Energy & Materials Sector

• Sanil Electric (062040 KS), a Korean industrial transformer manufacturer, is seeking to raise up to US$165 million.    
• The IPO is a pure primary raise of 7.6 million shares at an IPO price range of KRW24,000-30,000. Book building will run from 9 to 15 July.
• The bull case rests on US-led rapid revenue growth, high barriers to entry, good revenue visibility, improving margins, top-quartile margin performance and modest leverage.

• Occidental Petroleum is a quality oil and gas operator focusing on the Permian Basin, available at a discounted price for investors
• The company has undergone strategic changes, selling off non-core operations and refocusing on core assets in the Permian Basin
• Occidental Petroleum has improved management and technological advancements in the Permian Basin, leading to a projected value of $100 per share by 2026

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.

• We visited some paint dealers representing Asian Paints (APNT IN) and Akzo Nobel India (AKZO IN)  to understand the current competitive intensity in the industry.
• While three months is too short of a time frame to observe a significant change in industry structure, current signals seem to favor the incumbent. 
• Opus may influence dealers and painters, but what if consumers simply prefer APNT?

• Copper continued its slide on concerns about inventory and the commencement of new projects and delivered a -9% return for the month. 
• Check out our initiation, Copper Primer: What We Like About Copper And What to Play, and equity initiation Southern Copper: In a League of Its Own 
• We like the long copper-short gold trade and explore iron condors in the copper Freeport Mcmoran (FCX US) . 

• Commercial Metals Company (CMC) recently shared the outcomes of its third quarter fiscal 2024 results, presenting a resilient financial and operational performance amidst the complexities of the steel industry and broader market uncertainties.
• On the positive side, CMC reported strong core EBITDA and margin results, with performance levels well above the company’s historic averages.
• The earnings resilience can be attributed to positive shifts in the company’s business structure and the steel industry, notably marked by CMC’s strategic acquisitions that have bolstered its market leadership and enhanced the operational efficiency of its asset base.

• With the development of new and renewable energy, transmission and distribution network bottlenecks are worsening in many countries, and there is a strong demand for new transmission and distribution networks.
• China is virtually excluded from competition for the US market. This situation has resulted in increased new orders for companies such as Sanil Electric. 
• Our base case valuation of Sanil Electric is target price of 58,593 won, which is 95% higher than the high end of the IPO price range (30,000 won).

• Southern Copper (SCCO US) in the equity space is the best way to play bullish copper long-term with its long-term (10-year) ROCE of >22% 
• With low-cost production assets in Peru and Mexico, the company has managed EBITDA margins of> 39% across the cycle (last 15 years) and averaging 50%.
• A 100% payout results in a dividend yield of 3.5%. We believe there is a price for everything, and in the event of a 20% correction, it would be attractive.

• RPPL executed well in FY24 with sales volume growth at 18% YoY. However, sudden and significant contraction in raw material prices dampened FY24 sales value growth to just 9% YoY.
• Exports sustained its quarterly run-rate of INR 10cr+ in Q4FY24, resulting in FY24 aggregate exports sales at INR 42cr. Exports contributed 15% of revenues in FY24 vs 5% in FY23.
• RPPL is also making good progress with its new initiatives. Its Olive Ecopak venture began commercial production in Mar 2024. Its injection molding segment is also scaling up well.

• Jyoti Resins and Adhesives (JRA IN) engages in manufacturing of synthetic wood adhesives under ‘Euro’ brand and claims to be the second largest player in its respective market.
• While on ground, Euro has gained good traction and has received positive feedbacks, there are however several takeaways noticed on the forensic end.
• These include Lack of clarity on revenue figures, low FA base, lack of disclosures of important accounting policies such as leases and customer rewards, etc.

• JEV announced plans to separate its Hydrogen Platform into a separate public company (SpinCo), potentially via a spin-off . The parent will retain the oil & gas business.
• The spin-off makes sense given the lack of synergy between the businesses. The transaction provides each business with access to equity and debt capital markets to fund their growth strategies.
• We anticipate the spin-off to be  value accretive for shareholders. We expect re-rating as the green energy business will receive higher multiple compared to the hydrocarbon assets.

• Esseco, an Italian manufacturer of chlorine and sulfur-based chemicals,  has made a competing all-cash offer at €3.84/share, cum dividend, valuing 100% of Ercros (ECR SM)  at €351 million.
• Putting 25e EBITDA of €70 million (source: IBES consensus), on the median of comparables, the stand-alone fair-value per share of Ercros is €4.4. Neither bid accounts for synergies. 
• The strategic fit of Ercros for both bidders and its intrinsic value suggest a likely bidding war, given the scarcity of listed companies similar to Ercros. Reiterate long.

