J P M O R G A N Asia Pacific Equity Research 19 November 2025 This material is neither intended to be distributed to Mainland China investors nor to provide securities investment consultancy services within the territory of Mainland China. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. We are raising our FY25-27E forecasts for Sanhua by 20% on average, factoring in the 3Q25 beat and lift in management guidance. Our Global TMT confe ...

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. But finding a great growth stock is not easy at all.In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the trad ...

Core Viewpoint - Growth stocks are appealing due to their potential for above-average financial growth, but identifying strong candidates can be challenging due to inherent volatility and risks [1] Group 1: Company Overview - Flowserve (FLS) is currently highlighted as a recommended growth stock by the Zacks Growth Style Score system, which evaluates a company's growth prospects beyond traditional metrics [2] - Flowserve has a favorable Growth Score and a top Zacks Rank, indicating strong potential for performance [2][10] Group 2: Earnings Growth - Historical EPS growth for Flowserve stands at 19.6%, but projected EPS growth for this year is expected to be 30.4%, significantly surpassing the industry average of 7.6% [5] Group 3: Asset Utilization - Flowserve's asset utilization ratio (sales-to-total-assets ratio) is 0.83, indicating that the company generates $0.83 in sales for every dollar in assets, which is higher than the industry average of 0.79 [6] Group 4: Sales Growth - The company's sales are projected to grow by 4.9% this year, compared to an industry average of 0% [7] Group 5: Earnings Estimate Revisions - There has been a positive trend in earnings estimate revisions for Flowserve, with the Zacks Consensus Estimate for the current year increasing by 2.5% over the past month [8]

Core Insights - MRC Global Inc. reported a net loss of $9 million for Q3 2025, a significant decline from a net income of $29 million in Q3 2024, primarily due to challenges in implementing a new ERP system in the U.S. segment [3][5][12] - The company anticipates a recovery in performance, expecting mid-to-high single-digit percentage revenue growth sequentially in Q4 2025 as backlog growth is released into revenue [3][19] - MRC Global is in the process of merging with DNOW Inc., which is expected to enhance its capabilities and market position [3][22] Financial Performance - Sales for Q3 2025 were $678 million, a 12% decrease year-over-year and a 15% decrease sequentially [12][7] - Gross profit was $125 million, representing 18.4% of sales, down from 20.4% in Q3 2024 [6][12] - Adjusted EBITDA for Q3 2025 was $36 million, or 5.3% of sales, compared to $47 million, or 6.1% of sales, in Q3 2024 [9][12] Segment Performance - U.S. sales decreased by $94 million, or 15%, year-over-year, with all sectors affected by ERP implementation challenges [13][14] - International sales were $128 million, a slight increase of 1% year-over-year, but down 9% sequentially [15][12] - The backlog as of September 30, 2025, was $571 million, a 4% increase compared to the same period last year, with a 21% increase in the U.S. segment backlog [19][12] Cost Structure - Selling, general and administrative (SG&A) expenses were $128 million, or 18.9% of sales, up from $120 million, or 15.6% of sales, in Q3 2024 [8][12] - Adjusted SG&A for Q3 2025 was $116 million, or 17.1% of sales, excluding non-recurring costs related to the merger and ERP implementation [8][12] Balance Sheet and Cash Flow - As of September 30, 2025, MRC Global had a cash balance of $59 million and long-term debt of $476 million [20][12] - Cash used in continuing operations was $36 million in Q3 2025, reflecting the impact of ERP challenges [20][12] Merger and Future Outlook - The merger with DNOW Inc. is expected to close in Q4 2025, creating a larger and more diversified enterprise [3][22] - The company has suspended its share repurchase program due to the pending merger [21][12]

Core Insights - Flowserve Corporation reported an earnings per share (EPS) of $0.90, exceeding the Zacks Consensus Estimate of $0.80, representing a 12.50% earnings surprise and a significant improvement from the $0.62 EPS reported in the same quarter last year [2][6] - The company's revenue for the quarter was $1.17 billion, slightly below the estimated $1.21 billion, but an increase from the $1.13 billion reported in the previous year [3][6] - Flowserve's third-quarter bookings reached $1.2 billion, with aftermarket bookings increasing by 6%, surpassing $650 million [3] Financial Metrics - Flowserve has a price-to-earnings (P/E) ratio of approximately 23.63, indicating the price investors are willing to pay for each dollar of earnings [4] - The price-to-sales ratio is about 1.48, suggesting that investors are paying $1.48 for every dollar of Flowserve's sales [4] - The enterprise value to sales ratio is around 1.40 [4] Financial Health - The company maintains a strong financial position with a debt-to-equity ratio of 0.10, indicating a low level of debt compared to its equity [5][6] - Flowserve's current ratio of 2.10 suggests a robust ability to cover its short-term liabilities with its short-term assets [5][6]

Core Viewpoint - Flowserve Corporation has agreed to divest its wholly owned subsidiary BW/IP - New Mexico, Inc., which holds asbestos liabilities, to Acorn Investment Partners, allowing Flowserve to simplify its capital structure and focus on value-enhancing opportunities [1][2][4]. Transaction Overview - Acorn will acquire 100% of BW/IP, which will be capitalized with approximately $219 million in cash, including $199 million from Flowserve and $20 million from Acorn [4]. - Flowserve will remove all asbestos liabilities, related insurance assets, and associated deferred tax assets from its consolidated balance sheet as a result of this transaction [4]. Financial Impact - The divestiture is expected to result in a one-time loss of approximately $135 million in the fourth quarter of 2025, which will be excluded from adjusted earnings per share [5]. - The transaction is anticipated to improve Flowserve's free cash flow by approximately $15 million to $20 million annually [5]. Advisors - J.P. Morgan Securities LLC is serving as the financial advisor, while Baker McKenzie is the legal advisor for Flowserve [7].

