Energy & Materials Sector

• 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. 
• MBM aims to become a vertically integrated battery materials player. Through a series of acquisitions, it owns one of the world’s largest nickel mines. 

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• PetroChina Co Ltd (857 HK) bottomed in Oct/Nov 2022 around the 61.8% retracement support. The subsequent impulsive multi-month uptrend maintains the bullish LT trend reversal confirmed in 2021.
• March 2023 has delivered new bullish breakouts in price and LT momentum that confirm a sustainable LT uptrend bias. Initial target at 5.28 (+13%). Longer term risk to 6.50/6.80 (+40%).

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Japfa Comfeed Indonesia
2. Yankuang Energy Group
3. Anton Oilfield
4. China Jinmao Holdings
5. Lifestyle International Holdings

and more…

During H123 Quadrise made further progress on the three projects that provide the company with the fastest and most material paths to commercialisation. Assuming that the ongoing discussions regarding a licence agreement with Valkor in Utah complete soon, management expects Quadrise to generate its first commercial revenues, which would be from IP licencing, during Q423 (Q2 CY23).

• SK Innovation will buy back its shares, worth about 10% of the total issued shares, through a tender offer and offer SK On stocks as consideration instead of cash.
• Even if there is allocation risk, as only 10% of SO are targeted, expectations that pricing discrepancy can sufficiently offset this should be the factor driving up the price today.
• Additional trading openings? This depends on the disparity widening between the intrinsic value of SK On and the exchange ratio.

• Earlier today (30 March), Mincor Resources NL (MCR AU) said BHP Group (BHP AU) would not agree to amend off-take agreement specifications, and will no longer accept lower-quality ore.
• Mincor delivers 100% of its ore to BHP.  It will continue to deliver on-specification ore to BHP, but has withdrawn its forward guidance. 
• Shares rolled over 5.7% to close at A$1.42/share, above Wyloo’s unconditional A$1.40/share. Offer.

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.

• Indika Energy
• Meituan

Nanoco’s H123 revenues benefited from the successful delivery of technical milestones for its European electronics customer, taking it close to full production validation of two different wavelength materials for use in sensing chips. Shortly after the period end, Nanoco signed the final agreements to settle the litigation with Samsung. The settlement frees management to concentrate on getting the company ready for volume production in anticipation of receiving its first production order later in CY23.

• Back on the 17 February, AAG Energy Holdings (2686 HK) announced an underwhelming Offer of HK$1.85/share (declared final) by way of a Scheme from major shareholder Xinjiang Xintai (603393 CH).
• Yesterday, Xinjiang Xintai shareholders approved the proposal. This was expected – it’s a total bargain. 
• AAG shareholders will likely get to vote on the Scheme in early May. They should vote it down.

• Lithium play Liontown Resources (LTR AU) has now thrice rejected Albemarle Corp (ALB US)‘s proposals. 
• Liontown has labeled Albermarle’s third bid of A$2.50/share as opportunistic. 
• Albemarle has picked up 2.2% in Liontown. But that is dwarfed by Tim Goyder’s (chairman)’s 15% stake, who is not engaged at the current bid price. 

• In this insight, we discuss the potential new inclusions in KOSPI 200 rebalance in May 2023.
• The five stocks that are potential inclusions in KOSPI 200 rebalance in May 2023 include Kumyang, Cosmo Chemical, Dentium, Jeju Air, and Youlchon Chemical. 
• Kumyang and Cosmo Chemical are up on average 177% YTD. We would not chase these two stocks as their share prices have already risen considerably. 

• Liontown Resources (LTR AU) has rejected an unsolicited non-binding privatisation proposal from Albemarle Corp (ALB US) at A$2.50 per share, which is a 63.9% premium to the undisturbed price (27 March).
• The offer is attractive in comparison to peer multiples and historical share prices. Liontown suggests that the offer does not appropriately value the Kathleen Valley Lithium Project.
• A bump to the Board’s desired A$3.00 offer is justifiable based on the Kathleen Valley NPV sensitivity analysis related to spodumene prices. Albemarle remains willing to engage. 

