Energy & Materials Sector

• Sumitomo Chemical issued new guidance in-line for 3/24 and xx% ahead of consensus for 3/25 EBIT, yet, the shares promptly declined by 10%.
• Traders were probably spooked by the company’s booking of ¥340bn in impairments that was ¥200bn more than published consensus, but we argue that this was more than already priced in.
• The only reasonable explanation for the reaction is that the market doesn’t believe the new guidance for 3/25. This could prove to be a huge mistake.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Alps Logistics (9055 JP), Hollysys Automation Technologies (HOLI US), Ansarada Group Ltd (AND AU), Southern Cross Media (SXL AU). 
• Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Mma Offshore (MRM AU), Great Eastern Holdings (GE SP), Pact Group Holdings (PGH AU), Alumina Ltd (AWC AU). 

• Shandong Xinjufeng Technology Packaging (301296 CH) disclosed a pre-conditional voluntary offer for Greatview Aseptic Packaging (468 HK) at HK$2.65, a 26.2% premium to the undisturbed price.
• The pre-condition relates to Chinese regulatory approvals and Shandong Xinjufeng shareholder approval. The offer is conditional on a 50% minimum acceptance condition.
• Shandong Xinjufeng’s previous acquisition of Jardine Matheson’s 28.22% stake elicited a defensive move by China Mengniu Dairy Co (2319 HK). This development is likely to force a Mengniu competing VGO.  

• In FY24, Gravita India (GRAV IN) had faced qualified opinion from the auditors regarding its accounting pertaining to share based payments, which in a way boosted the earnings. 
• However, the unusual accounting behaviour is not for the company. We have seen some irregular line items in the past as well, w.r.t. gains and losses on commodities and forex. 
• Other key takeaways include negative free cash flows and difficulty in cash generation, revenues from traded goods not being in sync, fresh contingent liabilities, etc.

• Despite time until screening, predictions likely hold due to market cap gaps; all candidates are banks, benefiting from recent momentum.
• Historical patterns show profit-taking selling affecting price impact, particularly on additions with significant pre-inclusion price rises. Monitor banks’ pre-June 14th price appreciation to anticipate impact distortions.
• Shorting LG Chem and LG Energy Solution based on high price cointegration, consider basket-trading them before the rebalancing, using the battery sector as a long hedge.

• Ecolab Inc.’s first-quarter 2024 earnings showcased strong progress with adjusted earnings per share increasing by 52%.
• This impressive outcome can be attributed to a 5% growth in organic sales and the expansion of organic operating income margin by 400 basis points.
• The company is also expected to maintain its long-term earnings growth of 12% to 15%.

• ONEOK, a midstream service provider in the natural gas industry, revealed substantial financial growth in its first-quarter 2024 earnings call.
• The company reported healthy year-over-year volume growth in the Rocky Mountain region and meaningful contributions from the Refined Products and Crude segment.
• ONEOK’s satisfactory performance in Q1 2024 was driven by favourable industrial fundamentals and the realization of commercial and cost synergies – increasing its full-year financial guidance for 2024.

• Back in September 2023, Jardine Matheson Holdings (JM SP) sold its 28.22% stake in Greatview Aseptic Packaging (468 HK) to Shandong Xinjufeng Technology Packaging (301296 CH) (XJF). 
• Then in November, XJF requisitioned an EGM to spill the board. At the EGM on the 26th January, not one of XJF’s five new proposed appointments were successful.
• XJF has now made a pre-conditional (various PRC approvals) voluntary general Offer at $2.65/share (best & final), contingent on a 50% acceptance hurdle.  Final/special dividends to be added. 

• TPL reported first quarter results with a higher than expected revenue figure from water sales to go along with the Company’s disclosure of a new desalination technology
• TPL’s quarterly results were better than we had projected due to the performance in water sales. Unlike second quarter 2023 results, TPL’s management referred to a pipeline of sales
• TPL used the first quarter results to disclose a new method of desalination of produced water

• Ecolab Inc.’s first-quarter 2024 earnings showcased strong progress with adjusted earnings per share increasing by 52%.
• This impressive outcome can be attributed to a 5% growth in organic sales and the expansion of organic operating income margin by 400 basis points.
• The company is also expected to maintain its long-term earnings growth of 12% to 15%.The CEO, Christophe Beck, expressed satisfaction with the level of dedication and the results obtained from Ecolab’s workforce.

