Energy & Materials Sector

• Chosun Business Daily reported today that Enchem is considering on conducting a block deal sale of nearly 14% of its outstanding shares, representing about 160 billion won.
• Brahman PS Investment is the likely seller in this block deal sale. If the block deal sale is successful, Brahman will have gained more than 6x on its original investment.
• We would not be buyers of the block deal sale mainly due to unattractive valuations, volatile profitability, and not enough block deal sale discount. 

• The timing was ripe for a rights issue after the share price had gained 64% since 24 October and addresses the capital structure, a need to win relevant contracts.
• The rights issue is priced at a 38.6% discount (with a negative impact on the share price). TERP is €8.8438, theoretical value of the right is €1.1762).
• Exclusively considering the cash injection and new number of shares, TP would be €9.07/share, with the caveat of the large dilution and uncertainty about the execution of the restructuring.

• Since late-January/early-February we’ve recommended shifting to defensives considering our belief that 4165-4200 will cap upside on the $SPX in 2023, while also conceding that a reach to 4300-4325 is possible.
• Considering limited upside in both scenarios, we continue to recommend shifting to defensives and believe that now is the time to be tactically overweight defensives
• Defensive Sectors including Health Care (XLV), Utilities (XLU), and Staples (XLP) are hitting 2+ month RS highs, and are staging bullish price and RS reversals, as are gold miners (GDX). 

• EBIT beat – loss came in lower by 2.43%, Δ $(0.73)m vs. ACF est.;
• EBITDA beat – loss came in lower by 2.43%, vs. ACF est.;
• EPS beat (+ fully diluted) loss 4.22% lower vs. ACF est.

• China Southern Power Grid Co. Ltd. has agreed to pay around $2.9 billion to acquire two Peruvian assets from Italy’s biggest utility Enel SpA, as the Chinese state-owned major deepens its footprint in South America amid a global business expansion.
• Under the agreement, a subsidiary of the Rome-based company will sell its entire 83.15% stake in distribution and supply company Enel Distribución Perú S.A.A. and 100% stake in advanced energy services provider Enel X Perú S.A.C. to China Southern Power Grid International (HK) Co. Ltd
• The deal will further strengthen the Guangzhou-based operator’s presence in South America.

• Ecopro (086520 KS) is up an eye-watering 590% in the past three months, primarily on Ecopro BM (247540 KS)‘s outperformance, together with sentiment towards soon-to-be-listed 52.8% held Ecopro Materials. 
• Preceding my comments on Ecopro are the weekly setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Under the revised proposal, Newmont (NEM US) has bumped the all-scrip terms for Newcrest Mining (NCM AU) to 0.400 Newmont shares – from 0.380 – for each Newcrest share held. 
• Including a permissible franked special dividend of up to US$1.10/share, the revised proposal represents an implied value of A$32.87/share. Newmont indicated the revised bid represents its best and final price.
• Newcrest has granted Newmont confirmatory due diligence to put forward a binding proposal.

• Newcrest Mining (NCM AU) disclosed a revised non-binding indicative privatisation proposal from Newmont Mining (NEM US) at 0.400 Newmont shares per Newcrest share + US$1.10 special dividend. 
• Since the 6 February announcement, the average implied value of the revised offer is A$29.14 per share, which is 11.6% higher than the average of the previous offer of A$26.12.
• The offer is attractive in terms of historical prices and VWAP ratios but carries the volatility risk around Newmont shares and FX rates. Expect a binding proposal. 

• PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) priced its IPO at IDR1,250 per share to raise gross proceeds of US$660 million. The shares will start trading tomorrow.
• We previously discussed the IPO in Harita Nickel IPO: The Bull Case, Harita Nickel IPO: The Bear Case and Harita Nickel IPO: Valuation Insights.  
• Peers have re-rated and the IPO price continues to imply a discount to the median peer CY2023 P/E multiple. Therefore, the IPO price remains attractive.

• PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) raised around US$660m in its Indonesian IPO.
• PT Trimegah Bangun Persada Tbk (Harita Nickel, HN) is a vertically integrated pure-play nickel company operating on Obi Island, Indonesia.
• In this note, we will talk about the trading dynamics and valuation.

• We believe the following three catalysts will likely drive share price of Solus Advanced Materials’ continued outperformance relative to the market this year. 
• They include the sale of Solus Biotech, improved control of its operating costs, and rapid increase in capacity for copper foil.
• The company has already secured strong order backlog from customers including LG Energy Solution, Tesla Motors, and SK On.

• ITMG went ex-dividend yesterday, paying out a whopping 16.8% (6416 Rph/share) final dividend in addition to the interim dividend of 10.8% (4128 Rph/share), bringing the FY22 yield to >27%.
• After payment of the 474 mn USD final dividend and 223 mn USD tax liability, we estimate the company will have >1.0 bn USD net cash (~33% mkt cap). 
• At current coal prices (NEX 190 USD/ton), the Indonesian coal producer trades on a 20% dividend yield for FY23 assuming a 65% dividend payout ratio (in line with historical payout).

