Energy & Materials Sector

• In this insight, we take a look at the final ADDs/DELs for the TDIV, T50, and T100 Indices for the June 2023 Rebalance.
• Across these three indices there will be 18 changes and 15 of them were in line with expectations.
• Our updated flow expectations show that there could be US$1.1bn one-way flow in the June 2023 rebalance.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• I am not a tax advisor and I do not play one on TV but it is a subject of interest in Australia, as an AFR article last year shows.
• The general gist of the idea is that retail investors in Australia will take gains on things which run up in price, or get taken over, then look for losses.
• Below I present a study using data from 2012-2022 of how a basket portfolio trade might work.

• The Government of India is looking to raise up to US$540m via selling around 3% of Coal India.
• This will be the third divestment by the Government since 2015 and the past two deals didn’t end up doing much.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Amman Mineral Internasional (1416286D IJ), an Indonesian copper-gold producer, has launched an IDX IPO to raise US$860 million. Bookbuilding runs from 31 May to 16 June.
• Amman’s Batu Hijau mine when combined with the Elang project has the fifth largest copper equivalent reserves in the world, according to Wood Mackenzie.
• The key elements of the investment case rest on world-class reserves, credible development plans, solid top-line growth, high profitability, leading cost competitiveness and cash generation.

• ConocoPhillips produced a good first quarter performance, managing an all-around beat, breaking both company and Lower 48 production milestones.
• Production was outstanding, averaging 1,792,000 barrels of oil equivalent per day due to strong performance across the board.
• With new wells coming online and good strong performance, Lower 48 underlying production increased by 8% year over year, reaching 1,036,000 barrels of oil equivalent per day on average.

• Martin Marietta had a solid start to the year and managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• Financially, Martin Marietta reported increased revenues, gross profit, earnings per share, and adjusted EBITDA.
• Solid aggregate demand was observed across their footprint, with attractive pricing fundamentals.

• It was a successful Q1 for Vulcan Materials as they delivered an all-around beat and projected attractive growth for 2023.
• Despite lower volumes in significant product lines, gross profit improved by 12%, and gross margin expanded by 90 basis points.
• We give Vulcan Materials Company a ‘Hold’ rating with a revised target price.

• The review period for the June rebalance ended on 31 May. Announcement of the changes will be made on 9 June with implementation at the close on 16 June.
• There could be 3 or 4 A-share additions due to their inclusion in Northbound Stock Connect. That in turn expands the index universe and could result in 2-3 deletions.
• If there are 4 adds and 2 deletes at the June rebalance, estimated one-way turnover at the rebalance will be 13.4% and will result in a one-way trade of US$81m.

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.

• Vedanta Resources

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.

• Fosun International
• Vedanta Resources

In its operational update, released last week, Pan African Resources (PAF) reduced its production guidance for FY23 by c 12.5% from 195–205koz to 175koz. The reduction was due to instability and disruptions in the electricity supply to PAF’s operations (c 10koz), a slower ramp up to continuous operations at Barberton and faulting at the Kimberley reef at Evander, coupled with a delay in transitioning to full production at 24 Level. In addition, we anticipate that PAF will record a small loss of US$5.3m on account of the synthetic forward sale of ounces announced in February regarding its Mintails financing. However, these effects have also been mitigated by a weak rand and a strong gold price such that, while we have reduced our FY23 normalised EPS forecast by 8.4% (from 4.17c/share to 3.82c/share) our core valuation of PAF has risen by 4.8% (see below).

• The China Conch Venture Holdings (586 HK) / Anhui Conch Cement (600585 CH) ratio is at an all-time low. The implied stub is re-testing its all-time low.
• Preceding my comments on China Conch/Anhui are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Indocement overperformed the overall Indonesian cement market in 1Q2023 in terms of growth, especially in the bulk market, where it also benefited from the contribution from its Maros plant. 
• The company kept costs under control with 100% use of DMO coal during 1Q2023 despite the lower use of alternative fuels due to heavy rains and margins consequently improved. 
• There is still some lingering cost pressure from gypsum and kraft paper but these are expected to subside by 2H2023, with Indocement’s volumes expected to increase +15-20% as demand recovers.

• Growatt Technology (1833969D CH) has downsized it HKEx IPO to about US$400m and in this insight, we have compared the company’s financials against other listed PV inverter players.
• Our peer analysis reveals that Growatt’s top line has grown at much higher rates compared to No. 1 player Sungrow whose margins were well below the company.
• By looking at valuation multiples of listed peers, it seems that the company could easily command a valuation of more than US$5bn if it is valued in line with peers.

• While the Flash Manufacturing PMI came in lower than expected at 48,5 (50,0 expected), the Flash Service PMI came in once again higher than expected at 55,1 (52,6 expected)
• Prometheus Research shared this overview with us that highlights that the Service sector continues to hold this economy up.
• The majority of service businesses continue to stay in the growing territory – this needs to change before we actually see a recession in the service sector as well. Keep in mind that the Manufacturing sector in the US accounts for “only” 11% of GDP!

• LyondellBasell delivered a mixed set of results in the last quarter with revenues below analyst expectations but managed an earnings beat.
• At the end of the first quarter, LyondellBasell had $1.8 billion in cash on hand.
• With the successful start-up of their world-scale PO/TBA facility, capital expenditures associated with plant construction will be substituted with increased cash generation.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 111 Inc (YI US), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), HKBN Ltd (1310 HK), Hailan Holdings (2278 HK), Origin Energy (ORG AU).
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Silk Laser Australia (SLA AU), Lian Beng (LBG SP), SBI Shinsei Bank (8303 JP), Penguin International (PBS SP).

