Energy & Materials Sector

• The pivot in capital allocation plans of Whitehaven Coal (WHC AU) by suspending its buyback program (up to 25% of outstanding shares) is a big negative for us. 
• We think the increase in capex spending in a frothy pricing environment and focus on M&A for spending the 2.6 bn of cash is a coin toss on capital allocation. 
• We prefer names that keep their capital allocation plans consistent, e.g., Indo Tambangraya Megah (ITMG IJ), and would take money off the table here.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Frontera Energy’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Strong”.

• LyondellBasell Industries delivered mixed results for the previous quarter, with revenues below the analyst consensus.
• O&P Americas EBITDA climbed by $138 million to $679 million during the second quarter.
• Their team anticipates that fluctuating feedstock costs and the emergence of new capacity will cause margins to contract in the third quarter.

• Chevron Corporation delivered an all-around beat in the previous quarter.
• While the company faced challenges, with adjusted earnings down $5.6 billion compared to the same quarter the previous year, it also achieved notable successes.
• Lower refining margins impacted adjusted downstream earnings, and there was a decrease in upstream earnings primarily due to lower realizations.

• Vulcan Materials Company delivered a positive result and managed an all-around beat in the quarter.
• Vulcan has increased its gross margin and strictly managed SAG costs to increase its adjusted EBITDA margin by 350 basis points year-to-date.
• With excellent price growth and restrained cost increases over the previous year, cash gross profit per ton increased.

• Privatisations could lead to two/three S&P/ASX 200 (AS51 INDEX) constituents being delisted in October/November and that means ad hoc inclusions to maintain the number of constituents at 200.
• Then there could be one change for the S&P/ASX 20 Index and two changes for the S&P/ASX 200 (AS51 INDEX) at the regular rebalance in December.
• The impact on the potential adds/deletes for the S&P/ASX 200 (AS51 INDEX) is high at between 7.5-23 days of ADV to trade from passive trackers.

• Activist investor, Strategic Capital, has taken a significant 5% stake in the underperforming steel company
• Yodogawa stacks up in line with the sector on operating metrics but its under leveraged balance sheet has crimped Returns on Equity and valuations
• We expect that the activist will seek to improve the company’s ROE through an improvement in capital allocation. That is bullish

• Air Products and Chemicals’ pricing strength remains unabated, with its volume improving for an impressive ninth consecutive quarter, bolstered by strong on-site performance, and the integration of over 13 new assets.
• Strategically, Air Products & Chemicals underscores two fundamental growth pillars: the robust core industrial gas business and the pioneering low and zero-carbon hydrogen projects.
• The latest quarter results were also commendable, with a 3% volume increase and a 10% rise in merchant price.

Three recent developments have served to put KEFI’s Tulu Kapi into the spotlight. The first is Ethiopia’s recent central bank directive exempting certain strategic industries – including mining – from foreign exchange controls, satisfying the last major condition precedent for the issuance of final approval by the project finance lenders. The second is Allied Gold’s listing on the TSX, including its decision to raise US$250m (US$160m in equity), of which 80% is to be invested in developing the Kurmuk mine, also in Ethiopia, on the border with Sudan, west of Tulu Kapi. The third is the takeover of early-stage OreCorp by Silvercorp at a price equivalent to 24.5% of attributable NPV5% or US$46.14 per resource ounce.

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.

• JSW Infrastructure
• Medco Energi

Pan African Resources’ (PAF’s) FY23 results, announced on 13 September, were closely in line with our forecasts. Barberton underground, Evander underground and the Barberton Tailings Retreatment Project (BTRP) all recorded higher throughputs at slightly lower grades than we had been expecting, but also lower unit cash costs in ZAR/t terms. Elikhulu performed in line with our expectations in terms of output, albeit at slightly higher unit costs, owing to continued electricity supply disruptions and unfavourable weather. Overall, earnings for H123 and FY23 were US$2.5m higher than our prior forecasts, translating into 8.5% outperformance and 4.3% outperformance, respectively. EPS was in the top half of the consensus forecast range.

