INDUSTRIALS Archives | Page 176 of 295 | Smartkarma

• 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 – Golden Energy & Resources (GER SP), Challenger Technologies (CHLG SP), Enm Holdings (128 HK), Golden Eagle Retail (3308 HK), Metro Pacific Investments Co (MPI PM), Yashili. 

• In terms of fleet characteristics, market exposure, and recent financial performance, we believe T.S. Lines (TSL HK) and Taiwan’s Wan Hai Lines (2615 TT) are directly comparable
• WHL has more exposure to the Transpacific, but still boasts a much larger Intra-Asia operation owing to its scale advantage (fleet and revenue about four times the size of TSL)
• Given the similarities we outline in this insight, we believe TSL’s shares should trade at EV/Fleet and EV/Revenue multiples in line with WHL’s; no premium is justified, in our view

• The recent spike in the share price has discounted the positive scenario for sales and earnings, which is represented by management’s guidance for FY Mar-24.
• The negative scenario – weaker than expected foundry demand, tougher than expected restrictions on exports to China – implies a significant downward revision to that guidance.
• The share price is up 77.5% year-to-date and 36% since the end of April. That should be enough for now. 

• The recent spike in the share price has discounted the positive scenario for sales and earnings, which is represented by management’s guidance for FY Mar-24.
• The negative scenario – weaker than expected foundry demand, tougher than expected restrictions on exports to China – implies a significant downward revision to that guidance.
• The share price is up 77.5% year-to-date and 36% since the end of April. That should be enough for now. 

• Since January 2023 we’ve anticipated for 4165-4200 to cap upside on the S&P 500 for 2023, but that a rally to 4300-4325 is also possible; this remains our view.
• In our 5/2/23 Compass we discussed how the Nasdaq Composite was testing 12,300 resistance, and that a breakout and reach to 13,180 is possible.
• The Nasdaq Composite hit 13,154 Tuesday as Technology (XLK), and to a lesser extent Communications (XLC), are seemingly in a blowoff stage, while all other Sectors are neutral to bearish.

• Quanta Services had a successful first quarter with double-digit revenue growth and strong performance across segments.
• Their management team sees opportunities for further backlog growth driven by base business and energy transition projects.
• In the quarter, Quanta Services also completed the acquisition of RP Construction Services.

• Since January 2023 we’ve anticipated for 4165-4200 to cap upside on the S&P 500 for 2023, but that a rally to 4300-4325 is also possible; this remains our view.
• In our 5/2/23 Compass we discussed how the Nasdaq Composite was testing 12,300 resistance, and that a breakout and reach to 13,180 is possible.
• The Nasdaq Composite hit 13,154 Tuesday as Technology (XLK), and to a lesser extent Communications (XLC), are seemingly in a blowoff stage, while all other Sectors are neutral to bearish.

• Quanta Services had a successful first quarter with double-digit revenue growth and strong performance across segments.
• Their management team sees opportunities for further backlog growth driven by base business and energy transition projects.
• In the quarter, Quanta Services also completed the acquisition of RP Construction Services.

Adani Ports and Special Economic Zone’s (APSEZ) FY 2022-23 results were in line with expectations, with revenue and EBITDA exceeding management’s guidance. That said, cargo volume growth slightly missed estimates. Leverage was largely stable (despite heavy outlays for acquisition and capex), thanks to strong earnings improvement. For FY 2023-24, we anticipate the company will generate FCF of INR 50-60 bn, assuming APSEZ does not make any material new acquisitions.

Management reiterated that the company’s priority is to deleverage in FY 2023-24, and guided for Net Debt/EBITDA to improve to 2.5x (from 3.1x in FY 2022-23). There are recent media reports that the Adani Group has committed to USD 10 bn of investments in Vietnam. Management clarified that the investments are meant to be carried out over the medium to long term.

We believe the fallout for Adani Group from Hindenburg Research’s short-sell report in late January 2023 is largely over. We view positively that the group has been addressing some of Hindenburg’s allegations by reducing leverage and raising equity to repay share-backed loans.

• There is a relatively high probability (70-80%+) that the FTCs in Europe and the United States will officially block the merger between Korean Air and Asiana Airlines in 2H 2023. 
• This could result in the Korea Development Bank (KDB) selling its 10.58% stake in Hanjin KAL Corp which could result in a fight for the control of Hanjin Kal.
• Our NAV analysis of Hanjin Kal suggests NAV of 3.8 trillion won or implied target price of 57,259 won per share, representing 13% upside from current levels.

• Braille Energy Systems reported Q2 financial results that were in line with our expectations.
• Revenue came in at $1.1M (+3% YoY, +26% QoQ) compared to our estimate of $1.1M.
• We are maintaining our BUY rating and $0.15/share target price on Braille Energy Systems.