• There are 5 changes for the SSE50 Index that will be implemented at the close on 9 June. There is over 1x ADV to sell on a few deletions.
• We estimate a one-way turnover of 5.3% at the June rebalance leading to a one-way trade of CNY 3.84bn. Index arb activity could add to the impact on the stocks.
• The adds outperformed the deletes from February to April but have given up a lot of the outperformance over the last month.

• There are 9 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) at the upcoming rebalance that will be implemented at the close of trading on 9 June.
• While nearly all the changes are in line with forecasts, there are some stocks that have not been added or deleted as the index committee has used discretion.
• The Energy sector is the biggest gainer in terms of index spots, while the Consumer Discretionary and Health Care sectors lose two index spots each.

• Rajshree Polypack’s (RPPL’s) Q4FY23 came in weaker than expected on both the sales volume and the margins front. Higher depreciation and interest costs led by capex further dampened the profitability.
• However, RPPL is executing well on its revenue growth targets led by regular capex led investments. It is on track to do INR 450cr revenues by FY25.
• RPPL has potential to post a PAT of INR 30cr+ by FY25, suggesting that RPPL is available at around 6x P/E on a base of FY25E PAT.

• International Paper had a challenging start to 2023 as its revenue was slightly down though still above analyst expectations.
• International Paper reported $65 million of year-over-year incremental earnings benefits from building better IP initiatives, but lower prices across their portfolio and weaker demand impacted margins.
• Despite these challenges, International Paper remained focused on their key priorities of taking care of employees, customers and maximizing shareholder value.

• Sayona Mining (SYA AU) is looking to raise around US$129m in its primary follow-on offering. Proceeds will be used for CAPEX needs and working capital, amongst others. 
• The deal is a slightly large one to digest at 17.9 days of ADV and 12.1% dilution.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• The Mosaic Company had a mixed quarter with revenues of $3.6 billion that were above Wall Street expectations but the company missed out on earnings.
• While supply issues are still a worry, this is drawing growers back to the market.
• We give The Mosaic Company a ‘Buy’ rating with a revised target price.

• Chevron once again produced impressive financial results in the most recent quarter and delivered an all-around beat.
• Despite 20% lower oil prices, adjusted first-quarter earnings increased by more than $200 million over the previous year.
• Adjusted upstream earnings decreased due to realizations, while adjusted downstream earnings grew due to greater refining margins.

• LyondellBasell’s share price delivered strong returns, even in the face of continued headwinds and business restructuring.
• The management is focused on making long-term investments in key areas while at the same time streamlining the business.
• The company is now offering a dividend yield of 5.6%.

• Despite lower energy prices and refining margins, ExxonMobil produced an all-around beat in the first quarter.
• This 250,000 barrel per day development is the biggest refinery addition in the US, helping to meet society’s ongoing demand for transportation fuels.
• In addition, ExxonMobil acquired drilling rights in Arkansas to enter the crucial mineral mining industry.

• TotalEnergies had a mixed result in the last quarter with revenues below expectations given that Brent was down 9% and European gas dropped by 50% compared to the previous quarter.
• European gas has been above $15 per barrel and Brent above $18 per barrel, which is still high by historical standards.
• Renewable power generation capacity increased by over 1 gigawatt to the previous quarter.

• Valero Energy had another strong quarter, with all segments performing well and the company delivering an all-around beat.
• Notably, Valero achieved a significant milestone by completing and successfully starting up the Port Arthur Coker project, which is expected to enhance the refinery’s capacity and operational efficiency.
• The company also initiated the production of a new coker at Port Arthur as a capacity expansion initiative.

• Cosmo Energy Holdings (5021 JP) and noted Japanese activist Yoshiaki Murakami and affiliates/companies have been duking it out for the better part of a year. 
• Now Cosmo is putting a Poison Pill to an AGM vote. And it has decided to not allow Murakami-san to vote his shares. Because he is an interested party.
• INVESTORS NEED TO BE AWARE. This is the second time a company has sought to deny a shareholder its voting rights without legal basis. The last time the court agreed.

• Based on the average daily full market cap up until the last close, the following additions have been identified as high-probability candidates: Sam A Aluminum, Dentium, and Dongwon Industries.
• Three constituents will likely leave as they rank at the bottom in descending order of full market cap among those failing the screening: Cuckoo Homesys, Zinus, and Hyundai Home Shopping.
• Dongwon Industries seems to be the most attractive, but given the uncertainty surrounding its inclusion, it may be more appropriate to target Dentium.

• Growatt Technology (1833969D CH), a leading PV inverters manufacturer, is pre-marketing a US$400 million HKEx IPO, according to press reports.  
• We previously discussed the IPO in Growatt Technology IPO: The Investment Case, Growatt Technology IPO: Growing Watts, Growatt Technology IPO: The Bear Case, Growatt Technology IPO: The Bull Case. 
• In this note, we outline our updated forecasts and present our updated look at Growatt’s potential valuation range.

The Asia HY Trade Book for May 2023 includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds across Asia (ex-Japan) HY and crossover credits.

• Sibanye Stillwater Limited’s stock is in vulnerable territory.
• The company’s stake in DRDGOLD is paying dividends.
• The stock can be unlocked at Keliber with a potential IRR of 27%, and Sib Kanye’s stake is paying dividend.