Energy & Materials Sector

• Ocean Power Technologies reported 2QFY24 revenue of $0.9 million, up 193% Y/Y from $0.3 million in 2QFY23, driven by sales of WAM-V autonomous vehicles, the contract with the Department of Energy (DOE), and an increase in strategic consulting services.
• The previous quarter had revenue of $0.2 million from leased boats.
• The company reported 2QFY24 gross profit of $0.5 million, compared with a profit of $39,000 in 2QFY23.

• STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
• In this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the March 2024 index rebal event.
• There could be up to four index changes. Some of these are high-conviction changes and some are low-conviction changes.

ArborGen’s H124 results highlighted contrasting trading conditions with challenges in the US offset by a strong performance from Brazil. However, despite the short-term issues, ArborGen remains in prime position to address increasing demand for its seedlings and to continue investment in genetic improvement to drive the switch to sales of higher-value, higher-margin seedlings in both markets. While this process plays out, underlying EBIT is set to increase fivefold in the next two years as we expect gross margins to return to and then exceed historical levels. However, the recent US weakness has led us to trim our DCF valuation from NZ$0.49/share to NZ$0.44, still implying material upside.

• In what I viewed as one of the cleaner deals, CPMC Holdings (906 HK) announced a pre-conditional Offer from SASAC and the National Council for Social Security Fund of China.
• A decent premium to undisturbed, a low tendering threshold, and a large shareholder giving an irrevocable – this looked done. 
• Now ORG Development Limited/ORG Technology Co., Ltd. A (002701 CH), holding 24.4% of shares out, is mulling a competing conditional general cash Offer. One of these Offers will get up.

• CPMC Holdings (906 HK) disclosed that ORG Technology Co., Ltd. A (002701 CH), the second-largest shareholder, is considering a competing voluntary conditional general cash offer.
• It is rare to bid against an SOE bidder. ORG likely has implicit SOE support to launch a competing offer due to the need for Chinese regulatory approvals. 
• The possible scenarios suggest Mr Zhang Wei is the winning bid’s kingmaker. Mr Wei sold down 260K shares at HK$6.35 on 8 December, indicating a willingness to exit.

• CPMC Holdings (906 HK) may potentially receive another takeover proposal from ORG Technology Co., Ltd. A (002701 CH) which has a 22% market share in the industry.
• ORG has every reason to launch such a proposal and given its operational and financial performance, it looks to have the capability to realise good synergy.
• CPMC still looks inexpensive relative to the industry based on its PER valuations. No matter what, the 4th largest player Sunrise Group (002752 CH) will now become interesting.

• REPT BATTERO, a Chinese Li-ion battery manufacturer, announced terms for its IPO in Hong Kong. The initial public offering price is expected to be between HK$18.20 and HK$20.60 per share.  
• The company plans to raise ~HK$2.1B of net proceeds at HK$19.40/share. REPT BATTERO will begin trading on the Hong Kong Stock Exchange under the stock code 0666 on December 18.
• I have a negative view of the upcoming REPT BATTERO IPO and expect the stock will underperform during the first trading day as a publicly listed company. 

• KKR takes advantage of a the depressed share price of Smart Metering Systems (SMS LN)  that operates a stable, cash generating and misunderstood defensive business with revenues linked to inflation.
• KKR offers 955p (+8.31875p/share declared divi), a 40% premium 40%, 15x EV/24e EBITDA. 0.1% irrevocable undertakings is negligible (top ten shareholders own c.54%). A counteroffer and/or sweetening is possible.
• Spread is 0.45%/1.52% (gross/annualised, assuming settlement by 29 March, including declared dividend). Turnover has been high since announcement. Risk/return seems attractive. Recommendation is long SMS LN.

• There are no constituent changes for the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in December, but there are float and capping changes for some stocks.
• Estimated one-way turnover is 2.8% and that leads to a one-way trade of US$122m.
• There are 13 stocks with over US$5m to trade from passive trackers, though the impact is not very big on the stocks.

• Albemarle Corp (ALB US) will replace ioneer (INR AU) in the VanEck Rare Earth/Strategic Me (REMX US) at the close on 15 December.
• Constituent changes, float changes and capping changes result in an estimated one-way turnover is 13.4% and in a one-way trade of US$50m.
• The mainland China stocks in the index have been the biggest laggards and this rebalance will reduce their weight in the index significantly.

• SOUTHBOUND flows showing reversion tendencies continues for a second or third week after weeks of momentum. 
• SOUTHBOUND saw HK$11.2bn of INFLOWS on the week, a chunk of which was net buys on HK-listed ETFs, but Hs underperformed their A counterparts in the H/A pairs once again. 
• High-Div SOEs again saw action. This time with both CNOOC Ltd (883 HK)andChina Mobile (941 HK) seeing strong net buying as a percentage of volume. Tech was sold.  