• After Mineral Resources (MIN AU) and other shareholders voted against the Tianqi Lithium JV transaction for Essential Metals (ESS AU), Develop Global (DVP AU) swooped and announced a binding Scheme.
• The all-scrip Scheme transaction has the backing of MinRes, who also owns a ~12.8% stake in Develop.
• The Scheme Booklet is now out. Essential shareholders vote on the transaction on the 18 October, with implementation on the 6 November. The IE opines “not fair but reasonable“. 

• I tally 50 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Four new deals this week: Pact Group Holdings (PGH AU); Golden Eagle Energy (SMMT IJ); Takisawa Machine Tool (6121 JP); and JMDC (4483 JP).
• Key updates took place for: Origin Energy (ORG AU), United Malt (UMG AU), Liontown Resources (LTR AU), Poly Culture (3636 HK), IMAX China Holding (1970 HK), and T&K Toka (4636 JP).

• 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 – Doosan Robotics (454910 KS), VNG (VinaGame) (VNG US), Integral Corporation (5842 JP), Tuhu Car (2007986D HK) and 4Paradigm (1764934D HK) IPOs.
• Event-Driven developments – T&K Toka Co Ltd (4636 JP), IMAX China Holding (1970 HK), Poly Culture Group Corp H (3636 HK), Liontown Resources (LTR AU), Pact Group Holdings (PGH AU). 

• BP’s results were a major disappointment as the company failed to meet Wall Street’s revenue and earnings expectations.
• Additionally, the strategic focus on transition growth engines, such as convenience business, EV charging, bioenergy, hydrogen projects, and renewables, positions the company as a proactive player in the changing energy landscape.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• JSE indexes will be rebalanced in the closing auction tomorrow. 
• MCG will fall out of the TOPI and DTOP and HAR will enter. The ALSI gets reviewed semi-annually in March and September.
• ACL and LBR will fall out of the ALSI, ALSI SWIX and the capped variants.

• On the 26 July, Geo Energy Resources (GERL SP) announced an agreement to acquire a majority stake in coal miner Golden Eagle Energy (SMMT IJ) (GEE).
• Via an S&P, GEO intends to buy a 58.7% stake in Golden Eagle from Indonesian conglomerate Rajawali Group for US$154.1mn.
• The completion of the S&P, which is subject to Indonesia’s OJK and Geo shareholder approval, will trigger an MTO at IDR 1,255/share.

• The ChiNext Index represents the performance of the 100 largest and most liquid A-share stocks listed on the ChiNext Market of the Shenzhen Stock Exchange. 
• The ChiNext 50 index is a subset of the ChiNext Index and it consists of the top 50 names in the ChiNext index with the highest daily average turnover.
• In this insight, we take a brief look at the index selection methodology and the historical price and volume performance of ChiNext and ChiNext 50 rebalance baskets.

• Plastic products manufacturer Pact Group Holdings (PGH AU) has announced an unconditional off-market takeover from its major shareholder, Raphael Geminder.
• Geminder, with a current stake of 50%, is offering – via wholly-owned entity Kin Group – A$0.68/share, a paltry 0.07% premium to last close. Shares recently touched an all-time low.
• The Offer is (should be) open for a month. As the bid is unconditional, there’s nothing to stop Geminder from buying shares higher, then simply lifting his Offer price. 

• Last year, 20% owner Dalton approached T&K Toka Co Ltd (4636 JP) for an MBO, but walked when questioned. Then in January bid ¥1300 to double their stake to 44%.
• They were not successful. The firm held a beauty contest. Bain won at ¥1400 despite ¥1300 getting no response and markets up big since. It’s possible not everyone was invited. 
• Since the Bain deal announcement, the stock has mostly traded at/through terms. Now we find out Dalton has been buying (now 23.77%). This increases the chances of a bump.

• On 13 September, SK Innovation announced that the subscription rate for the rights offering allocated to ESOA and existing shareholders was 87.66%.
• The rights offering price is 139,600 won, which is 12.7% lower than current price of 159,900 won. 
• There is likely to be a strong demand for the subscription of rights offering forfeited shares for the general investors scheduled to take place on 14 to 15 September.

