文本描述
9/28/2018
MACHINERY / MULTI-INDUSTRY
Machinery sector (China related) – Leading indicators still positive for China infrastructure
stocks:
CS analyst Shinji Kuroda published the following in a note:
Leading indicator up 12% YoY in
August:
Revenue generated from the sale of land by local Chinese governments (which we focus on as
a viable leading indicator for China infrastructure demand stocks such as Komatsu (6301), Hitachi
Construction Machinery (6305) and Daikin Industries (6367) rose 12% YoY in August (+19% MoM). This
was the second straight month of double-digit growth (July: +20%) after growth bottomed out at +4% in
June. Signs of continued financing support for infrastructure investment projects is encouraging. Based
on our visit with Komatsu (China), we understand that PPP (public-private partnership) projects are
proceeding smoothly, with the Chinese government starting the selection process for infrastructure
investment projects that will be part of its economic stimulus measures. While we doubt this will have the
same impact as other major stimulus plans in the past, we think steady efforts to stimulate demand
should provide a sense of reassurance moving forward. (Link to Note)
Machinery sector (China FA) – CIIF: Weaker FA demand, robotics in a lull, construction
equipment demand recovering:
Positive implications for construction machinery stocks, less
encouraging for FA stocks:
We attended the China International Industry Fair (CIIF) in Shanghai held
over 19–23 September. In this report, we discuss the highlights of our tours of the main companies
presenting at this year’s convention. The market overall appears to be in risk-on mode, with a strong rally
in China-related stocks, thanks to an easing of US-China trade friction, expectations that the Chinese
government will introduce economic stimulus measures, and recent yen depreciation. The upturn in
China hydraulic excavator demand since September suggests a promising outlook for companies such
as Komatsu (6301) and Hitachi Construction Machinery (6305). FA stocks, on the other hand, face
continued weakness in smartphone-related demand, with companies still taking a wait-and-see approach
to capex due to US-China trade friction risk. China FA-related stocks had rallied somewhat of late, but
we see downside risk in the lead-up to what is likely to be disappointing 2Q (Jul–Sep) results (Yaskawa
Electric [6506] is scheduled to report on 10 October).
SMC (6273, slightly positive):
China monthly
orders still trending higher YoY, in contrast to earlier market concerns; market share holding firm at 41%.
Fanuc (6954, slightly negative):
Likely to see a correction in China robot orders (particularly for
automotive applications) from 2H.
Keyence (6861, slightly negative):
China sales still trending higher
YoY, but below internal targets.
THK (6481, slightly negative):
Should achieve positive YoY growth in
China business sales for FY12/18, but orders likely to dip 20–30% YoY.
Nabtesco (6268, slightly
positive):
China gear reducer orders still trending higher YoY; market share appears to be holding firm
at approx. 90%.
Nachi-Fujikoshi (6474):
China robot orders still trending higher YoY, but clients
adopting a wait-and-see stance; orders environment should improve from summer 2019. (Link to Note)
KONE CMD – Leafing through the slides – Overall in-line:
CS analyst Andre Kukhnin published the
following in a note:
Bottom line.
Going through the CMD slides and having listened to first half of CEO
presentation, we see the messages so far as broadly in-line with our and market expectations and
reassuring on margin stabilisation in Q4 and mid-term market growth outlook. On FX, our interpretation is
that 2018 guidance is unchanged despite an incremental �10m headwind. We maintain our Outperform
rating with �52 TP.
Guidance, targets and 2018 end-markets outlook – all unchanged (despite
slightly worse FX).
KONE has maintained all of the above with no change in language. In CFO
presentation, FX rate is calculated at �-45m vs the current guidance at �-35m. We interpret this as no
change in guidance despite a (well-anticipated) worsening in FX.
Positives vs Negatives for 2019.
The
positives highlighted are 1) growth in orders received with stabilised margin, 2) solid growth in services,
3) Accelerate programme savings and performance improvement. Against that, the highlighted
headwinds are 1) raw materials and FX headwinds, 2) trade and geopolitical uncertainties, 3) labour
shortages in Europe and North America. We see these as largely in-line with our expectations. Although
the added headwind of labour shortages in Europe is technically new, we see the above positives as
more significant. We currently discount a �40m headwind from raw materials and calculated a c-1% FX
headwind for 2019. Margin stabilisation market message remains for the end of 2018 and is specified as
Q4 (while Q3 is still expected to be impacted by the mix of raw materials and China pricing headwinds).
Mid-term market outlook - positive.