• Boise Cascade’s first quarter of 2024 shows a balance of strengths and areas of concern reflecting the complex dynamics in the wood products and building materials markets.
• Starting with the positives, Boise Cascade reported a revenue increase of 7% reaching $1.6 billion, coupled with a rise in net income to $104.1 million, up from $96.7 million in the prior year.
• The firm’s earnings per share also increased, reaching $2.61 compared to $2.43 in the previous year, primarily driven by a notable upswing in single-family housing starts which grew by 27%.

• Tesla Tops Storage: Tesla dominates North American battery storage (25% market share) as renewables rise, deploying a record 4,053 MWh in Q1 2024.
• Explosive Industry Growth: U.S. battery storage market projected for a staggering 30.5% CAGR until 2030, driven by clean energy transition.
• Forefront of Innovation: CATL revealed TENER, a mass-producible energy storage system with zero degradation for five years achieving 430Wh/L density. Innovation to continue fueling growth.

• Top miners like BHP Group Ltd (BHP AU) and Teck Resources (TECK US) are signaling their long-term bullish copper intent through their recent corporate actions. 
• Copper may experience short periods of oversupply, but its long-term outlook makes it one of the best commodities we cover in terms of return potential. 
• Our best plays in the copper space are Southern Copper (SCCO US), Teck Resources (TECK US) and Freeport Mcmoran (FCX US)

• An unexpected increase in US crude oil and gasoline inventories pushed oil prices down but the ongoing conflicts capped the downside.
• Growing natural gas output dampens Henry Hub’s uptrend. Europe will ban transshipments of Russian LNG in its ports from March 2025.
• Chevron’s Wheatstone LNG facility in Australia resumed full production. Wells Fargo lowered its target price on Shell but raised it on Occidental.

• Serica Energy is a ~US800 mm market cap company with >40 mboe/d production and 140 mmboe of 2P reserves in the UK North Sea.
• The investment case is about value and generous shareholder distributions.
• The strategy is to maximize the value of two key producing hubs, depending on the UK’s tax policy, to develop a third one at Buchan Horst and to grow via M&A.

• 2023 production to date was 43,781 boe/d. very close to our expectations of 44.3 mboe/d. 
• Production in June at the Bruce Hub of 25,771 boe/d was particularly strong following the recent Light Well Intervention Vessel campaign.
• This partially offsets the low production in May at the Triton Hub following a trip of a compressor that shut down production for three weeks (the production at Triton has been restored since then).

• LVG has received the tax assessment from the Tanzanian Revenue Authority, one of the final steps from the acquisition of the Imwelo Mining License.
• Once the Mining License is officially transferred, it will trigger the second tranche of investment from the TAIFA group.
• Barrick Gold continues to explore the area surrounding the Tembo licenses, exciting us as LVG will share in Barrick’s success.

• Production at Wassana has been suspended following the discovery of a crack within one of the MOPU’s steel jack-up legs that could pose a risk to the structural integrity of the MOPU.
• The company is conducting further inspections and analysis to plan next steps.
• Further visibility is expected in the coming weeks.

Pan American Silver (PAAS) recently held an investor day focusing on strategy, key projects, exploration, ESG and capital allocation. In this note we summarise key takeaways from the event. Our valuation and financial estimates remain unchanged ahead of the Q224 results in August.

• The FY23 operating cashflow after interests of ~US$9 mm was above our forecasts (US$7 mm) due to change of working capital.
• We expected a negative change of working capital given (1) Zephyr had to make advance payments for the remedial of the State 36-2R well ahead of being reimbursed by the insurance and (2) the fact that the proceeds of the production for the Slawson wells were not received until part way through 1H24.
• Zephyr’s revolving credit facility (RCF) has been redetermined with an unchanged borrowing base (compared to December 2023) of US$15.15 mm.

• The original trade was discussed at end-April in Tax-Loss Selling in Australia 2024 – Historical Analysis and A Trade Basket then updated here and here. 
• That has done OK. The LIQUID basket has delta neutral performance of +8.4% over 2mos; LIQUID+LESSLIQUID +7.2%; If one did a mixed basket (3x L+LL + 1x Illiquids) it’s +8.6%.
• Now it is time to reverse the trade, buying the basket you were short, and running it against index for the next 6-8 weeks.