• Core earnings of Kunlun Energy (135 HK) rose 25.2% in FY22, providing solid evidence for its strength against peers. We are delighted to see dollar margin even expanded 4.1%.
• Pace of new project addition has not weakened as it secured 25 new projects in FY22. Collectively, they will increase sales volume by 3.2bn cu.m., 7% of FY22 volume.
• Net cash of Rmb13.6bn equals 28% of share price, making 8.9% ROE look decent. Market earnings forecast is too low; and even so, it trades on just 7.2x FY23 PER.

• Pokarna Ltd (POKR IN) is principally engaged in the business of quarrying, manufacturing & processing and selling of Granite & manufacturing and selling of Apparel under the brand name ‘Stanza’.
• One of the key audit matters related to IT systems risk, and these are reflected by some of the accounting misclassifications.
• Other forensic concerns include high cost of debt on and ICDs and director loans, added WC burden, inventory valuation, etc.

West China Cement’s (WCC) FY 2022 results were overall acceptable. The company reported slightly weaker earnings for its core business in Mainland China, as lower sales volumes (amid COVID-19-related disruptions and the subdued real estate sector) and increased raw material costs more than offset surprisingly positive ASP growth.

Importantly, WCC’s expansion in Africa is taking shape, as its plant in Mozambique has ramped up quickly and achieved high capacity utilisation in the first two years of operations. The company’s plants in Africa enjoy substantially higher ASP than those in China, which should support the overall gross margin.

We expect WCC’s FCF to remain deeply negative in FY 2023, which will lead to a further weakening of its net leverage (2.6x at FYE 2022). We believe FCF may turn positive in FY 2024, when the bulk of the company’s new projects in Africa are due to complete and commence operations.

• Growatt Technology (1833969D CH) , one of the largest providers of PV and storage inverters globally, plans to go public and may seek $500M+ through Hong Kong IPO.
• I view Growatt Technology (1833969D CH) as a high-quality growth company with best-in-class products and solutions, and see significant opportunity in international markets.
• The company is well-positioned to benefit from fast-growing PV inverter and energy storage markets. I am bullish on Growatt Technology IPO and like long-term energy storage story.

• Ultrapar is one of the largest Brazilian companies (USD 12.5bn market cap) with almost 80 years of history and leading positions in the markets in which it operates.
• The company is involved in the LPG (liquid petroleum gas) and fuel distribution, operation of a drugstore chain, the production of ethylene oxide and its derivatives and liquid bulk storage services.
• Its business mix provides stable cash flows as it balances resilient businesses such as the sale of LPG for residential use and fuels for light vehicles.

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.

• ENN Natural Gas
• Japfa Comfeed Indonesia
• Vedanta Resources

• In mid-January, things between activist Yoshiaki Murakami and Cosmo Energy Holdings (5021 JP) came to a head. Cosmo announced a large buyback and possible takeover defence measures.
• The buyback was a beefy chunk of the float because of the expected profit payout. On 9 February, Cosmo lowered its NP guidance by 40%. FY22 div stays at ¥150/share.
• Last Thursday, Cosmo presented its NEW Mid-Term Management Plan. ROE targets similar. Profit targets up. Minimum div goes up; payout ratio goes up. More comes if financial health targets met.

• Origin Energy (ORG AU) has entered into a binding proposal with Brookfield/EIG. The offer terms are changed to A$5.78 and US$2.19 per share. The offer is worth A$8.912 excluding dividends.
• Since the announcement of the first indicative offer on 10 November 2022, the average implied value of the revised offer is A$8.97 per share vs A$9.00 for the previous offer.
• ACCC approval will be the key overhang and is expected to take around six months. At the last close, the gross spread to the offer is 9.1%.

• Aag Energy Holdings (2686 HK) noted that the pre-condition for Xinjiang Xintai Natural Gas (603393 CH) privatisation offer at HK$1.85 per share has been satisfied (which was expected). 
• The gross spread has widened to 16.4% due to concerns that the recent solid FY22 results, lack of dividends and the skinny premium would nudge minorities to vote NO.
• It remains unclear if the dissatisfied retail minorities have enough votes to block the scheme. The downside remains low as the shares are trading 5% below the undisturbed price. 