An illustrative slide points to growth outlook across both New
Equipment and Service for E&E market. For NE, the incremental growth is expected to come from
growth markets such as Asia while mature markets and China are expected to move with construction
cycles. Services are expected to grow with 1) aging installed base and 2) new services. Interestingly, the
changing customer needs (building becoming higher, more dense and mixed use) and new technologies
and services for that have become market growth drivers for KONE alongside urbanisation and installed
base. For China, the EVP China (Bill Johnson) presentation points to ‘China NE market expected to stay
on high level’. (Link to Note)
9/28/2018
AG EQUIPMENT
Germany’s Potato Harvest Falls 25 Percent After Drought:
Per Reuters
: This summer's drought and
heatwave will cut Germany’s potato harvest by around 25 percent on the year to about 8.7 million
tonnes, the country’s agriculture ministry said on Wednesday. The reduced potato harvest is the latest in
a series of bad news after German crops wilted under the highest summer temperatures since records
began in 1881. Germany’s Agriculture Ministry forecast in August the country's 2018 grains harvest
would fall 15.8 percent on the year after crops suffered from drought and hot weather. This could make
Germany, traditionally a grains exporter, into an importer. The smaller potato crop means a tighter
market supply at a time when other north-western European producers including France, Britain, the
Netherlands and Belgium also suffered from the heatwave, the ministry said. This is meeting high
demand from industry, such as for potato fries and crisps, the ministry said. This means producer
prices against this background are well above last year's very low levels.
Deere & Company Completes PLA Acquisition:
Deere & Company has completed its acquisition of
PLA. In July, Deere said it signed a definitive agreement to purchase the manufacturer of sprayers,
planters, and specialty products for agriculture. PLA is based in Argentina, with manufacturing facilities in
Las Rosas, Argentina, and Canoas, Brazil. Founded in 1975, the company has approximately 450
employees and currently markets products on four continents.
CONSTRUCTION EQUIPMENT
Hitachi Construction Machinery – Briefing on Domestic Business Restructuring: Upbeat on
HCM’s Steady Restructuring Stance:
CS analyst Shinji Kuroda published the following in a note:
Management focused on steady restructuring instead of taking credit for brisk earnings:
At 5:00
p.m. on 27 September, HCM held a briefing to discuss restructuring at the domestic business. Below, we
report on the main takeaways. HCM, which is currently pursuing business restructuring at overseas
manufacturing bases including in China, India, the Netherlands, and Canada, has announced
restructuring of its domestic operations. Amid ongoing brisk construction machinery demand worldwide,
we see prospects for record earnings at HCM after a gap of 11 years. Given these conditions,
management’s stance on pressing ahead with restructuring deserves credit, in our view. We maintain our
OUTPERFORM rating in anticipation of renewed momentum in Chinese hydraulic excavator demand
and prospects for a full-year outlook increase at 2Q results.
Aims to consolidate
production/development and improve efficiency:
HCM’s plans for domestic restructuring do not
involve plant closures or job cuts. It will consolidate development, which was previously based on
individual products, into (1) mining, (2) construction, and (3) compact categories. In particular, the
company will absorb KCM, its subsidiary that manufactures loaders, into HCM (due in April 2019),
consolidate development bases from four to two, and also initiate a flexible joint-development program
and speed-up development.
Consolidation of loader production by size:
HCM will consolidate its
production based on the above three categories or functions. It will move medium- and large-size loaders
currently manufactured by KCM to HCM’s Hitachinaka Works, which makes mining machinery, and move
small loaders to HCM Tierra, a manufacturer of compact construction machinery. At the same time, the
company will look into shared use of components and jigs and a more flexible access to workers. HCM
aims to bolster its loader business that had fallen behind the curve by consolidating its finished-vehicle
assembly bases from five to three and hydraulic equipment plants from three to two.
Annual OP boost
of 6.0bn:
The domestic business will be reorganized over a period of five years, from FY18 through
FY22, for a total investment of roughly 42.0bn. The restructuring is aimed at raising the annual
production capacity of hydraulic excavators and components from 42,000 units at present to 45,000 units
and that of loaders from 8,000 units to 10,000 units. HCM aims to attain a net OP boost (excluding gains
from volume growth and lower development costs) of roughly 6.0bn in FY22, the final year of the
restructuring plan (4.0bn in FY21). It appears that HCM has no plans to book extraordinary losses in
tandem with the restructuring of its domestic business. (Link to Note)
MINING / METALS
Gold Giant Barrick Agrees to Buy Rival Randgold for $6 Billion:
Per
The Wall Street Journal
: Barrick
Gold Corp. agreed to buy Randgold Resources Ltd. for $6 billion in an all-share merger that will solidify
Barrick as the world’s largest gold company by production, with a dominant position in Africa. Barrick
shareholders will own 67% of the combined company, and Randgold investors will own 33%, the
companies said Monday. The deal remains subject to shareholder approval. In London morning trading,
Randgold shares were up 5.1% at 51.76 ($67.68). The deal will pair up two of the gold-mining industry’s
biggest personalities: Barrick’s John Thornton, a former Goldman Sachs Group Inc. executive, and Mark
Bristow, the chief executive of Randgold renowned for taking motorcycle trips through Africa. Both
executives are also known for focusing on keeping costs in line and reining in debt. Barrick reported an
adjusted profit of $876 million last year, compared with a loss of more than $10 billion in 2013. Randgold
posted net income of $335 million in 2017, a 14% increase from the previous year. Based on 2017
9/28/2018
results, the enlarged group would have generated revenue of $9.7 billion and adjusted earnings before
interest, taxes, depreciation and amortization of $4.7 billion, the companies said. The talks between the
companies began in 2015, Mr. Bristow said on a conference call Monday. “Barrick and Randgold are cut
from a single cloth,” Mr. Thornton said on the call. “Our two companies think and act in the same way.”