• The MV J-Gold Miners index represents the performance small-cap gold and silver mining companies listed around the world.
• This index is reviewed semi-annually in March and September. During these reviews, names can be added or deleted from the index.
• In this insight, we take a look at the potential ADDs and DELs and our flow expectations for the index rebal event in September 2024.

• On 24 June, Covestro AG (1COV GR) confirmed it has decided to enter into concrete negotiations with ADNOC regarding a potential transaction at an indicative €62/share (9.6x EV/fwd NTM EBITDA).
• Covestro is trading at 8x (vs. 6.5x median of peers). To justify €70/share (sought last December), Covestro should overdeliver, but analysts and market are somehow skeptical about that.
• Considering a takeout price of €62, gross spread is 12.1% and the shares are pricing a 32.5% probability of deal completion.

• In APA Corporation’s first-quarter 2024 financial and operational results, the performance seemed rather mixed.
• In terms of production efficiency, APA Corporation reported a notable 16% increase in U.S. oil volumes compared to the same period last year, primarily driven by its operations in the Permian Basin.
• This marks the fifth consecutive quarter where the company has met or exceeded its U.S. oil production guidance, underscoring its ability to maintain production efficiency consistently.

• The work-over programme has delivered a production increase of 180 bbl/d from six wells at a total cost of US$0.36 mm.
• This represents an average increase of ~30 bbl/d, which is 50% above management’s expectations (20 bbl/d).
• The overall costs are on budget.

• Our base case valuation of Sanil Electric is market cap of 1.8 trillion won or target price of 58,593 won (95% higher than the high end of the IPO price).
• Sanil Electric has higher sales growth, operating margins, and ROE than the comps. 
• We estimate Sanil Electric to generate sales of 283.4 billion won (up 32.1% YoY) and operating profit of 79 billion won (up 69.6% YoY) in 2024. 

• A slowdown in China’s property and manufacturing sectors along with high refining ouput has led to a significant increase in copper inventories, contributing to short-term demand concerns.
• Major copper miners face production challenges, risking future supply deficits amid growing demand from the photovoltaic and EV industries.
• Asset managers have reduced their long positions in copper due to near-term market conditions, reflecting a cautious outlook on immediate price movements.

• Semiconductors (SMH,SOXX,NVDA,AVGO) have been leadership since late-2022, but they’re extended and starting to see profit taking as market participants rotate into other laggard areas of the market (especially Energy).
• The question is whether this new trend lasts a few days, or if this is the start of longer-term trend.
• If there will be any lasting rotation away from Technology/semiconductors, SPX and QQQ would need to break strong short-term supports at 5370-5380 and $468-469, respectively. Until then, Tech/semis remain leadership

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

• Ovintiv’s first quarter of 2024 showcases a positive momentum, achieving net earnings of $338 million and generating substantial free cash flow of $444 million.
• The company’s performance exceeded its initial targets, with cash flow per share standing at $3.80, surpassing consensus estimates.
• Encouraged by strong productivity and an advantageous oil price environment, Ovintiv raised its production guidance for the full year to about 206,000 barrels per day for oil and condensate, maintaining its capital expenditure forecast at $2.3 billion.

• Pembina Pipeline Corporation commenced 2024 with robust financial and operational performances, showcasing a positive shift as evidenced in the latest quarterly outcomes.
• The company posted a record adjusted EBITDA of CAD 1.044 billion for the first quarter, marking a 10% year-over-year increase.
• This financial uplift was primarily fueled by heightened activities across Pembina’s pipelines and facilities, alongside improved market conditions contributing to favorable product spreads.

• Teck Resources Limited presented their first-quarter 2024 earnings with mixed results and robust strategic endeavors, reflecting a complex but promising operational environment.
• The company successfully completed all major construction at QB including the ship loader and molybdenum plant, marking a significant step in enhancing their production capacity.
• The completion of these facilities aligns with Teck’s strategic shift towards expanding its copper production capabilities, a pivotal move given the looming global demand associated with the transition to a low-carbon economy.

• Cheniere Energy, Inc. started the fiscal year 2024 strongly, boasting robust performance across several operational and financial metrics.
• The quarter witnessed solid financial output, consistent operational excellence, and significant progress in strategic growth projects.
• However, Cheniere also faced challenges due to external factors such as weather impacts, which exerted slight pressures on operational efficiency.

• The Williams Companies discussed its Q1 2024 results, underscoring a robust quarter with notable operational, financial, and strategic achievements.
• The company reported a noteworthy 8% year-over-year increase in EBITDA to $1.934 billion, despite challenges such as a 25% decline in natural gas prices and milder winter weather.
• This performance illustrates the strength and resilience of The Williams Companies’ core business, independent of the fluctuating commodity price environment.