• 1Q24 performance ahead of expectations. RYAM reported 1Q24 results that included EPS of ($0.02) versus consensus of ($0.10) and our estimate of ($0.19).
• While sales of $388 million fell short of our estimate of $402 million and consensus of $430 million, tight cost controls, lower raw material and transportation costs, and improved operating efficiencies drove EBITDA of $52 million versus our estimate of $39 million and consensus of $49 million.

• EBITDA guidance maintained, FCF guidance increased. With market fundamentals stabilizing and most of customer inventory work-downs winding down, management reiterated its EBITDA guidance of $180-200 million and raised its FCF guidance for the year from $20- 40 million to $80-100 million on a higher working capital benefit and $39 million in cash to be realized from the sale of softwood duty refund rights to OCP Lumber LLC.

• US commercial crude oil inventory fell by 1.36 million barrels for the week ending on 3/May, after rising by 7.3 million barrels the week before.
• EIA increased its global liquid fuels production for 2024 and 2025 by 110,000 bpd and 40,000 bpd, respectively.
• EIA forecasts OPEC’s spare production capacity around 4 million bpd through 2025.

• Stable cement price, good cost control, and a better base for comparison will lift Anhui Conch Cement (914 HK)‘s profitability recovery in 2-4Q24.  
• Anhui Conch’s earnings outperformed in 1Q24. Its peers are making losses and hence will reduce excess supply. Stabilisation of the real estate market will lower the pressure on demand.
• Net cash equals 46% of the current share price, and its valuations (both PER and P/B) are inexpensive relative to peers and ROE.  

• PetroTal is acquiring Block 131 onshore Peru including the Los Angeles field from CEPSA for US$5 mm.
• The field produces ~900 boe/d from 4 existing wells and holds 4.9 mmbbl of 40-45 deg API oil 2P reserves.
• We estimate that 3 new wells (at ~US$12 mm per well) could increase production to 2-3 mbbl/d.

• 1Q24 WI production was 21,807 boe/d, in line with our expectations.
• VAALCO held ~US$113 mm in cash at the end of March, which is also in line.
• With the completion of the acquisition of Svenska, the company now expects to produce 23.6-26.5 mboe/d in FY24.

• • The 1Q24 production of 21.9 mbbl/d and cash position of ~US$194 mm at the end of March had been reported previously.
• • Operations are on track.
• Drilling is underway at the Nong Yao A platform, with two new wells that are expected to be completed in the coming week.

• Valvoline is the largest pure-play operator in the oil change industry, trading at around 16 times estimated FY25 EPS
• The company plans to accelerate unit growth from 140 to 250 openings per year over the next five years
• Valvoline has a focus on driving incremental ticket growth and strong competition in the market, positioning it for success with a solid foundation from its long history in the industry

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• ExxonMobil’s latest performance paints a promising picture, powered by strategic decisions, cost-saving measures, and a focus on long-term growth avenues.
• In Q1 2024, ExxonMobil delivered $8.2 billion in earnings and $14.7 billion in cash flow, demonstrating ongoing efforts to enhance the company’s earnings power.
• The company made big strides in cost savings, achieving $10.1 billion in Q1 compared to 2019, on track to reach their goal of $15 billion in savings by 2027.

• A play on higher food and energy prices going forward
• Natural Gas moving up from multi-year lows will support fertiliser prices going forward
• A Low valuation with a solid balance sheet lowers the risk

• Phillips 66 reported its first-quarter earnings for fiscal 2024, emphasizing progress in strategic areas, despite some obstacles encountered during the quarter.
• Mark Lashier, President and CEO, noted strong crude utilization rates during the quarter.
• However, maintenance work limited the company’s ability to produce higher-value products, impacting the results.

• The latest LyondellBasell earnings showcased several key trends and indicators that provide a comprehensive understanding of the company’s performance and future prospects.
• On the positive side, LyondellBasell has made promising strides in improving safety metrics for its workers, leading to an impressive rate of just one injury per two million hours worked.
• The operational excellence shown by this metric, as well as continued enhancements to LyondellBasell’s core business, has the potential to lead to consistent long-term growth.