• Youlchon Chemical’s CFD balance accounts for 3.54% of SO, with approximately 2x leverage trading. It is one of the few in the top CFD balance list that can be short-sold.
• Our primary concern should lie with the upcoming December rebalancing of the KOSPI 200 index. Youlchon Chemical finds itself perilously close to the borderline within the Materials sector.
• When proactive flow trading targeting KOSPI 200 is set to influence prices early October, we must remain vigilant regarding the potential trades aimed at exploiting a CFD balance squeeze.

• Nippon Active Value Fund/Michael 1925/Dalton has increased their T&K Toka Co Ltd (4636 JP) shareholding from 22.23% to 23.77% of outstanding shares (22.25% to 23.79% of ownership ratio including share options).
• T&K Toka shares have traded above Bain’s JPY1,400 pre-conditional offer, fuelling speculation of a bump. A rival proposal at least 5% above triggers the “Counter Tender Offer” clause.
• The four possible scenarios with declining probabilities are: Bain calls Dalton’s bluff, Bain marginally bumps, Dalton launches a rival offer or Dalton rollovers its stake into a privatised T&K Toka.

• Pact Group Holdings (PGH AU) has disclosed an unconditional takeover proposal from Raphael Geminder at A$0.68 per share, a 0.7% premium to the undisturbed price (12 September).
• Mr. Geminder’s justification for a little-to-no premium offer is based on the premise that minorities are clambering for a liquidity event to exit a no-hope situation. 
• The offer price is unattractive on any reasonable metric. A successful privatisation would require a bump. The shares closed 6.6% higher than the offer. 

• Shougang Fushan Resources (639 HK) experienced a decline of 23% YoY in NPAT for H1 2023 despite coal prices falling 22% YoY due to improved coking coal recovery rates. 
• Gross cash and Investments totaled 9.4 bn HKD. Netting the dividend/tax payable and buyback of 1.4/0.4/0.3 bn HKD, net cash is 7.3 bn (60% of mktcap) and growing. 
• We estimate a dividend payment of 32 cents (13% yield) for FY23e; H1 FY23 dividend payment was 10 cents ( H1 FY22: 15 cents  FY22: 43 cents).

• Longboat is acquiring Topaz Number One, its partner in Malaysia for an initial consideration of US$0.1 mm in shares in Longboat.
• The transaction will boost Longboat’s WI in the Production Sharing Contract over Block 2A offshore Sarawak from 36.75% to 52.5%.
• The 15.75% WI in the block is the only asset of Topaz Number One.

• After Origin Energy (ORG AU) entered into a Scheme Implementation Deed with Brookfield Asset Management/MidOcean Energy in late March, the ACCC approval process has played out in the public eye.
• And it hasn’t been all beer and Skittles for the Offerors. Not just on competition issues. But also the perceived/apparent public benefit from Brookfield’s future commitment to renewable generation.  
• All the while, the ACCC recently blocked ANZ (ANZ AU)’s acquisition of Suncorp Bank, and Telstra Corp (TLS AU)/TPG Telecom (TPG AU)‘s mobile network sharing deal. 

• Viva Energy Group (VEA AU)‘s parent,  Vitol, aims to raise around US$460m via selling 15% of the company
• The news of a possible selldown was leaked overnight in the local press and hence, the stock has corrected going into the placement.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• We still believe it’s possible we’ve seen the lows for this pause/pullback on the SPX, and we see low probability of meaningful correction if SPX is above 4300-4325 (1.5-year support).
• As initially discussed in our 8/29/23 Compass, we wouldn’t be surprised to see another month+ (i.e., through the end of September, and possibly longer) of consolidation between 4325 and 4600.
• Downgrading Industrials (XLI) to market weight due to 1.5+ year RS uptrend violation. Buys highlighted in Uranium and Energy (refiners and coal).