• In the wake of the Aussie government’s gas price intervention, the Brookfield/MidOcean consortium reduced its Offer for Origin Energy (ORG AU) to ~A$8.90/share, down from A$9.00/share, on the 22 Feb. 
• At the time, Origin appeared supportive.  Origin and Brookfield/MidOcean have now entered into a Scheme Implementation Deed.
• Some subtle – and more favourable to all investors – changes have been made to terms. Pricing is attractive. ACCC is the big question mark.

• Liontown Resources (LTR AU) has turned down an unsolicited, conditional and non-binding offer from Albemarle Corp (ALB US) to acquire all outstanding shares at A$2.50/share.
• There is huge short interest on Liontown Resources (LTR AU) and the short covering could take the stock close to the A$2.50/share mark.
• Liontown Resources (LTR AU) is up nearly 50% today and if the price stays around this level, the stock could be added to the S&P/ASX 100 Index in September.

• Pilot costs drive higher losses. TMC reported 4Q22 results that included a net loss of $109.6 million, compared with a net loss of $19.6 million in 4Q21.
• Higher Y/Y losses were driven largely by the $70 million fair value of the Allseas warrant exercisable post successful collection test, valued at $7 per share based on the grant date of March 2021, partially offset by lower G&A expenses.
• TMC ended 2022 with $46.8 million in cash, which along with the $25 million unsecured credit facility, management believes will be sufficient to meet its WC and capex needs through 1Q24.

Pan American Silver (PAAS) has reported that the Mexican Federal Economic Competition Commission approved the company’s plan of arrangement with Yamana and Agnico Eagle. This is the final regulatory approval that paves the way for the completion of the transaction, which is guided to occur by end March, in line with management’s expectations. In other news, PAAS recommended a Q123 cash dividend of US$0.10 per share, implying a 2.2% yield on an annualised basis.

• Goldman Sachs jumps back into the supercycle boat Goldman Sachs expects a commodities supercycle driven by China and the capital flight from energy markets and investment this month after concerns triggered by the banking sector, the U.S. bank’s head of commodities said.
• “Historically, when you have this kind of scarring event, it takes months to get capital back … We will still get a deficit by June and it will drive oil prices higher.”
• Jeff Currie, global head of commodities for Goldman Sachs, told the Financial Times Commodities Global Summit on Tuesday.

• 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 – Alliance Aviation Services (AQZ AU), 111 Inc (YI US), Genesis Minerals (GMD AU), Aag Energy Holdings (2686 HK), Tyro Payments (TYR AU), Estia Health (EHE AU). 
• Lowest spreads – Mincor Resources NL (MCR AU), Healius (HLS AU), Golden Energy & Resources (GER SP), Boustead Projects (BOCJ SP), GK Goh Holdings (GKG SP), Nippon Steel. 

• Syngenta AG (SYNN SW), a world-class agribusiness, is seeking to raise US$9.5bn in Shanghai’s STAR market at a valuation of US$50bn. The Shanghai bourse will review the filing on 29-March.
• The business is in rude health with accelerating growth, market share gains, solid margins and cash generation. The IPO proceeds will help reduce leverage. 
• A US$50 billion valuation is justifiable and implies a modest discount to peer multiples (including an AH premium). The IPO is worth a look.

• Dow Inc is a giant in the global chemicals industry and a material science leader providing customers with cutting-edge, eco-friendly packaging and infrastructure solutions.
• The company is dealing with its fair share of challenges on account of slower GDP growth, complex energy markets, and client destocking.
• The company proactively reduced operating rates to manage working capital, effectively implemented operational mitigation plans and cost-saving measures and lowered operating rates.

• This is our first report on Dow Inc., a behemoth in the global chemicals industry.
• The company proactively reduced operating rates to manage working capital, effectively implemented operational mitigation plans and cost-saving measures and lowered operating rates.
• In the Deer Park acrylic monomer plant in Performance Monomers, Dow anticipates higher scheduled maintenance turnaround costs in this segment.

• Eastman Chemical Company is a major player in the chemical industry.
• The company has been facing the adverse effect of macroeconomic volatility and its top-line performance has been below-par despite the impact of price increases.
• Baptista Research looks to evaluate the different credit strengths and credit risks of the company as well as a line-by-line analysis of the financial statements of the company for the past four years.

