result and managed an all-around beat in the last quarter.
• Organic sales increased by roughly 12% in the quarter, extending the company’s track record of double-digit organic growth quarters.
• Given these strong results, the company anticipates 4% organic growth for the next quarter, with segment operating margins of roughly 22.6%.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Amman Mineral Internasional (1416286D IJ), Tata Technologies (TATATECH IN), JD Industrials (2231713D CH) IPOs.
• Event-Driven developments – Toshiba Corp (6502 JP), Chindata Group (CD US), Eoflow (294090 KS), Inner Mongolia Yitai Coal Company Ltd (3948 HK), Estia Health (EHE AU), Origin Energy (ORG AU). 

• Share price performance has been strong in spite of pressure on margins from heavy investment in power semiconductors for electric vehicles. 
• Management’s medium-term targets are ambitious, but could be achieved in a reasonably favorable economic environment.
• Projected valuations compare favorably with historical ranges. The primary risk to investors appears to be  over-optimism. 

• Corporate governance report and securities report were inadequate because it was not possible to get a complete picture of how many advisors other than ex-CEOs were involved in the company.
• Mitsubishi Electric, which has suffered scandals, has revealed that “senior advisors” have been involved in its management. However, it is possible that advisors influence management at other companies as well.
• The ex-CEO isn’t necessarily in charge of industry association activities, the compensation of the advisors is undisclosed, and Mitsubishi Electric still has a ways to go in improving management transparency.

• The evolution of the digital age over the last two decades has seen an uninterrupted growth trajectory for the data center market, with demand being driven by increasing storage and computing requirements, as well as the widespread shift from on-premises infrastructure to cloud solutions.
• Developments in software applications and IT have reshaped the way clients interact with data, instigating a significant expansion of data center inventory.
• As the wheel of progress spins inexorably forward, Fortune 500 companies are turning their gaze toward the vast and uncharted frontier of Artificial Intelligence (AI) and its applications. 

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Amman Mineral Internasional (1416286D IJ), Tata Technologies (TATATECH IN), JD Industrials (2231713D CH) IPOs.
• Event-Driven developments – Toshiba Corp (6502 JP), Chindata Group (CD US), Eoflow (294090 KS), Inner Mongolia Yitai Coal Company Ltd (3948 HK), Estia Health (EHE AU), Origin Energy (ORG AU). 

• Share price performance has been strong in spite of pressure on margins from heavy investment in power semiconductors for electric vehicles. 
• Management’s medium-term targets are ambitious, but could be achieved in a reasonably favorable economic environment.
• Projected valuations compare favorably with historical ranges. The primary risk to investors appears to be  over-optimism. 

• Corporate governance report and securities report were inadequate because it was not possible to get a complete picture of how many advisors other than ex-CEOs were involved in the company.
• Mitsubishi Electric, which has suffered scandals, has revealed that “senior advisors” have been involved in its management. However, it is possible that advisors influence management at other companies as well.
• The ex-CEO isn’t necessarily in charge of industry association activities, the compensation of the advisors is undisclosed, and Mitsubishi Electric still has a ways to go in improving management transparency.

• The evolution of the digital age over the last two decades has seen an uninterrupted growth trajectory for the data center market, with demand being driven by increasing storage and computing requirements, as well as the widespread shift from on-premises infrastructure to cloud solutions.
• Developments in software applications and IT have reshaped the way clients interact with data, instigating a significant expansion of data center inventory.
• As the wheel of progress spins inexorably forward, Fortune 500 companies are turning their gaze toward the vast and uncharted frontier of Artificial Intelligence (AI) and its applications. 

• Toshiba Corp (6502 JP)‘s Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.
• Given CR Power (836 HK)‘s clean energy unit’s profitably, a listing should be a significant event, attracting a wide audience, and probably a premium to other listed green energy plays.
• Chindata Group (CD US) is unquestionably cheap. But Bain’s indicative Offer is not the answer to long-suffering shareholders.