Adani Ports and Special Economic Zone’s (APSEZ) FY 2022-23 results were in line with expectations, with revenue and EBITDA exceeding management’s guidance. That said, cargo volume growth slightly missed estimates. Leverage was largely stable (despite heavy outlays for acquisition and capex), thanks to strong earnings improvement. For FY 2023-24, we anticipate the company will generate FCF of INR 50-60 bn, assuming APSEZ does not make any material new acquisitions.

Management reiterated that the company’s priority is to deleverage in FY 2023-24, and guided for Net Debt/EBITDA to improve to 2.5x (from 3.1x in FY 2022-23). There are recent media reports that the Adani Group has committed to USD 10 bn of investments in Vietnam. Management clarified that the investments are meant to be carried out over the medium to long term.

We believe the fallout for Adani Group from Hindenburg Research’s short-sell report in late January 2023 is largely over. We view positively that the group has been addressing some of Hindenburg’s allegations by reducing leverage and raising equity to repay share-backed loans.

• There is a relatively high probability (70-80%+) that the FTCs in Europe and the United States will officially block the merger between Korean Air and Asiana Airlines in 2H 2023. 
• This could result in the Korea Development Bank (KDB) selling its 10.58% stake in Hanjin KAL Corp which could result in a fight for the control of Hanjin Kal.
• Our NAV analysis of Hanjin Kal suggests NAV of 3.8 trillion won or implied target price of 57,259 won per share, representing 13% upside from current levels.

• Braille Energy Systems reported Q2 financial results that were in line with our expectations.
• Revenue came in at $1.1M (+3% YoY, +26% QoQ) compared to our estimate of $1.1M.
• We are maintaining our BUY rating and $0.15/share target price on Braille Energy Systems.

• NSE Indices have started a market consultation on dropping stocks that are not a part of the Futures & Options segment from the Nifty Next 50 Index (NIFTYJR INDEX). 
• This will be done in two phases with a weight reduction for non-F&O stocks in June and deletion from the index in September.
• That will result in 11 inclusions to the Nifty Next 50 Index (NIFTYJR INDEX) in September and bring in a lot of flow to the stocks.

• We are bullish on KHI and see around 40% upside for the share price
• Over the next two years, we expect strong profit growth on recovery in aircraft parts, jet engines and military equipment
• KHI is likely to be a key beneficiary of the Hydrogen economy and is well placed to build a new earnings driver over the next decade

• NSE Indices have started a market consultation on dropping stocks that are not a part of the Futures & Options segment from the Nifty Next 50 Index (NIFTYJR INDEX). 
• This will be done in two phases with a weight reduction for non-F&O stocks in June and deletion from the index in September.
• That will result in 11 inclusions to the Nifty Next 50 Index (NIFTYJR INDEX) in September and bring in a lot of flow to the stocks.

• We are bullish on KHI and see around 40% upside for the share price
• Over the next two years, we expect strong profit growth on recovery in aircraft parts, jet engines and military equipment
• KHI is likely to be a key beneficiary of the Hydrogen economy and is well placed to build a new earnings driver over the next decade

• In mid-January this year, Mitsui & Co Ltd (8031 JP) announced it would buy out minorities in Relia Inc (4708 JP) (longtime known as Moshi Moshi), a BPO/RPA/AI services company.
• I said the deal was too cheap, with 44% upside to the midpoint of Target Advisor’s DCF fair value range. Investors needed to exercise their cowbell to get more.
• Since then, TOPIX has returned ~15%, A peer basket 16%, H2 was possibly kitchen-sinked, but no Mar-2024 forecasts were provided. The Tender starts tomorrow. Noise is still warranted. 

• JD Industrials (2231713D CH)/JDI, a leading industrial supply chain technology and service provider in China, has filed for a US$1bn IPO. JD.com Inc (ADR) (JD US) owns a 77.95% stake.
• In JD Industrials IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The key elements of the bear case rest on slowing SME growth, declining key accounts take rate and gross margin, unnecessary factoring and transfer of most cash for treasury management.

• Unchanged outlook commentary versus February 23 results commentary: QIP expects continued organic growth and  underlying EBITDA margin improvement.
• Increased sense of urgency around transformation programme execution with IP management platform upgrades and redundant data centre commissioning scheduled in coming months.
• Reiteration of EBITDA margin target of low 30s medium term versus  c. 27% currently.

• Our target price of Almac is 58,573 won per share, which is 30% higher than the high end of the IPO price range of 45,000 won. 
• Our target price is based on 14.8x P/E using our estimated net profit of 25.4 billion won in 2024. 
• Almac ranks first in domestic market share (Korea) in the aluminum extruded module cases that protect batteries from external shocks.

• JD Industrials  is looking to raise about US$1bn in its upcoming HK IPO. 
• JDI is a leading industrial supply chain technology and service provider in China in terms of GMV in each year during the Track Record Period, according to CIC.
• We have looked at the company background and undertaken a peer comparison in our previous notes. In this note, we will talk about valuations.