• Back in September, plastic products manufacturer Pact Group Holdings (PGH AU) announced – and subsequently rejected – an unconditional off-market takeover of A$0.68/share from its major shareholder, Raphael Geminder.
• After a couple of Offer extensions, Geminder has now bumped its bid to A$0.84/share (a 24.4% premium to undisturbed), and declared terms final. Pacts is supportive of the revised offer. 
• This is done and will trade at terms through to the Offer completion. 

• Merdeka Battery Materials (MBMA IJ) was listed on 18th Apr 2023, when it raised around US$591m in its Indonesian IPO. Its eight-month lockup will expire on 11th Dec 2023.
• MBMA owns one of the world’s largest nickel mines in terms of contained nickel at the Konawe Nickel Mine. 
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – REPT BATTERO Energy (1998104D CH) IPO and Denso Corp (6902 JP)‘s US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback.
• Event-Driven developments – Benefit One Inc (2412 JP), Tokyo Rakutenchi (8842 JP), CPMC Holdings (906 HK), Weiqiao Textile Co (2698 HK), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US). 

Quadrise has announced final test results for potential low-carbon marine fuels. The tests demonstrated that bioMSAR blends containing Vertoro’s crude sugar oil (CSO) reduced carbon dioxide (CO2) emissions by over 30%, while increasing engine efficiency by up to 7% and significantly lowering emissions of nitrogen oxide (NOx) and carbon monoxide (CO) compared to diesel. Formulations incorporating biofuels containing waste-based methyl esters lowered CO2 emissions by up to 45%, increased engine efficiency by up to 7% and reduced NOx and CO emissions compared to diesel, providing a new pathway to bioMSAR Zero.

• CPMC Holdings (906 HK) has announced a pre-conditional voluntary offer from Changping Industrial at HK$6.87 per share, a 32.1% premium to the undisturbed price (16 August). 
• The pre-condition mainly relates to Chinese approvals. The offer is conditional on the offeror and concert parties representing more than 50% of voting rights.
• The 50% minimum acceptance condition should be met due to COFCO’s irrevocable and the second-largest shareholders’ past dealings with COFCO. At the last close, the gross spread was 6.0%.

• Boss Energy (BOE AU) is looking to raise up to A$205m (US$135m) through its primary placement. The proceeds will be used to fund an acquisition and replenish working capital. 
• The deal will be a large one to digest, at 19.7 days of three month ADV and 14% dilution.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• TPL has gone through a series of changes within its Board of Directors but that has not been enough to squash investor concerns
• The Delaware Court deciding in favor of TPL in a shareholder lawsuit would allow the Board to increase the number of authorized shares of common stock
• TPL’s Board now has ten members instead of nine last year. The Board has also seen three members turnover giving the Board a total of four fresh members

• Packaging play CPMC Holdings (906 HK) has announced a pre-conditional Offer from SASAC and the National Council for Social Security Fund of China.
• The joint offerors have offered $6.87/share, an okay 32.1% premium to last close. Pre-cons involve the standard PRC regulators. The Offer itself is contingent on a 50% acceptance hurdle. 
• China Foods (506 HK) has given an irrevocable for its 29.7% stake.  This will turn unconditional. The timing of the Offer is interesting as a VP is under graft investigation.

• Empire Energy Group Limited (ASX:EEG) is an oil and gas producer/developer, with onshore Northern Territory (NT) and US oil/gas production assets.
• EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin.
• The investment case is building further with the acquisition of the Rosalind Park Gas Plant to provide an immediate, low-capital and operating-cost processing option with nameplate capacity above the Carpentaria Stage I development model. 

• Evolution Mining (EVN AU) is looking to raise around US$350m to partially fund its acquisition of an 80% stake in the Northparkes copper and gold mines.
• While the acquisition wasn’t explicitly flagged, the firm has guided that it had been eyeing acquisitions into gold/copper pathways. Thus, we would argue that the deal is somewhat well flagged.
• That being said, at 14 days of three month ADV, the deal isn’t a particularly small one for the firm to digest.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Vallourec’s ESG as “Adequate”. While the Governance, Environmental and Social pillars are “Strong”, the company’s “Material” Controversies weigh on the overall score. Disclosure is “Strong”. 

The Metals Company’s (TMC’s) pioneering journey towards mining polymetallic nodules from the deep sea continues. There are inevitable hurdles to surpass, such as Greenpeace’s recent protests, which were a minor disturbance. With a further funding option now in place the company is well positioned to deliver a crucial milestone, submission of an exploitation application in 2024 as planned.

• CPMC Holdings (906 HK) is currently suspended from trading. We think the announcement is likely to involve China Baowu Steel acquiring all stakes from its largest shareholder COFCO.
• There are benefits to be realised as Baowu also owns a packaging A-share Shanghai Baosteel Packaging-A (601968 CH). CPMC’s 1H23 result is very solid with good margin expansion.  
• Despite a 61.5% rally YTD, CPMC does not look expensive at 10.9x and 9.9x PERs for FY23 and FY24. These are levels at discounts to peers which are mostly A-shares.