Mr. Thornton will remain as executive chairman of the combined company and Mr. Bristow will be
president and CEO, in charge of day-to-day operations. Barrick and Rangold first considered a deal in
2015 and merger discussions were initiated near the beginning of the year, a person familiar with
discussions said. As talks progressed this summer some of Barrick’s directors traveled to Africa to visit
some of Rangold’s mining sites including its Kibali gold mine in the Democratic Republic of Congo, the
person said. Barrick, the world’s largest gold producer, has struggled in recent years under Mr.
Thornton’s leadership, and its stock has lagged behind competitors such as Newmont Mining Corp., its
closest rival by production. Barrick’s portfolio of gold mines has shrunk under Mr. Thornton, with about a
third of the 30 mines when the executive was appointed executive chairman of the gold-mining giant in
2014. Barrick’s gold production has also dwindled, falling more than 25% since 2013 to 5.3 million
ounces last year. The acquisition of Randgold, whose production is focused on Africa and which
produced 1.3 million ounces in 2017, will help make up the loss. Barrick has also lost several
experienced senior executives in recent years. Its president, Kelvin Dushnisky, left the company in
August. The big bet on Africa comes at a time when Barrick needs help navigating the challenges of
working in the resource-rich continent. Those struggles were highlighted last year after the Toronto
miner’s majority-owned African subsidiary Acacia Mining PLC agreed to pay $300 million to the
government of Tanzania to resolve tax and revenue sharing disputes over three gold mines. Acacia’s
stock price in London has sunk nearly 30% since paying the penalty. While Mr. Bristow’s career has
been focused on mining, Mr. Thornton is a latecomer to the industry. He retired as president of Goldman
in 2003 after a 23-year career with the firm as a deal maker and head of European and Asian expansion.
He became an adviser and teacher with the business school at Tsinghua University, one of China’s top
schools. Mr. Thornton’s China connections attracted the attention of Barrick’s founder, the late Canadian
mining tycoon Peter Munk, who invited the banker in 2011 to be a member of the company’s advisory
board. In 2012, Mr. Thornton was promoted to co-chairman of its board of directors. With gold prices
swooning in 2013, Mr. Thornton sought to negotiate a merger with Colorado’s Newmont Mining. But the
talks fizzled, and Mr. Thornton, appointed executive chairman of Barrick, focused on shrinking the assets
of the debt-laden mining behemoth. Rangold, for its part, is widely seen as one of the best managers of
gold assets in the world. Mr. Bristow is known for saying that he can profitably operate his company’s
mines even if gold prices were to fall to $1,000 an ounce, a promise few other mining companies could
make. “We will now be able to step beyond our African boundaries onto the global stage,” Mr. Bristow
said. In a separate agreement, Barrick said Shandong Gold, a Chinese gold miner, would purchase $300
million of Barrick’s shares, and Barrick would invest an equivalent amount into Shandong’s publicly listed
mining company.
TRUCKS / TRANSPORTS
Truck Cycle Deep Dive – Hitting the Brakes Too Early:
Given the all-time high order intake for NA
heavy duty truck over the past few months and the continuously improving visibility for 2019, we wanted
to revisit the truck stocks and take a closer look at the risk/reward:
NA HD Truck Production Has Bias
to the Upside…:
Orders have crushed expectations in the first 8 months of the year driving an all-time
high backlog of ~280K which compares to 96K last year and the previous record of 263K units in
December of 1998. Orders are also set up to potentially reach an all-time high. To put this in perspective,
the previous all-time high for truck orders was reached in 2004 with 390K units which compares to 355K
year-to-date. Heading into what is seasonally the strongest order timeframe (Sept-Dec), we would only
need to see 40K of incremental orders over the next four months to exceed the 390K previous record.
This compares to the 2018 average monthly order rate of 44K. Despite record visibility into next year and
OE backlogs extending into Q2'19 already, industry forecasts are suggesting production up only in the
mid-single digit range in 2019, or ~335K units. To get to the previous record of 376K in 2006, we would
need ~20% production growth from 2018 levels, however this could likely be constrained by the
unwillingness of OEs to materially ramp production and supply chain bottle necks. If so, the cycle could
see moderate growth extending through 2020 versus the consensus view that 2019 is the peak and 2020
is down in the mid-20% range.
…and Pricing Dynamics are Improving:
The pricing environment
appears to be getting better with OEs benefiting from tight capacity in the market. OEs started to raise
price for units ordered in the July-August timeframe. NAV for example, spoke to 1-3% price increases for
these units. PCAR also had more favorable price in Q2'18 averaging 3% (with NA higher and EU lower)
accelerating from the previous two quarters. Therefore, the lack of operating leverage that disappointed
the entire truck cycle could reverse, potentially surprising on the upside.
EU Cycle Remains Stable:
Takeaways from the IAA Commercial Vehicles Show in Hanover, Germany, confirm our view that the EU
Truck market remains healthy. OEs noted confidence in order books, at least until the first part of 2019.
Watch out for Cancellations / China:
While the cancellation rate remains healthy over the past 18。。。。。。
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