Energy & Materials Sector

• 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 – Eoflow (294090 KS), 111 Inc (YI US), Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Healius (HLS AU), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU).
• Lowest spreads – Azure Minerals (AZS AU), Tietto Minerals Ltd (TIE AU), Toyo Construction (1890 JP), T&K Toka Co Ltd (4636 JP), Pact Group Holdings (PGH AU), Taisho. 

• The question of how Murakami-san would get out of his stake in Cosmo Energy Holdings (5021 JP) was always a biggie. He likes to sell stock in tender offer buybacks.
• Cosmo wasn’t going to do that for him. They promised dividends and a high payout ratio, but that left the question was how he was going to get out. 
• A semi-obvious solution was to find a corporate partner to buy his stake and today, Iwatani Corp (8088 JP) announced that it had bought 19.86% of Murakami-san’s 20.01% holding.

• Fufeng (546 HK)’s core businesses include food additives such as MSG, animal nutrition, high-end amino acids, and colloid such as xanthan gum. 
• Xantham gum is increasingly becoming popular as millions of people around the world purchase gluten free foods.
• Fufeng’s dividend yield averaged 7.5% annually from 2018 to 2022. Its current dividend yield is about 11-12%. Fufeng is trading at P/E of 2.9x and EV/EBITDA of 1.8x in 2024. 

• The December 2023 review results for ASX indices were announced after the close on Friday 1st December 2023.
• There will be three ADDs and thee DELs for the ASX 200 index. There are no changes for ASX 20, 50, and 100.
• In this insight, we take a look at our index flow expectations, trends in short interest, and the recent trading performance of the names involved in the ASX 200 changes.

• Virtual OPEC+ meeting was held on 30th November after being delayed by five days. Outcome was an increase and extension of supply cuts till Q1 2024.
• WTI rallied 2.5% heading into the meeting but fell 4% shortly after due to scepticism over members following through on cuts and short-term nature of agreement.
• OPEC+ announced that Brazil would join the coalition in early 2024. A move that unites most top crude oil producers in the cartel with major geopolitical ramifications.

• In our October 26, 2023 Int’l Compass we discussed our expectations for a bounce in global equities (MSCI ACWI). So far, that has been the low.
• Then, in our November 2, 2023 report, we discussed the bullish implications of the false breakdown in MSCI ACWI (local currency), before discussing expectations for a year-end rally on Nov.16
• We see a massive opportunity in global gold/silver miners with gold nearing multi-year breakout. Also buy opportunities: Utilities in Europe, UK, and India; Materials, Industrials, Transportation, Real Estate, and Technology

On 22 November, Pan African Resources (PAF) announced that operations to date in FY24 had performed in line with, or better than, expected, with gold production for H124 anticipated to be in the range 94,000–98,000oz (cf 92,307oz in H123). As a result, it increased its production guidance for FY24 to 180,000–190,000oz, which caused us to increase our production estimate in turn by 1.9% (or 3,575oz) to 189,725oz. The change made only a modest difference to our EPS forecasts for FY24 (see Exhibit 2). However, it increases our confidence in those estimates, which are already at the top of a relatively wide range of expectations.

• Back on the 27 January 2023, Jardine Matheson (JM SP) entered an agreement with Shandong Xinjufeng (301296 CH) (XJF) to sell its 28.22% stake in GAPack (468 HK). 
• That sale completed in September.  Last week, XJF requisitioned an EGM to consider appointing five new (& friendly) directors, all-but taking control of the board. 
• CEO and founder Jeff Bi holds 9.65%. The question is: what are his options?

• Siemens Energy plans to bring back the wind business (Siemens Gamesa Renewable Energy) to profitability by fixing quality issues in onshore and driving ramp-up in offshore. Break-even is expected in 2006.
• The restructuring process continues after four years of losses, €2 billion net loss is expected for FY 2024. The top Spanish financials institution have turned off the credit tap recently.
• The visibility on the end of wind losses remains very limited with execution risk, so I would apply 0.9x P/BV and be short the stock, TP €9.76.

• SDRL reported third quarter results exceeding expectations and announcing slight extensions to when near-term contracts would expire.
• There had been minimal news from SDRL to expect contract extensions. SDRL’s peers had been reporting a slowing in contract activity.
• The free cash flow SDRL is generating is being used for stock buy backs with the authorization doubled to a total of $500 million.

• RPPL reported decent Q2FY24 earnings, led by volume growth and margin expansion. Revenue growth was somewhat tepid due to decline in realization led by volatility in raw material prices.
• RPPL is seeing good traction in exports with improving mix of value-added products and enhanced geographic reach. Revenue from exports is guided to triple to INR 30cr+.
• RPPL has also entered into In-mold Labeling (IML) in rigid plastic injection molding products. This could be a game changer for RPPL in terms of growth and target market potential.