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.

• Anton Oilfield
• Greentown China
• Sino-Ocean Service

Since our outlook note published on 7 July 2022, Alkane has made several important announcements. Firstly, it improved its FY23 production guidance to 62,000–70,000oz (a 17% increase) after impressive H123 production at Tomingley and now expects to reach the upper end of this range. This has resulted in our EPS forecast for FY23 increasing by 30.6% from A$0.0445/share to A$0.0582/share. This was followed by the approval of the Tomingley Gold Extension Project, permitting open-cut mining at the Roswell and San Antonio deposits (including underground mining at the former), extending the mine life at Tomingley to at least 2031. Additionally, Alkane announced an inferred mineral resource at Kaiser of 4.7Moz AuE (0.48Mt Cu, 2.05Moz Au). Finally, it reported Q323 gold production of 16,641oz, bringing the current year to date production figure to 54,431oz.

• Through the regular rebalancing, Kum Yang and Cosmo Chemical will be included in KOSPI 200, and Youlchon Chemical will be included as an ad-hoc change due to Dongkuk Steel’s deletion.
• We should prepare for an aggressive long position on Youlchon Chemical from a day trading perspective, targeting May 15th, the day after Dongkuk Steel’s general meeting.
• If the meeting is scheduled for the morning, we should consider entering the position in the afternoon of the 12th.

• 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), Alliance Aviation Services (AQZ AU), Genesis Minerals (GMD AU), Estia Health (EHE AU), Aag Energy Holdings (2686 HK), Origin Energy (ORG AU). 
• Lowest spreads – Healius (HLS AU), Golden Energy & Resources (GER SP), Liontown Resources (LTR AU), Norwest Energy NL (NWE AU), Mincor Resources NL (MCR AU), GK Goh.

• Carpentaria-2H testing results continue to build the economic case for EEG
• IP30 gas flow of 3.0 mmcfd/1000m (normalised) is on the button and early analysis suggests gas recoveries of 6-8Bcf/well could be achievable
• The business case is building with upgraded resource certification to come heading to a FID target date of end-2023.

• 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 NT energy basins are fast developing as strategic high-calorific gas bolsters for east coast Australia’s future domestic requirements, growing Gladstone LNG ullage and potential supply for Darwin’s expanding LNG export terminals, amid funding support from Territory and Federal governments.

• Indocement Tunggal Prakarsa (INTP IJ) released solid FY2022 results despite inclement conditions for the industry, as it utilised more low CV coal and alternative fuels and raised prices.
• The company now has much better access to cheaper DMO coal, which accounted for 60% of requirements in 2H2022, which provides a lower and more sustainable cost base for 2023.
• Indocement has continued to aggressively expand its distribution footprint across Indonesia in 2022, allowing it to access regional areas of demand. Valuations are attractive versus history.

Medco Energi’s FY 2022 results were strong, in line with expectations. This was supported by increased production following the ConocoPhillips Indonesia acquisition in March, as well as the high oil-price environment. Moreover, copper and gold mining JV AMNT has started to mature, generating healthy dividends. Leverage improved to a healthy level, with Debt/EBITDA at 2.1x and Net Debt/EBITDA at 1.6x.

We expect Medco’s earnings to increase slightly in FY 2023, assuming oil prices are maintained at current levels, as ASP from its fixed-price contracts is likely to rise from a low base. In addition, the company should deleverage further going forward, supported by strong OCF generation and debt repayments. Management said that Medco intends to acquire more assets in future, although there are no imminent plans currently.

• This is our first report on an international energy major, Equinor.
• The company delivered a mixed operational performance for the fourth quarter with below-par revenues but managed an earnings beat.
• Equinor improved security for its assets and cyberspace by enforcing tougher security rules, providing more training, and collaborating more closely with law enforcement.

• SDRL reported its long awaited fourth quarter results after the Company consummated the purchase of Aquadrill.
• It was in the Q123 when SDRL was able to generate revenue from its new Brazilian contracts making it more likely investors would minimize their interest on the Q4 results
• The purchase of Aquadrill provides scale to SDRL’s operations through a larger fleet size and being able to internally manage the Aquadrill fleet as contracts begin the expire

• Last month, I wrote how the last time government bond yields rose above 4%, it brought down the UK government.
• It happened again, and five banks, including the almighty Credit Suisse, failed.
• As a result, an old driver of the gold price has re-emerged, which is Sovereign risk.

• LG Energy Solution and Samsung SDI will remain in the index as top stocks of pack makers, respectively. Ecopro BM will almost certainly replace L&F in the category of Cathode.
• SK IE Technology will newly join the index with Separator’s top stock. On the other hand, Lotte Energy Materials and SKC are unlikely to be included.
• This event can be a critical inflection point in predicting the counter-flow for short positions against Ecopro BM and L&F in advance.

