Global Industrials Weekly
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10 December 2012 Americas/United States Equity Research Electrical Equipment / Capital Goods i-Spy Research Analysts COMMENT Julian Mitchell 212 325 6668 [email protected] Global Industrials Weekly Charles Clarke 212 538 7095 ■ Japan industrials outlook for 2013: Our Japan team expects a reversal in the [email protected] outperformance of names such as Makita and Kubota, towards Komatsu, Hitachi Jonathan Shaffer 212 325 1259 Construction and Daikin (which is increasingly viewed as a US housing play, [email protected] given the Goodman deal), as the extensive headwinds (China slump, JPY appreciation, hard to soft commodity switch) facing the latter 3 stocks begin to recede. Among the FA names, CS favours Yaskawa, THK and Keyence, and expects a China rebound to be followed by a recovery in high-tech capex (chip- mounter makers already appear to be turning the corner). ■ China basic materials: CS expects 2013 to be better than 2012, as destocking pressure eases, and producers are better adjusted for slower growth rates. Supply / demand is expected to deteriorate for cement, Al, Cu, and rare earths, and improve for domestic thermal coal and tungsten. Demand-wise, there is upside from construction, but the team fears downside risks from manufacturing. The team initiated coverage of West China Cement (Dec 6) with an OP rating. Anhui Conch was upgraded to NEUTRAL from Underperform (Dec 6), reflecting better protected margins and positive outlook. ■ Swiss industrials trip: ABB highlighted some improvement in US transformer pricing following the anti-dumping legislation, as well as strong demand for industrial automation (robots) in China. Sika's comments concurred with our China trip - double-digit growth in the country has returned since Sept / October. Sulzer is continuing to see strong oil & gas demand in the US and Russia. ■ Brazil truck trends improving: The tone from a CS-hosted meeting with a heavy vehicle truck industry expert was markedly more positive than 3 months ago, given attractive credit terms made available by the BNDES; the government announced the PSI program would be extended through 2H13. ■ Rating changes / initiations: We reinstated coverage of SPW at Neutral (Dec 4); although we find the 'late-cycle' exposure and portfolio change potential interesting from a longer-term standpoint, we are cautious in the short-term given the high probability of a large M&A deal, and the downside risk to consensus 2013 forecasts. Exhibit 1: Global Performance Snapshot: The best and worst last week 10 Best Stocks 1-Week 10 Worst Stocks 1-Week 10 Best Sectors 1-Week 10 Worst Sectors 1-Week Shantui Construction Machinery 21.0% El Sewedy Electric -7.5% China Industrial Machinery 10.1% MEA Industrials -7.5% Guangxi Liugong Machinery 18.0% EnergySolutions -5.5% China Infrastructure Construction 7.5% Canada Industrials -2.2% Lonking Holdings Ltd. 16.8% S1 Corporation -5.0% China Automotive 7.4% US Aerospace -1.2% Sany Heavy Industry 16.7% Bombardier Inc -4.8% China Container Manufacturing 6.2% Japan Conglomerates -1.1% EADS 15.1% Douglas Dynamics Inc. -4.8% China Power Equipment 5.8% US Industrial Distribution -0.6% Dongfang Electric Corp 13.9% Oshkosh Corporation -4.8% European Wind Energy 4.6% US Transports -0.1% Henan Pinggao Electric Co Ltd 13.4% China Ming Yang Wind Power Group Ltd. -4.7% European Electrical/Electronics 3.5% Singapore /Taiwan Industrials 0.0% Kloeckner & Co 12.9% TransDigm -4.6% Japan Auto Related Consumables 3.1% US Electrical Equipment/Multi-Industry 0.1% Weichai Power Co. 12.6% Nissan Motor -4.6% India Capital Goods 2.9% Japan Automotive 0.1% CIMC 'A' 11.7% Suzlon Energy Ltd -4.3% European Industrial Machinery 2.7% European Automotive 0.3% Source: DataStream. S DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683 US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access 10 December 2012 Table of contents Macro Snapshot: CS Six NT Demand Indicators 3 Performance Summary 6 Price Commentary Tracker 7 Recent Industrial Transactions 8 Recommended Reading 9 Recommended Reading Summaries 12 Macro Research/ Strategy 12 Americas Research 12 EMEA Research 20 Asia Research 23 Global Macro Forecasts 35 Valuation & Performance 36 Americas Capital Goods Valuation Summary 37 EMEA Capital Goods Valuation Summary 40 Asia Capital Goods Valuation Summary 42 CS Global Capital Goods Team 45 Global Calendars 46 Americas 46 EMEA 46 Asia 47 i-Spy 2 10 December 2012 Macro Snapshot: CS Six NT Demand Indicators Exhibit 2: Demand Indicators – Six Month Outlook