• Investing in copper and copper miners represents a significant opportunity for investors over the next ten to fifteen years.
• But the market is more complicated than most believe, and success will require not only an understanding of the entire supply chain but also a willingness to be active.
• In this post, we look at the role smelters play in the copper value chain.

• Kama Holdings (KHL IN)is available at 80% discount to its NAV.
• Kama Holdings (KHL IN) is Holding company of SRF Ltd (SRF IN), which has tailwind across segments.
• If the discount were to narrow from 81% to 56%, the price of Kama Holdings (KHL IN) could potentially double, assuming all other factors remain constant.

• US oil rig count falls to 485 as of the week ending on 21/June, its lowest since January 2022.
• US oil and gas rig count is falling as producers prioritize shareholder returns over increasing output.
• Rising labour and equipment costs along with macroeconomic uncertainties further discourage producers from adding rigs.  

• Fund managers recently reduced their broad commodity position as well as energy position, compared to last month, according to the latest BofA survey.
• Compared to the long-term z-score, fund managers are now heavily under-positioned in energy but close to neutral positioned in broad commodities.
• In a recent note, Goldman Sachs explained their views about commodities if inflation would re-accelerate again – or in detail beat the market estimates and lead to an inflation upside surprise.

• The largest player in Asia in the offshore oil services sector with limited competition
• Business dynamics trending up as offshore exploration is the focus of many energy majors
• Recent sell-off due to concerns over Aramco drilling delays provide a good entry point

• Chariot has signed Heads of Terms with Vivo Energy for the future offtake from the Loukos onshore licence where natural gas has been encountered at Dartois.
• Up to 3 mmcf/d would be initially sold to the CNG midstream business under a long-term gas sales agreement.
• Vivo intends to design, fund, construct and operate a CNG plant and virtual distribution network to transport natural gas from a number of sources to existing and new industrial customers in Morocco.

• RaaS Research Group has published a report on Santana Minerals (ASX:SMI) ahead of the company presenting at the Sydney Mining Club on July 4.
• SMI is developing the Bendigo-Ophir gold project in the Otago region of New Zealand.
• The project has a combined mineral resource estimate of 37Mt at 2.1gpt for 2.5Moz of gold using a cut-off grade of 0.5gpt.

• RaaS Research Group has published a report on Ballymore Resources ahead of the company presenting at the Sydney Mining Club on July 4.
• BMR is an exploration company with a portfolio of projects across northern Queensland which range from early-stage target generation and discovery through to resource delineation.
• BMR’s most advanced asset is the Dittmer project located ~20km west of Proserpine in which the company has identified probable extensions to the previously mined orebody at depth and down plunge.

With the successful Samsung litigation now in the rear-view mirror, Nanoco’s focus will be fully on building the business as a developer, manufacturer and licensor of nanomaterials. With its extensive expertise in quantum dots, validated IP and high-volume manufacturing facilities backed up by a strong balance sheet, we believe that the business has a robust platform for growth. Partnerships with STMicroelectronics and an Asian chemicals supplier position Nanoco strongly to participate in the anticipated adoption of infrared sensors in handsets and a wide range of other devices. If all goes to plan, there could be an inflection in revenues from late FY25 or FY26. We believe the FY24e EV of £15m significantly overlooks Nanoco’s commercial potential and the value of its validated IP.

• Amplify Energy has been praised for its quality asset base in recent write-ups
• Despite a rise in stock price, enterprise value has only seen modest increase due to debt repayment efforts and improved reserves
• Author believes Amplify Energy is currently undervalued with potential catalysts in the near future; will focus on value of Beta and management’s planned actions.

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.

• The MMG (1208 HK) rights, designed to raise US$1.15bn to pay off loans to the parent for the purchase of a large copper asset, start trading 24 June 2024. 
• There is some risk up for grabs, and it is likely to trade according to standard Hong Kong Rights Trading Dynamics. Shorts are down somewhat, but covering should be expected. 
• There is path-dependency to the Rights Trading, and while they trade for 7 trading days through Tuesday next, one should expect the volume to trade this week. 

• On 4 June, MMG (1208 HK) announced plans to raise HK$9.1bn (US$1.2bn) through 2 rights shares for every five existing shares rights offering, with a rights price of HK$2.62.
• Since the rights issue announcement, MMG shares have declined by 16.2% to the undisturbed price and by 8.0% compared to the TERP of HK$3.48 per share. 
• MMG’s trading pattern has diverged from Link REIT/Yuexiu’s rights trading due to the statement on 18 May that the Peruvian mine is not liable for a 30% withholding tax.