• NOV Inc.’s Q1 2024 financial results showed that revenues reached $2.16 billion, a 10% increase compared to Q1 2023, despite a decline in earnings per share from the previous year.
• NOV reported a net income of $119 million or $0.30 per fully diluted share.
• The reduced earnings per share were attributed to a higher effective tax rate and reduced income from the company’s joint venture.

• Olin Corporation’s Q1 2024 earnings indicated a positive long-term outlook for the company, though there are some elements that investors should monitor.
• The company is currently demonstrating an investment-grade balance sheet alongside strong performance across its portfolio.
• CEO Kenneth Lane emphasized his commitment to Olin’s operating model and value-focused commercial approach.

• Chevron Corporation recorded a strong first quarter of 2024, delivering its ninth successive quarter with adjusted earnings exceeding $5 billion and a return of capital employed (ROCE) above 12%.
• The company also posted a more than 10% growth in production compared to the same quarter last year.
• Chevron returned $6 billion in cash to shareholders in Q1 2024, marking its eighth consecutive quarter of returning over $5 billion.

• TotalEnergies, in its Q1 2024, demonstrated firm progress in implementing its two-pillar strategy.
• First, oil and gas production, most notably in Liquid Natural Gas (LNG), aims to responsibly address rising demand through ongoing development.
• Second, investments in integrated power for the future hold the promise of achieving net cash positive status by 2028.

• Crown Holdings, known for its metal packaging technology and serving a wide array of sectors, including beverage packaging, food, personal care and household products, provided a robust first quarter performance of 2024 that showcased several positives as well as negatives for the company.
• As per the latest earnings call transcript, the company announced earnings per diluted share of $0.56, a decrease from the prior year quarter when it was $0.85.
• The adjusted diluted earnings per share were $1.02, lower than the $1.20 in the last year’s quarter.

• Kumba Iron Ore (KIO SJ) is a net cash iron ore pure play on high-grade lump iron ore with a high ROCE of>30%. 
• The stock trades at 6.4x PE/3.8x EV-EBITDA FY24e and a >9% dividend yield, assuming it meets its base dividend commitment of 15.9 bn ZAR. 
• The key risks are the finite mine life of 15 years, which the company will look to extend with capital commitment, and country risk premia as currency depreciation eats returns.

• KOSPI 200 is a Korean blue-chip index that tracks the 200 largest and most-liquid names listed in the KOSPI section of the Korea Exchange (KRX).
• The reference period for the June 2024 index rebal event ended recently. In this insight, we take a look at our final expected ADDs/DELs.
• There has been one change to our list of expected ADDs presented in my last insight (link).

• Dic Corp is a chemical company with a top global market share in products such as printing ink, organic pigments, and PPS compounds.
• DIC recorded FY12/23 sales of JPY1,038.7bn, operating profit of JPY17.9bn, recurring profit of JPY9.2bn, and net loss attributable to owners of the parent of JPY39.9bn.
• On February 13, 2024, DIC Corporation announced revisions to its long-term management targets in DIC Vision 2030.

• Cheniere Energy (LNG) expected to have significant performance catalyst in 2024 with 4Q23 EPS print on 2/22/24
• Sell side has adjusted numbers for 2024 despite recent underperformance
• Anticipated conservative guidance for 2024 sets up positive surprise for investors due to focus on “tariff” type earnings and long-term contracts in place

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Gevo has begun repurchasing shares under the company’s previously announced program.
• The company has so far repurchased 5.5 million shares for $3.7 million, leaving $21.3 million available for repurchases.
• Gevo revised spending on its Net-Zero 1 plant project. 

• 1Q24 production of 8,032 bbl/d had been previously reported.
• The development plan for Block 56 is expected to be submitted to the government by the end of May.
• The associated reserves and resources are expected to be disclosed at that time.