• Hydro Lithium (formerly Korea Se Corp) is the top reserved issue in INDUSTRIALS and will get to replace NICE IS as a result of the KOSPI transfer listing.  
• The most significant price movements occur when the index corporate action announcement is made. However, some investors hunt for this pattern, as observed in the case of Youlchon Chemical.
• Hence, it’s worth considering an earlier entry timing. To minimize uncertainty, it’s vital to keep an eye on the preemptive price increase of Hydro Lithium before KRX’s approval.

• Toshiba Corp (6502 JP)‘s Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.
• Given CR Power (836 HK)‘s clean energy unit’s profitably, a listing should be a significant event, attracting a wide audience, and probably a premium to other listed green energy plays.
• Chindata Group (CD US) is unquestionably cheap. But Bain’s indicative Offer is not the answer to long-suffering shareholders.

• Hydro Lithium (formerly Korea Se Corp) is the top reserved issue in INDUSTRIALS and will get to replace NICE IS as a result of the KOSPI transfer listing.  
• The most significant price movements occur when the index corporate action announcement is made. However, some investors hunt for this pattern, as observed in the case of Youlchon Chemical.
• Hence, it’s worth considering an earlier entry timing. To minimize uncertainty, it’s vital to keep an eye on the preemptive price increase of Hydro Lithium before KRX’s approval.

• Toshiba announced today that its board had shifted stance on JIP’s upcoming tender and would recommend shareholders tender. 
• The special committee will review its opinion on the tender offer and based on that the company will offer another opinion when the tender commences. 
• Despite peers rising 13-30% since April an offer price increase still looks unlikely.

• Toshiba Corp (6502 JP) Board now recommends shareholders accept Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share. The Board also effectively rules out a bump.
• The Board unconvincingly recommends the offer in part on the premise that the IFA’s DCF valuation is unrealistic due to punchy forecasts and positive feedback from stakeholders.  
• The Board fails to consider that the peers have materially re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers’ multiples.

• In March, when the JIP Offer for Toshiba Corp (6502 JP) was announced, the Toshiba Board supported the Offer but declined, at the time, to recommend it to shareholders. 
• “[The price] has clearly not reached the level at which it is possible to recommend to general shareholders that they tender their shares at this time.” That was then.
• 10 weeks later and the Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.

• Redox (RDX AU), a chemical and ingredients distributor, is looking to raise around US$270m in its Australia IPO. 
• In 2022 it was ranked as the largest chemicals and ingredients distributor in Australia, as well as the 13th largest in the Asia Pacific region and the 35th largest worldwide.
• In this note, we undertake a quick peer comaprison and talk about valuations.

• GMR Airports Infrastructure (GMRI IN) saw pressure on its scrip after its results, that witnessed losses widening to INR-8.4 bn in F23 from INR -7.5 bn in F22 (continuing operations).
• The losses have further dented the balance sheet, that already looked fragile over a number of years.
• The company also faces cash generation problems on the back of debt burden, apart from severe contingent liabilities, that could further hamper the net-worth. Investors should remain cautious.

• TransDigm Group managed to exceed analyst expectations in terms of revenue as well as earnings in its recent quarterly result.
• With approximately 90% of net sales generated by unique proprietary products, the company’s focus on aftermarket revenues has provided stability and higher margins.
• TransDigm experienced substantial growth in total commercial revenues and bookings across all major market channels.

The quality of Severfield’s revenues is materially underappreciated by the market in our view, especially now that the UK and EU are embarking on huge investment programmes to renew and upgrade infrastructure to address global trends, such as the drive for net zero emissions. The reorganisation of the group, the internal improvement project (Project Horizon) and the EPS-enhancing M&A deal are not fully reflected in the FY24e P/E rating of c 7.0x, which is comfortably below the long-term average of 10.0x. Our positive stance is supported by the company’s strong balance sheet, progressive dividend and yield of over 5%.

• Jacobs Engineering Group managed to exceed analyst expectations in terms of revenue as well as earnings.
• The People and Places line of business of Jacobs Engineering delivered a strong performance.
• The divergent solutions operating unit had a strong operating profit with up in operating profit.