• According to Graph 1, during the period February 28th , 2024 – May 31st , 2024, a mixed trend was reflected in the prices of crude oil futures amid fluctuations.
• During the period under consideration, there was a notable increase in the price of crude oil until April 8th , 2024, whereas thereafter crude oil prices followed a downward trend returning to the levels seen at end of February 2024.
• The MA- 10 was recorded to perform higher than MA-20 from the beginning, whereas on April 23rd the MA-20 took over and started trading above the MA 10 until the end of the period under consideration.

• We like Vale (VALE US) for its exposure to high-grade iron ore (95% of EBITDA) and capital return discipline, with a current dividend yield of 8% and 3.5x EV-EBITDA. 
• The cash flows from the iron ore business could be used to invest in base metals, such as copper, nickel, etc., to enhance the portfolio. 
• The key risk remains the overhang from the Mariana Dam disaster being settled for  ~25.7 billion USD (vs. the current market cap of 50 billion USD). 

• The stock price has corrected to the anticipated level and rebounded
• Dates announced for acceptance and payment for the rights issue
• There may be more weakness once the rights shares start  trading

• The gap between OPEC and IEA’s oil demand forecasts widened: OPEC kept its 2024 forecast at 2.25m bpd, while IEA lowered its forecast to 960k bpd from 1.1m bpd.
• Europe’s attempt to cut Russian LNG imports grows stronger, as the French Senate Committee recommends cutting Russian dependence.
• Since 17/June, Energy majors began recovering. Berkshire increased its holdings in Occidental, while Shell expanded its LNG market access by acquiring Pavilion Energy.

• RaaS Research Group has published an update report on purpose-led proptech Rent.com.au (ASX:RNT) following its fully-underwritten entitlement offer to raise $2.5m at $0.02/share, with one quoted option for every two shares issued.
• Separately and on June 3, RNT provided a trading update in which it announced that RentPay’s customers at the end of May were up 64% to 9,271.
• We have incorporated the capital raise in our forecasts, but having already modelled an additional $2.5m raise in H2 FY25, the impact to our forecasts is only due at the EPS line.

• SK Group plans to merge SK Innovation and 90%-owned SK E&S by month-end. Chosun Ilbo’s report solidifies market confidence due to its credibility and likely intentional leak by SK Group.
• Initially considered but deemed lower priority than SK IE Technology sale; SK Group opts for this alternative due to challenging market conditions for SKITE sale.
• SK Innovation and SKIET rise with hopes of resolving liquidity issues and avoiding sacrifice. SK Inc is negatively impacted by concerns over valuation double counting from this merger.

• Tamboran Resources (TBN AU) is looking to raise US$175m from listing its shares in the US.
• Tamboran Resources is an early stage, independent natural gas exploration and production company.
• In this note, we talk about the deal dynamics and the listing impact.

• West China Cement (2233 HK) is a cement company based in Western China.  Sales volume in Africa in 2023 was 2.6 million tons, up 117% from 1.2 million tons in 2022. 
• The company has 2 million tons of cement capacity in Mozambique, 1.5 million tons in Congo, and 1.3 million tons in Ethiopia. 
• The company is trading at 4x 2024E PE.  I believe the risk reward is quite high here. 

• Tidewater Midstream & Infrastructure is a Canadian refining and midstream business with the Prince George Refinery as its primary asset
• Recent events, including the sale of gas processing plants and reaching capacity at the HDRD facility, have led to positive cash flow for the company for the first time
• TWM is focused on using its newfound cash flow for share repurchases and new investments in neglected assets, with projected upside potential of ~3x

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.

• kopi-C with Dyna-Mac’s CEO: ‘We went from near-bankruptcy to having a record order book’ Offshore oil and gas contractor Dyna-Mac’s CEO AC Lim shares how he overhauled the company’s business practices to bring it back from the brink and achieve remarkable growth.
• When Lim Ah Cheng, also known as AC Lim, became offshore oil and gas contractor Dyna-Mac’s chief executive officer in 2020, the firm was in crisis.

• Afentra focuses on acquiring marginal or late-life oil fields from oil majors and NOCs to pursue renewable energy or scale
• The company specifically targets Africa to establish a low-cost basis in acquired assets and deliver value through industrial expertise
• Leveraging in-house management expertise and track record in the energy sector, Afentra plans to enhance acquired subsurface acreage through field development techniques and enhancements

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.