Author: gundaboina saikiran

China Downgraded to a Downtrend

Posted on by gundaboina saikiran

Key points:

 

  • We are downgrading China to a Downtrend as CSI 300 fell 1.18% on higher and above-average volume. It broke below the January 18 low (3,172), with next support at its January 2019 low (2,936). We recommend adding defensive positions with high-dividend yields and strong relative strengths.
  • The harsh selling might be triggered by concerns about the forced selling of the shares pledged by listed companies for loans as well as the liquidation of the hedges by brokers to the popular structured derivatives called “Snowball”.
  • Among our Focus List ideas in China, China Yangtze Power (CYP.CN), Yankuang Energy Group (YCM.CN), Midea Group ‘A’ (MGA.CN), and Jiangsu Expressway (JEX.CN) still hold up constructively.

China Shifted to a Confirmed Uptrend Today

Posted on by gundaboina saikiran

Key points:

 

  • We upgraded China to a Confirmed Uptrend after CSI 300 index saw a follow-through-day on a Day 6 rally attempt. The index gained 2.01% on above-average and much higher volume than the previous session and retook its 21-DMA.
  • The strong rebound was mainly due to China’s central bank announcement that it will cut the reserve requirement ratio (RRR) for all banks by 50 bps from February 5, the biggest cut over the past two years. However, we continue to expect ongoing volatility in the near term, as the market sentiment recently was fragile due to weak economic data and the CSI 300 index was still below key moving averages. We advise investors to take a patient and selective approach.
  • Actionable ideas in our Focus List include China Yangtze Pwr. (CYP.CN), Jiangsu Expressway (JEX.CN) and Yankuang Energy Group (YCM.CN).

Aristocrat Leisure

Posted on by gundaboina saikiran

Key Points:

 

  • We reiterate our buy call on Aristocrat Leisure as the stock is breaking out of its 18-week consolidation base.
  • The company operates in a stable industry growing at MSD over the last two decades. Its new growth engine is the real money gaming (RMG) segment, in which the company is making significant progress with recent acquisitions and organic developments.
  • Its strong presence in land-based operations and diversification into mobile gaming are also expected to drive growth.
  • Excellent fundamental profile: EPS Rank 97 and a top SMR Rating of A.
  • Improving technical profile: Up/Down Volume ratio of 1.3 and steadily improving A/D Rating of A-.
  • Composite Rating, which combines the technical and fundamental ratings, is excellent at 92.

O’Neil Capital Equipment Sector Weekly

Posted on by gundaboina saikiran

VAT Group (VACN.CH) – $14B market cap; $27M ADV: We added VAT to the Developed Markets Focus List as the stock broke out of a stage-two consolidation base on above average volume. VAT is a global market leader
in the vacuum valve market. Its valves are used in vacuum-based manufacturing processes, including semiconductor and solar panel production. 75% of its revenue comes from the semiconductor end-market. With capacity
expansion, high specification wins and the introduction of complementary products, it is well-positioned to gain from the expected recovery in semiconductor demand globally in 2024 and beyond. The company benefits from
chip miniaturization and new technologies, which require more processes to be carried out under vacuum environments.

O’Neil Capital Equipment Sector Weekly

Posted on by gundaboina saikiran

FL-stock Sojitz (NIIW.JP) provided an outline of its medium-term Management Plan for the period FY23-26. It targets ¥120B net profit on average through FY26, which is above ¥95B net profit guidance for FY23.
This came in above consensus. It aims to achieve more than 12% ROE through FY26 (FY23 ROE guidance: 11%). Investment spending planned to be ~¥500B during the period, remained unchanged from the
previous FY20-23 medium-term Management Plan. It aims to distribute 4.5% of adjusted shareholder’s equity as dividend over the period. The stock gapped above its 50- and 100-DMA on more than 4x the average
volume. The stock is trading 5% to pivot in a stage-one consolidation base. RS line is recovering, with a RS Rating of 82. A/D Rating of B.