• CPMC Holdings (906 HK) has a pre-conditional voluntary offer from Changping Industrial at HK$6.87 and potentially a competing offer from ORG Technology Co., Ltd. A (002701 CH). 
• Five months after announcing its offer, Changping Industrial obtained regulatory approvals from all except SAMR, SAFE, and the Vietnam Competition Commission. 
• An ORG offer seems unlikely due to a lack of progress in May and timing risk, as the Changping Industrial offer could be unconditional before the ORG obtains regulatory approvals.

• The Adbri (ABC AU) IE considers CRH (CRH US) and Barro’s A$3.20 offer fair and reasonable as it is within its A$ A$3.09-3.53 per share valuation range. 
• The scheme is conditional on FIRB approval, which should be forthcoming as CRH, the offeror, is a Fortune 500 company headquartered in Ireland.
• The offer is attractive, and this is a done deal. At the last close and for the 1 July payment, the gross/annualised spread was 1.3%/8.4%.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Green Energy
• Japfa Comfeed Indonesia
• Medco Energi
• Pakuwon Jati

• The first quarter 2024 earnings for Newmont Corporation presents an operational and strategic snapshot for the company in a balanced manner.
• To lay out the salient attributes and challenges of investing in Newmont: Positively, Newmont executives highlight the company’s robust operational performance for the 1st quarter 2024.
• Despite experiencing the loss of three employees due to on-site incidents, Newmont still looks set to meet its 2024 guidance, thereby proving the underlying stability of its operations.

• Osisko Mining trading at 20% discount to Gold Fields’ joint venture valuation for Windfall gold project in Québec
• Despite initial disappointment and recent sell-offs, Windfall deposit ranks in top 10 globally for size and grade
• Gold Fields’ $900mn investment fully funds development costs with expected low All-In Sustaining Costs, making Windfall a significant player in the global gold market.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Reliance Steel reported robust growth and substantial gains in Q1 2024, supported by their business model’s resilience.
• Their products, markets, and geographical diversity delivered a strong performance for the quarter, demonstrating growth amidst challenging pricing situations.
• The earnings results showed non GAAP earnings per share amounting to $5.30 per diluted share, indicating the organization’s solid profitability.

• TechnipFMC, an energy services company, has reported a strong performance in the first quarter of 2024, with total company revenue of $2 billion and adjusted EBITDA amounting to $257 million.
• The company’s inbound orders stood at $2.8 billion.
• Important to note, substantial input was driven by newly introduced technologies, some of the industry-first stepping stones that aim to unlock opportunities in both new and mature offshore basins.

• Crown Holdings is a global leader in metal beverage can production and diversified packaging businesses
• Beverage can segment is profitable and benefits from long-term growth trends
• Potential for significant upside as investment program winds down, cash flow improves, leverage decreases, and focus turns to returning capital to shareholders

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• In the first quarter 2024 earnings of Dow, Inc., the company demonstrated precision in navigating market complexities and pursuing strategic growth opportunities.
• While acknowledging the potential for economic recovery, they also recognized concerns around inflation, interest rates, and geopolitical tensions.
• Throughout the first quarter, Dow showed increased operating rates to meet the rising demand while keeping pricing consistent and benefitting from decreased feedstock and energy costs.

• Eastman delivered a decent result and is looking forward to the circular platform despite facing some operational and regulatory challenges.
• The company’s Kingport plant, which is focussed on recycling and is the world’s largest chemical recycling facility, has been running satisfactorily with no disruptions to customer supply.
• The complexity of the plant’s technology and process, however, has led to some initial mechanical issues.

• Ssangyong C&E will be excluded in June pre-delisting due to the float rate rule. Replacement will be chosen from the highest market cap existing constituents excluded in the June review.
• Likely owing to the recent expansion of macro variables in the local market, a clear correlation between results and price impact is not observed even at the screening period’s conclusion.
• There’s a chance of price impact closer to the effective date, suggesting potentially more effective basket trading. However, short instrument absence necessitates using market indices as hedges.

• Iron ore continued to lounge around the 117 USD/ton levels, but there is increased optimism for Iron Ore and The China Property/Auto Stimulus Angle 
• Spreads between 65 and 62 widened to 13.8 USD/ton from 12.6 USD/ton last week, and we expect this spread to build further. 
• The street now widely anticipates the China TSF number between 9-15th of May, which is expected to grow in April at 14.5% YoY on consensus estimates to 1.4 trillion Yuan.