Core Viewpoint - Flowserve Corporation is set to report its third-quarter 2025 earnings on October 28, 2025, with expectations of an EPS of $0.80 and revenue of approximately $1.21 billion, following a previous quarter where it exceeded EPS estimates but fell short on revenue expectations [1][2][6] Financial Performance - In the previous quarter, Flowserve reported an EPS of $0.91, surpassing the consensus estimate of $0.78, while its revenue was $1.19 billion, below the expected $1.22 billion [2][6] - The company achieved a return on equity of 18.25% and a net margin of 6.28%, indicating strong profitability and efficient equity utilization [2][6] Stock Metrics - Flowserve's stock recently increased by 1.4%, opening at $53.39, with a price-to-earnings (P/E) ratio of approximately 23.57 and a price-to-sales ratio of about 1.48 [3] - The enterprise value to sales ratio is around 1.39, and the enterprise value to operating cash flow ratio is approximately 13.47, reflecting the market's valuation of the company's earnings and sales [3] Financial Health - The company has a low debt-to-equity ratio of 0.10, suggesting a manageable level of debt relative to its equity [4][6] - Flowserve's current ratio is 2.10, indicating a strong ability to cover short-term liabilities with short-term assets, showcasing effective financial management [4][6] Future Projections - Analysts project Flowserve to achieve earnings of $3 per share for the current fiscal year and $4 per share for the next fiscal year, with the upcoming earnings report expected to significantly influence the stock price [5]

Company Overview - TransDigm Group Incorporated (TDG) has a market cap of $74.1 billion and specializes in engineered aircraft components for both commercial and military aircraft [1] - The company was founded in 1993 and is headquartered in Cleveland, Ohio, focusing on proprietary parts such as control systems, pumps, valves, and cockpit instruments [1] Earnings Projections - For fiscal Q4 2025, analysts project an EPS of $9.62, reflecting a 4.7% increase from $9.19 in the same quarter last year [2] - For fiscal 2025, EPS is expected to be $34.49, an 8.7% rise from $31.74 in fiscal 2024, with further growth anticipated to $37.91 in fiscal 2026, representing a 9.9% annual increase [3] Stock Performance - Over the past 52 weeks, TDG stock has slightly declined, underperforming the S&P 500 Index's 16.2% return and the Industrial Select Sector SPDR Fund's 13.2% gain [4] - On October 15, shares dropped 4.4% after Morgan Stanley lowered its price target to $1,600 from $1,750, citing increased debt and interest expenses, but maintained an "Overweight" rating with a potential upside of 21.9% [5] Analyst Ratings - The consensus view on TransDigm stock is bullish, with a "Strong Buy" rating from 16 out of 22 analysts, while 6 analysts suggest a "Hold" rating [6] - The mean price target of $1,555.10 indicates a premium of 15.2% from current price levels [6]

Core Thesis - TransDigm Group Incorporated (TDG) is viewed positively due to its strong market position in specialized aircraft components, resilient aftermarket sales, and effective M&A strategy [1][5]. Company Overview - TDG designs and manufactures specialized aircraft components, with approximately 75% of sales being sole-source and about 90% proprietary products, ensuring strong pricing power and recurring revenue [2]. - The company derives roughly half of its revenue from aftermarket spare and replacement parts, which contributes to its durable demand [2]. Financial Performance - In Q3 2025, TDG experienced a mixed performance: commercial OEM revenue declined by approximately 7% year-over-year, while commercial aftermarket revenue grew by about 6%, driven by double-digit growth in engine content and distributor sales [3]. - Defense revenues increased by 13% across OEM and aftermarket channels, showcasing strength in this segment [3]. - EBITDA margins improved to 54.4%, with organic growth of 6.3%, operating cash flow exceeding $630 million, and a cash balance near $2.8 billion [3]. Leadership and Strategic Moves - Leadership transitions include CEO Kevin Stein's retirement and COO Mike Lisman taking over as CEO, indicating depth in management [4]. - TDG completed the acquisition of Servotronics for $138 million and agreed to acquire Simmonds Precision for $765 million, expected to add approximately $350 million in revenue in CY25 [4]. Future Outlook - FY25 guidance anticipates revenue of $8.79 billion, EBITDA of $4.725 billion, EPS of $36.74, and free cash flow around $2.3 billion [4]. - The company has repurchased over 400,000 shares year-to-date and declared a special dividend of $90 per share, funded via debt [4]. - TDG is considered a compelling long-term investment opportunity, particularly if shares trade below $1,200 [4].

Group 1: Investment Activity - Paradice Investment Management LLC initiated a new position in Flowserve Corporation, acquiring 338,154 shares valued at approximately $17.97 million as of September 30, 2025 [1][2] - This new position accounts for 4.03% of Paradice's reportable U.S. equity assets as of the same date [3] Group 2: Company Overview - Flowserve Corporation reported trailing twelve months (TTM) revenue of $4.65 billion and net income of $291.58 million, with a dividend yield of 1.6% [4] - The company specializes in designing, manufacturing, and servicing industrial flow management equipment, including pumps, valves, mechanical seals, and automation solutions [4][5] Group 3: Market Position and Merger - Flowserve is involved in a merger of equals with Chart Industries, which is expected to generate $300 million in annual cost savings and create significant synergies [9][10] - The combined company is projected to have an enterprise value of approximately $19 billion and adjusted EBITDA of $1.9 billion, indicating a valuation of around 10 times adjusted EBITDA [10][11]