HOLT APAC "Industrials - assessing opportunities as the valuation disparity ..."

Research evidence excerpt

HOLT APAC "Industrials - assessing opportunities as the valuation disparity ..."

To assess potential opportunities and risks within the sector, HOLT evaluates 1) the

market implied expectations of recent top-performing industrial companies in the

market index, 2) screens for firms trading above HOLT's high DCF value, 3) stocks with

relatively more attractive valuation, and 4) identifies compelling investment

opportunities beyond the constituents of the market index.

1. Top-performing stocks over the past 3 months and their market implied

sales growth expectations: Korean firms account for half of the top ten

performers over the past three months and are broadly valued for continued sales

growth acceleration relative to their near-term consensus forecasts (Figure 4Near-termconsensussalesgrowthforecastandmarketimpliedlevel).

Market implied sales growth rates are in line with consensus forecast for Weichai

Power and Bharat Heavy, and are more conservative for Jiangsu Zhongtian, Bizlink

and Ningbo Deye.

2. Stocks trading above HOLT's high DCF fair value: Following the robust year-

to-date performance of firms within the Equipment and Aerospace sectors, several

companies are currently trading above HOLT's high DCF fair value. This valuation

accounts for the most optimistic street earnings projection and incorporates a 100

bps reduction in the discount rate utilized in the DCF model. Among these

companies are Doosan Enerbility, Cummins India and LS Electric.

3. Stocks with a robust CFROI profile and attractive valuation: HOLT screens

for stocks with forecast CFROI improvements in 2026/27e, exhibit positive CFROI

revisions and trading at appealing valuations based on the HOLT DCF framework.

Shipbuilders feature prominently in this selection, alongside other equities such as