• Gravita India (GRAV IN) faced a Qualified Audit Opinion over share sale proceeds’ reporting by its Employee Welfare Trust.
• The dispute centers on whether to record these proceeds in the P&L or Balance Sheet, impacting transparency and financial metrics.
• This dispute reduced the PBT by 7.54% and EPS  by 8.66% decrease in Q4 FY24.

• On the 27 Feb 2024, construction play Adbri (ABC AU) entered into a Scheme Implementation Deed with CRH (CRH US) and 42.7%-shareholder Raymond Barro (Chairman) at $5.20/share.
• Conditions include Adbri’s shareholder approval and FIRB signing off. Optically, it doesn’t appear to be a knockout price. However, Adbri’s share price has laboured since the onset of Covid.
• The Scheme Booklet is now out, with a Scheme Meeting to be held on the 12th June. Expected implementation on the 1 July. IE says fair & reasonable.

• Equinor ASA, a leading Norwegian energy company, showed impressive operational performance in Q1 2023, backed by strong production and an increase in liquid prices.
• Equinor’s team highlighted the adjusted operating income of $7.5 billion, adjusted net income of $2.7 billion, as well as robust cash flow after tax of $5.8 billion.
• Earnings per share were identified at $0.96.

• Southern Copper Corporation performed admirably in 2023 despite facing some challenges.
• The company reported net sales of $9,896 million, a decrease of 1.5% compared to 2022.
• This was primarily due to higher copper and molybdenum sales volumes, increased molybdenum and silver prices, and a reduction in copper and zinc metal prices along with decreased silver and zinc sales volumes.

• Valero Energy Corp had a strong Q1 2024, achieving a net income of $1.2 billion thanks to their team’s ability to maximise output despite having extensive planned maintenance across their refining system.
• A large part of their achievement was due to stable refining margins that were sustained by restricted product supplies, influenced by heavy seasonal refining turnarounds and geopolitical events.
• Furthermore, their diesel demand was unseasonably high, and their gasoline demand was on par with last year’s levels.

• Gridwiz is getting ready to complete its IPO on KOSDAQ in June. Gridwiz focuses on the power demand resource management (DR) business, involving utilities, energy storage system, and solar power.
• The IPO price range is from 34,000 won to 40,000 won. The IPO offering amount ranges from 47.6 billion won to 56 billion won. 
• According to the bankers’ valuation, the market capitalization post listing is expected to reach 285 billion won to 335 billion won. 

• ChampionX (CHX) is an underappreciated business in the oilfield services sector, offering a 10% 2025 FCF yield and potential for annual FCFPS growth of over 10%
• CHX was formed from the merger of two industrial companies’ O&G businesses, making it a higher quality, lower volatile oilfield services company with strong management
• With over 75% of EBITDA tied to production, CHX operates more like a specialty chemicals company and has consistently outperformed peers on key metrics such as ROIC, margins, and FCF conversion

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• ECVT reported first quarter results exhibiting the ability to generate free cash flow during a seasonally slow period of the year. ECVT grew its cash balance by approximately $14.7 million.
• ECVT’s management has yet to change its tune regarding the outlook for the year with expectations there would be pockets of softness
• ECVT reported adjusted EBITDA of $45.5 million compared to our forecast of $46 million. ECVT is expected to show sequential improvement from first quarter levels

• Eni’s first-quarter 2024 earnings showed impressive results with the company reporting pro forma EBIT of EUR 4.1 billion and cash flow from operation of EUR 3.9 billion.
• With a production growth in upstream of 5%, and substantial contributions from Enilive and Plenitude, the company has demonstrated substantial resilience against the broader market downturn.
• The strong cash conversion and disciplined capex have kept capital gearing within Eni’s target range even after the completion of Neptune deal and the share buyback program of 2023.

• Vale S.A. posted solid results for the first quarter of 2024, echoing a promising start with a range of laudable accomplishments amid some challenges.
• The Brazilian multinational showed serious commitment to safety and delivered encouraging results with a 77% reduction in accidents for some critical activities through technological advancements and innovative strategies.
• The de risking strategy furthered with the key Peneirinha dam receiving safety certification.