O’Neil Capital Equipment Sector Weekly

Posted on by gundaboina saikiran

Rolls Royce (RR.GB) – $26B market cap; $82M ADV: We added Rolls Royce to the Developed Markets Focus List as the stock broke out of a stage-two cup base. Rolls Royce is a manufacturer of aero
engines for commercial and military aircrafts. It is the market leader in the widebody aircraft engine category and is expected to benefit from the recovering widebody air traffic and the ramp up of production
by airframers. The recovery in air traffic should also drive its high margin services business aiding recurring revenue. Roll Royce went through a transformation/restructuring programme over FY20-21 which
has brought down its costs and is expected to drive profits going forward. Consensus estimates revenue and EPS to have a CAGR of 11% and 134%, respectively, over the next two years. F

O’Neil Capital Equipment Sector Weekly

Posted on by gundaboina saikiran

Transdigm Group (TDG) reported better-than-expected Q4 FY23 results and provided FY24 guidance. Revenue was driven by strong double-digit growth in the commercial OEM, commercial aftermarket, and defense
segments. For FY24, management has guided for revenue growth of 13.6–16.6% y/y, EBITDA margin of 51.7–52.2% (+10–60bps y/y), and EPS growth of 20–27% y/y, all above estimates. The stock broke out of a
stage-two 14-week flat base and is actionable here. It retook support along its 50- and 100-DMA after bouncing off its 200-DMA recently. RS line is improving with a strong RS Rating of 95. A/D Rating has improved over
the past few weeks to B+.

O’Neil Capital Equipment Sector Weekly

Posted on by gundaboina saikiran

Trane Technologies (TT) – $50B market cap; $279M ADV: We added Trane Technologies to the U.S. Focus List as the stock bounced off its 200-DMA and retook support along its 50-DMA. Trane
manufactures heating, ventilation, and air-conditioning (HVAC) products for commercial/residential buildings and offers transport refrigeration solutions. It is one of the top three providers of commercial HVAC
products in the U.S. It is experiencing strong demand, driven by increasing investments in the data center, education, healthcare, and high-tech industrial end markets. Trane has a large installed base of
commercial HVAC systems, which generate additional revenue from retrofit projects in addition to regular maintenance income. Consensus estimates revenue and EPS to have an 8% and 17% CAGR,
respectively, in the next two years

O’Neil Capital Equipment Sector Weekly

Posted on by gundaboina saikiran

Howmet Aerospace (HWM) – $18B market cap; $102M ADV: We removed Howmet Aerospace from our U.S. Markets Focus List due to technical deterioration. The stock breached support along its 200-DMA and continued to trade lower.
One of its end customers, Boeing (BA), cut its delivery guidance for 737 MAX aircrafts due to ongoing manufacturing issues with a supplier. This could indicate near-term weakness for the stock. In the long term, Howmet should continue to
benefit from increasing production rates of aero engines.

Buy CreditAccess Grameen

Posted on by gundaboina saikiran

Summary Points

 

  • Buy shares of CreditAccess Grameen as they break out of a stage-two, 11-week, double-bottom base on strong volume. The shares had a strong upside reversal and are holding the earnings gap up despite weak market conditions. This is India’s largest MFI company that seeks to achieve a loan book of INR 500B in the next five years at a CAGR of 20–25%, by diversifying into non-core markets.
  • Shares had an upside reversal on October 26 and were up ~3% on above-average volume. They gapped up on October 23 after reporting beat-and-raise quarterly results and broke out of a double-bottom base on ~17x the average volume, turning actionable.
  • Strong fundamental profile: EPS Rank 92 and SMR Rating of A, supported by increasing margins and ROE. The street expects EPS growth of 67% in FY24 and 22% in FY25.
  • Good technical profile: RS line is trending upward and is at multi-year highs. Industry Group Rank improved to 55 from 91 in the past eight weeks.
  • Institutional sponsorship increased ~35% y/y to 172 as of September 2023.