• Chevron Corporation delivered a mixed set of results for the previous quarter, with revenues above the analyst consensus.
• The company unveiled a robust quarter marked by formidable earnings, cash flow, and ROCE.
• Solid cash flow facilitated the realization of financial priorities, allowing for the repurchase of Chevron shares exceeding $3 billion, even amidst PDC transaction restrictions.

• ConocoPhillips delivered a mixed set of results in its most recent results, with revenues falling short of Wall Street expectations but above-par earnings.
• In the recent quarter, ConocoPhillips witnessed robust performance, marked by significant achievements across its international portfolio.
• Financially, the company demonstrated significant global and Lower 48 production in Q3, prompting an upward revision of full-year production guidance.

• Albemarle’s results were a major disappointment as the company failed to meet Wall Street’s revenue and earnings expectations.
• However, despite the surge in sales, Albemarle’s net income witnessed a significant decline of 66%, amounting to approximately $303 million, along with a parallel drop in diluted earnings per share (EPS) to $2.57.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• EOG Resources surpassed the revenue expectations as well as the earnings expectations of Wall Street.
• The company has displayed a commendable trajectory, with a 33% increase in production, a 17% reduction in per unit operating costs, and the generation of substantial free cash flow and net income, surpassing $20 billion each.
• These achievements have not only surpassed expectations in production volumes, capital expenditures, and per-unit operating costs but have also empowered EOG to enhance its full-year oil production guidance and diminish its full-year cash operating cost projections.

• CF Industries Holdings delivered a disappointing set of results as the company was unable to meet Wall Street’s revenue and earnings expectations.
• In the third quarter, they experienced a departure from the typical pattern of softened demand and prices in North America.
• This strong demand early in the quarter resulted in an upward trajectory for nitrogen prices, with urea barge prices in New Orleans rising from below $300 to over $400 per ton in early September.

• Enterprise Products Partners delivered a mixed result in the recent quarter, with revenues above market expectations but failed to surpass the analyst consensus regarding earnings.
• Navigating through low natural gas and NGL prices, Enterprise achieved significant volumes in its midstream system, transporting 12.2 million barrels of crude oil equivalent per day.
• Improved quality in the Eagle Ford crude oil system facilitated sales and enhanced crude prices.

• Leader Energy Holdings (1814173D MK) is looking to raise up to US$215m in its upcoming Malaysia IPO. 
• Leader Energy Holdings (LE) is an independent power producer (IPP) primarily engaged in the development, ownership, O&M of power assets and projects.
• LE’s revenue has grown on the back of higher power generation as well as coal price increases over the track record period, which drove profitability up. 

• ECVT held an investor day asserting the Company is in a growth mode through multiple product lines, including those for emerging markets
• ECVT has set the goal of achieving as much 8 percent a year organic adjusted EBITDA growth through 2028.
• The growth would come from the current business growing and taking market share and ECVT having commercially available products for emerging new end markets.

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.

• Medco Energi
• Yankuang Energy Group

• The Hang Seng Index is down 1 week and going towards Q2 support at 17098. Not yet OVERSOLD, but it could be soon, WEEKLY and MONTHLY.
• Once the OVERSOLD states begins, it’s time to go LONG: the index has been mildy downtrending for 3 months, it looks like it could be bottoming.
• If the index reaches below 17112.48 (October’s MONTHLY Close), it would be a good area to go LONG, the probability of a rally in December, from there, would be good.

• T&K Toka Co Ltd (4636 JP) has satisfied the precondition of selling its Hangzhou Toka Ink stake to hold less than 30%. The offer is targeted for early January.
• Due to Dalton’s stake building, the shares have consistently traded above Bain’s pre-conditional JPY1,400 offer. Bain can either launch the tender with unchanged terms or bump the offer.
• A bump is likely as, despite the irrevocables, satisfying the minimum acceptance condition is challenging. The Board will struggle to recommend the offer if the shares remain above terms. 

• In this insight, we discuss the upcoming end of lockup in December for Ecopro Materials and why we believe Ecopro Materials’ share price will be much lower in 6-12 months. 
• A combination of the potential inclusion in KOSPI Fast Entry plus the temporary ban on short selling of stocks in Korea has helped to push up Ecopro Materials’ share price.
• However, despite this sharp share price run-up, we think the risk-reward is horrible on this stock in terms of bigger downside risk in the next 6-12 months. 

• Elastron SA, is a Greece-based company engaged in trading and processing of steel products.
• It operates manufacturing plants and warehouses in the Asporopyrgos area, Attica, Greece.
• Its product lines are divided into four divisions: Flat Steel Products, Long Steel Products, Core panels which include polyurethane and mineral wool panels and finally dry wall profiles.