Metric Recent / Current Trend 6 month outlook Delta Lead indicators / surveys Decline in PMIs to 50-55 from 55-60+ PMIs likely to stabilize in 50-55 range 0/- Factory / durable goods orders Moderating off a very high level Continues to decelerate in OECD, but growth is high 0/+ Coincident trends Re-acceleration in developed economies Cap. Utilisation to rise, IP growth rates stay high 0/+ Company data Book-to-bills of >1X; orders slowing but high growth All regions slightly decelerate 0/- Supply side Deceleration Growth rates remain high 0/+ Transport / distributor data Moderation off high levels Moderation in air and rail traffic likely due to tough comps 0/- Source: Credit Suisse Research. Indicator #1 Lead Indicators / Surveys US ISM Manufacturing and New Orders ■ US ISM manufacturing contracted in November to 49.5%, lowest in over three years. It fell from 51.7% a month before and was below the market expectations of 51.3% Indicator #2 Factory / durable goods orders US Factory Orders ■ Factory orders edged up 0.8% (MoM) in October which was better than the market consensus but the increase slowed from a 4.5% jump in September. Germany Factory Orders ■ Germany Factory orders dropped 2.4% (YoY) in October whereas it rose 3.9% (MoM) better than the market consensus Indicator #3 Coincident Trends UK Industrial Production & Manufacturing Production ■ UK Industrial Production fell 0.8% (MoM) and 3.0%(YoY) which was below the market expectations ■ UK Manufacturing Production fell by 2.1%(YoY) and 1.3%(MoM) in October below the consensus ■ Germany Industrial Production ■ German IP declined 2.6% (MoM) and 3.7% (YoY), is a huge miss from analysts expectations ■ ■ Indicator #4 Company Data ■ THK November monthly orders ■ Domestic orders were -3% YoY and +11% MoM to be 6.2bn yen and exceeded the company’s plan 5.6bn yen by 11%. Main driver for the increase was the i-Spy 3 10 December 2012 progress of inventory adjustment for semiconductor related products. Mounters and Robots showed slight increase. i-Spy 4 Exhibit 3: Demand Indicators Indicator #1 Lead Indicators/ Surveys Indicator #2 Factory / durable goods orders Indicator #2 Factory / durable goods orders US ISM Manufacturing and New Orders US Factory Orders Germany Factory Orders Factory Orders YoY% change 80 30 YoY% US ISM New Orders 35 Factory Orders (excl transportation) 20 YoY% change 70 25 10 15 60 i-Spy 5 0 50 -5 -10 -15 40 -20 -25 30 -30 -35 20 -40 -45 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12 Oct-02 Oct-04 Oct-06 Oct-08 Oct-10 Oct-12 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Source: Datastream Source: Datastream Source: Bloomberg Indicator #3 Coincident Trends Indicator #3 Coincident Trends Indicator #4 Company Data UK Industrial Production & Manufacturing Production Germany Industrial Production THK November monthly orders 6 15 10% 10 5% 3 5 0% 0 0 -5% -3 -5 -10% -6 UK Mfg. Prod. -10 -15% (YoY%) -15 -20% -9 UK IP (YoY%) -20 -25% -12 -25 -30% Oct-06 Oct-08 Oct-10 Oct-12 Nov-11 Feb-12 May-12 Aug-12 Nov-12 10 December 201 -15 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Source: Bloomberg Source: Bloomberg Source: Company Data 5 2 10 December 2012 Performance Summary Exhibit 4: Company Performance Americas EMEA Asia Best Performers 1-Week Best Performers 1-Week Best Performers 1-Week Fluor 6.1% EADS 15.1% Shantui Construction Machinery 21.0% Canadian Pacific Railways 5.8% Kloeckner & Co 12.9% Guangxi Liugong Machinery 18.0% Eltek 10.9% Lonking Holdings Ltd. 16.8% Waste Management 4.8% Vestas 9.0% Sany Heavy Industry 16.7% CACI International, Inc. 4.3% Wincor Nixdorf 6.8% Dongfang Electric Corp 13.9% Best Performers YTD Best Performers YTD Best Performers YTD RailAmerica Inc. 84.7% OC Oerlikon 101.8% Geely Automobile Holdings 123.5% Terex Corporation 84.0% Continental 77.9% China Railway Construction Corporation 117.3% Shaw Group, Inc. 68.4% Bodycote PLC 64.4% Fuji Heavy Inds. 95.3% Manitowoc 62.5% Electrolux 58.3% China Railway Group Ltd 94.7% Ingersoll Rand 59.8% Spectris 57.5% KEC International Ltd 86.8% Worst Performers 1-Week Worst Performers 1-Week Worst Performers 1-Week EnergySolutions -5.5% El Sewedy Electric -7.5% S1 Corporation -5.0% Bombardier Inc -4.8% PSA Peugot Citroen -4.0% China Ming Yang Wind Power Group Ltd. -4.7% Douglas Dynamics Inc. -4.8% Severfield -3.1% Nissan Motor -4.6% Oshkosh Corporation -4.8% Weir Group -2.9% Suzlon Energy Ltd -4.3% TransDigm -4.6% Laird -2.3% Hitachi -2.3% Worst Performers YTD Worst Performers YTD Worst Performers YTD SNC Lavalin Group -26.1% PSA Peugot Citroen -57.1% China Ming Yang Wind Power Group Ltd.