• On 5 September, JFE Holdings (5411 JP) saw an article out of a capital raising. It was confirmed later in the day. Huge volumes traded. The stock fell sharply.
• The offering supply/demand dynamics are…. complicated. The offering is to foreign instos. The net demand is probably mostly retail and index, and positioning is… also complicated.
• The EPS dilution is already accounted for. The fall against Nippon Steel pretty much does it after considering the discount expected. 

• Changes to the S&P/ASX indices, REMX US, GDXJ US, MVA AU, MVW AU and other indices will be implemented at the close on Friday.
• There is over +/-A$5m to trade or +/-3x ADV to trade on nearly 100 stocks and will be a huge volume day for the stocks at the close.
• Use the volume on the buy and sell side to increase/reduce positions especially on the deletes where there will be liquidity to cover shorts on stocks that have dropped significantly.

• Oil majors to extend voluntary production cuts with an eye to pushing crude oil prices to $100/barrel.
• Demand for oil at record highs, fueled by strong travel, increased oil usage in power production & solid Chinese petrochemicals activity.
• Refiners are reaping near-record profits as their throughputs are set to reach a summer peak of 83.9m bpd in August.

• There are 8 migrations from MidCap to LargeCap, 7 LargeCap to MidCap, 8 new additions to MidCap, 17 SmallCap to MidCap, 23 MidCap to SmallCap, 5 new additions to SmallCap.
• The migrations from SmallCap to MidCap have outperformed the stocks migrating between other segments by a huge margin over the last few months.
• Given the huge outperformance and looking at how the migrations have performed historically, we’d expect the stocks migrating to MidCap to underperform post implementation of the changes.

• Over 85% of the way through the review period for the December rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 8 December.
• There is a big sector skew in the potential changes. We estimate a one-way turnover of 9.4% at the December rebalance resulting in a one-way trade of CNY 7.22bn.
• With the market being stabilised through the ETF route, the index constituents have outperformed the non-index constituents over the last 6-7 weeks. That could reverse over the near term.

• Shin-Etsu Polymer Co., Ltd. has entered into a contract to transfer its PVC pipe manufacturing business to Sekisui Chemical Co
• Asset Value, a vocal activist shareholder, has likely had some strong words about better capital allocation.
• The unwinding of the parent-child relationship (one way or the other) is where the real value creation lies

• There is one add, one delete, one listing change, plus float and capping changes for the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in September.
• Estimated one-way turnover is 6.1% and that results in a one-way trade of US$240m. There are 31 stocks with over 1 day of ADV to trade from passive trackers.
• There will be some same way and some opposite flows between the VanEck Vectors Junior Gold Miners ETF (GDXJ) and S&P/ASX 200 (AS51) trackers at the close on 15 September.

• There is one add and two deletes for the MVIS Global Rare Earth/Strategic Metals Index at the September rebalance. Plus there are free float and capping changes.
• One way turnover is estimated at 11.1% and will result in a one-way trade of US$58m. There are a few stocks with over 0.5 days of ADV to trade.
• The inclusion of Sociedad Quimica y Minera de Chile (SQM US) and deletion of Zhejiang Huayou Cobalt (603799 CH) are surprises.

• Newcrest Mining (NCM AU)‘s IE considers Newmont Mining (NEM US)’s offer of 0.400 Newmont shares per Newcrest share + special dividend + FY2023 dividend to be reasonable but not fair.
• The IE valued Newcrest at US$18.64-21.13 per share vs. the transaction value of US$17.10-18.70 per share. The sharp sector de-rating, including Newmont’s shares, has impacted the scrip-heavy offer.
• The offer remains attractive compared to peer multiples, historical prices and VWAP exchange ratios. At the last close prices and for the 6 November payment, the gross/annualised spread is 1.2%/7.8%. 

• I tally 50 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals this week: the Tender Offer for Dic Corp (4631 JP) and the Partial Offer for Intage Holdings (4326 JP).
• Key updates took place for Newcrest Mining (NCM AU),  Liontown Resources (LTR AU), Golden Eagle Retail (3308 HK), Mason Group Holdings (273 HK), and Metro Pacific Investments Co (MPI PM).