• There are 14 changes for the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) at the upcoming rebalance that will be implemented at the close of trading on 8 December.
• While most changes are in line with forecasts, there are some stocks that have not been added or deleted as the index committee has used their discretion.
• The adds outperformed the deletes in the first half of the year with performance staying stable over the second half of the year. Position for outperformance ahead of implementation.

• 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  Eoflow (294090 KS), 111 Inc (YI US), Taisho Pharmaceutical Holdin (4581 JP), Healius (HLS AU), Irc Ltd (1029 HK), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU).
• Lowest spreads – Azure Minerals (AZS AU), Toyo Construction (1890 JP), Tietto Minerals Ltd (TIE AU), Pact Group Holdings (PGH AU), IJTT Co., Ltd. (7315 JP). 

• There are 50 changes a side for the CSI Smallcap 500 Index at the upcoming rebalance that will be implemented at the close of trading on 8 December.
• There are 15 stocks that overlap between the CSI 300 Index and the CSI Smallcap 500 Index and there will be opposing flows from passive trackers.
• One way turnover at the rebalance is estimated at 9.56% leading to a one-way trade of CNY 6.04bn. Industrials and Information Technology gain index spots while Materials and Financial lose.

• In August, T&K Toka Co Ltd (4636 JP) announced a TOB by Bain with a clearance hurdle of selling a 3.51% stake in Hangzhou Toka Ink (SH:688571) before launch.
• Friday, the company announced that they put up a 3.6% stake for auction, with the sale to be executed that day. That likely triggers an early launch of the TOB.
• The TOB Price is offensively cheap at 0.63x “official” book, and 0.53x book adjusted for equity affiliate price. The shares have traded through terms since launch. This should get bumped.

• Now the time decay to expected approvals and tender offer start for JSR Corp (4185 JP) are getting steep. Time to Fight The FUD.
• The accretion trade is going to plan as Prosus NV (PRX NA) sells Tencent (700 HK); and Prosus and Tencent both back their own shares.
• Hollysys Automation Technologies (HOLI US)‘s board capacity to sabotage calling an SGM has finally run out of puff.

• 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 – Asahi Group Holdings (2502 JP)‘s US$1.3 billion secondary offering; ZEEKR (ZK US), Tata Technologies (TATATECH IN) and Cainiao Smart Logistics Network (1437124D HK) IPOs
• Event-Driven developments – JSR Corp (4185 JP), Taisho Pharmaceutical Holdin (4581 JP), Origin Energy (ORG AU), Orecorp Ltd (ORR AU), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US). 

• I tally 39 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal discussed on Smartkarma this week: Taisho Pharmaceutical Holding (4581 JP)‘s MBO. 
• Key updates on:  Origin Energy (ORG AU), Healius (HLS AU), OreCorp (ORR AU), Haitong Int’l (665 HK), JSR Corp (4185 JP), Eoflow (294090 KS), T&K TOKA, and Hollysys (HOLI US).

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).

We assess Techem’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.

International energy services provider Techem offers consumption-based billing services in the sub-metering industry.

• On the 6 August, Canada’s Silvercorp (SVM CN) offered shareholders of Western Australian-based miner OreCorp (ORR AU) A$0.15 in cash and 0.0967 new Silvercorp shares, by way of a Scheme.
• The Scheme Booklet was despatched on the 6 November with a Scheme Meeting on the 8 December. The IE viewed terms as fair. 
• Silvercorp has now bumped the cash terms to $0.19/share from $0.15/share. All other terms remain unchanged. Tim Goyder (5.14%) is now supportive. Done and done. 

• Q1-2 FY3/2024 results were in line with revised company guidance, highlighting progress in growing prioritized businesses in the Strategic Areas segment such as Healthcare.
• However, the company is experiencing headwinds due to weakness in demand from the electronics sector and market divergence for EV battery cathode materials.
• Volumes have also fallen more than anticipated YoY in the legacy Automotive Catalyst Areas. 

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Borr Drilling’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial”, but Disclosure is “Weak”.
• Borr Drilling is one of the largest pure-play jack-up rig operators, with among the youngest and largest fleets in the jack-up drilling market segment.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Peru LNG’s ESG as “Adequate”, in line with its Social and Governance scores. The company has a “Weak” score for the Environmental pillar. Controversies are “Immaterial”, but Disclosure is “Weak”.
• Peru LNG (PLNG) owns and operates a 408 km (254 mile) high-pressure 34-inch natural gas (NG) pipeline that connects the TGP gas pipeline (which transports natural gas from the Camisea Fields) to the company’s liquefaction facility in Peru (the Pampa Melchorita plant; capacity of 4.45 mn tonnes per year), including a related marine terminal used to export liquefied natural gas (LNG).