• On the 20 March, gold play Breaker Resources Nl (BRB AU) announced a Offer from Ramelius Resources (RMS AU) of 1 RMS for every 2.82 BRB shares. 
• The all-scrip takeover Offer backs out an implied Offer price of A$0.403/share or a 38.9% premium to last close.
• The Offer is conditional on 50.1% tendering with 19.92% of shares out supportive. The first close is the 1 May. 

• On 3/21/23 we discussed the potential for a 2-5% rally to the 1.5-month downtrend on the SPX, or the 4165-4200 range, which would set up an opportunity to get defensive.
• The S&P 500 has gained 4.5% since, but has reversed topside the downtrend, putting a test of 4165-4200 in play.
• We still believe 4165-4200 will cap upside in 2023 — with a reach to 4300-4325 also possible — but considering limited upside, we recommend shifting toward defensives.

• Mincor Resources NL (MCR AU)’s Board has unanimously recommended Wyloo’s unconditional off-market takeover bid at A$1.40 per share. The offer price is final. 
• The Board has taken the path of least resistance by recommending the offer instead of rejecting the low-balled offer and addressing the production quality issues.
• The offer is attractive in terms of multiples (EV/Resource and EV/Reserve) but at a discount to recent share prices and analyst price targets. Shares are trading in line with terms.

• Growatt is a distributed energy solution provider with the #1 market share for PV inverters and energy storage inverters, allowing them strong potential to benefit from a growing market.
• The company has filed for an IPO on the HKEx with a placeholder value of US$1bn and following the lapse of its application, has refiled for an IPO.
• In this follow-up insight, we have highlighted and discussed some of the key new data points from the company’s latest IPO filing document which contains full-year 2022 results.

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.

• A surprise OPEC cut has sent oil prices higher, a surprise cut could leave the SPR depleted.
• An oil surge could see lower growth and a return to inflation, an oil surge.
• A return toflation could be seen in the future, according to a report by the U.S. Department of Energy.

• BHP Group Limited’s recent drawdown presents a lucrative opportunity for investors seeking to lower their portfolio cost basis.
• BHP’s exploration pipeline and planned pivot out of coal might add volume to its stock’s valuation.
• BHP is yet to realize the benefits of higher base metals prices.

• Trigon is cashed up (~$C34M) to initiate and ramp production 5x from FY24 to FY27. We are expecting $31M in operating cash flow in FY25
• Tier-1 copper camp in the making; 500 Blbs of copper found on just 4.2km of the 35km strike. Significant exploration upside still exists and cashflow from operations will allow TM to explore without dilution
• TM is trading at just 0.2x NAV compared to copper producing peers at 0.7x NAV

• Based on closing price from 3 April, we forecast 5 adds and 4 deletes for the MSCI Korea Index at the May QCIR.
• Three of the adds are close to triggering the extreme price increase criteria – if triggered, index inclusion could be deferred to a subsequent index review.
• Retail investors have been buying three of the potential adds, while foreign investors have taken the lead on two. Foreign investors have been sellers on all the potential deletions.

• Merdeka Battery Materials (2012725D IJ)  is looking to raise around US$580m in its Indonesian IPO.
• It has the largest resource globally in terms of contained nickel at the Konawe Nickel Mine (the SCM Mine), according to Wood Mackenzie
• In this note, we undertake a quick peer comparison, talk about our earnings assumptions, and share our thoughts on valuation.

• Discounts to NAV of covered holdcos have shown mixed performance during March, with spreads widening until short after the UBS/CS deal, now tightening. 
• Discounts to NAV: C.F.Alba, 51.2%; GBL, 35.8%; Heineken Holding, 14.6%; Industrivärden C, 11.1%; Investor B, 9.7%; Porsche Automobile Holding, 49.6%. The spread of Rio Tinto DLC widened to 18.9%.
• Recommended trades: Heineken Holding, Investor AB (long Investor B/short main holdings) and Rio DLC.

• Last week, Mincor Resources NL (MCR AU) said BHP Group Ltd (BHP AU) would not agree to amend off-take agreement specifications, and therefore would no longer accept lower-quality ore.
• Mincor subsequently withdrew its earnings guidance, and Wyloo Metals shortly followed by declaring its A$1.40/share unconditional on-market Offer best and final.
• This morning (4 April), Mincor released its Target Statement, and recommends shareholders accept the Offer from Wyloo.

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

• Oil businesses fear lower prices and a shortage of workers The quarterly Dallas FED Energy survey showed some pretty interesting results.
• First of all, business activity tanked and the uncertainty level of businesses rose.
• The survey also highlighted which price small and large drilling companies need in order to produce oil without a loss.

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.

• Central China Securities
• Vedanta Resources

• 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 – Rakuten Bank (5838 JP), Trial Holdings (5882 JP), PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) and Merdeka Battery Materials (2012725D IJ) IPOs.
• Event-Driven developments  Aag Energy Holdings (2686 HK), Toshiba Corp (6502 JP), Toyo Construction (1890 JP), Liontown Resources (LTR AU), Mincor Resources NL (MCR AU), Origin Energy (ORG AU).