• This is our first report on the renowned chemical industry giant, Eastman Chemical Company.
• The company delivered a highly disappointing set of results given the macroeconomic volatility.
• We initiate coverage on the stock of Eastman Chemical Company with a ‘Hold’ rating.

• In this insight, we take look at Quiddity’s estimations for index changes and capping flows for the Taiwan Div+ index for the June 2023 review.
• I currently see 3 ADDs and 3 DELs but there are several names close to the border and expectations could change before the base date as prices move around.
• I also currently expect capping flows of US$705mn one-way with multiple names with more than five days to trade.

• Established in 1980, PT Medco Energi Internasional Tbk (Medco) is an independent oil and gas operator in Indonesia with upstream oil and gas exploration and production as its core business.
• In addition to this, the company also has investments in power generation through fully owned subsidiary PT Medco Power Indonesia (MPI) and copper, gold and coal mining through 23.1% owned PT Amman Mineral Nusa Tenggara (AMNT).
• Both the power and mining entities are outside of the restricted group and will be independently managed, with debt undertaken to be of non-recourse to Medco.

• In this insight, we take a look at Quiddity’s estimates for the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.
• Two changes could happen between DAX and MDAX while there could be one change between MDAX and SDAX.
• There could be more changes for the MDAX and SDAX indices as a couple name are lurking close to the border.

• BAU’s flagship Ulu Gold Project in Nunavut has one of the highest-grade resources in the country at over 7.0 g/t Au
• Both of the Company’s projects combine to control 45km of the High Lake Volcanic Greenstone Belt.
• The Ulu Gold Project hosts an NI43-101 compliant resource of 572 Koz grading 7.02 g/t Au in the measured and indicated category and 303 Koz Au grading 7.34 g/t Au in the inferred category.

• When it comes to investing, an important skill is what poker players call game selection.
• In the poker world, it means finding the right opponents to play against.
• In the investing context, it’s what Charlie Munger is referring to when he says “fish where the fish are”.

• Evolution is committed to a strategy of maximizing total shareholder returns through a combination of acquisitions to scale the business and returning cash to shareholders through dividends and common stock repurchases.
• The strategy is underpinned by a conservative financial posture.
• The board declared a quarterly dividend of $0.12/share for 3QFY23, marking the 38th consecutive quarterly cash dividend.

• There could be an addition to the S&P/ASX 100 Index and S&P/ASX 200 (AS51 INDEX) in April following OZ Minerals Ltd (OZL AU)‘s acquisition by BHP Group Ltd (BHP AU).
• Then there could be another change for the S&P/ASX 200 (AS51 INDEX) at the regular rebalance in June.
• Passive trackers will need to trade between 4.5-18 days of ADV on the potential adds/ deletes. Short interest has started to increase on a couple of stocks.

• Wyloo has launched an unconditional off-market takeover bid for Mincor Resources NL (MCR AU) at A$1.40 per share, a 34.6% premium to the undisturbed price. The offer opens 5 April.
• In certain aspects the offer is attractive. The offer values Mincor at a premium to peer and precedent transaction EV/Resource and EV/Reserve multiples.
• However, the offer is at a discount to recent share prices and price targets. Rival bidders (BHP Group Ltd (BHP AU) or IGO Ltd (IGO AU)) could also emerge. 

• Nickel explorer Mincor Resources NL (MCR AU)‘s board urges shareholders to take no action in response to the on-market takeover from Andrew Forrest’s backed Wyloo Metals.
• Wyloo is offering A$1.40/share. The offer period commences on the 5 April and runs until the 8 May – unless extended. However, Wyloo’s broker is already standing in the market. 
• Wyloo, together with associates, control 19.87% of the voting power in Mincor. Currently trading 5.7% through terms

• PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ), an Indonesian nickel play, has launched an IDX IPO to raise US$1 billion. Book building ends on 24 March.
• We previously discussed the IPO in Harita Nickel IPO: The Bull Case and Harita Nickel IPO: The Bear Case.  
• In this note, we discuss valuation. Our analysis suggests that Harita is fairly valued at the IPO IPO price range of IDR1,220-1,250 per share. We would participate in the IPO.

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.

• Sino-Ocean Service
• Vedanta Resources

• Vulcan Materials Company is a well-known producer, distributor, and seller of construction materials.
• The company did continue its reliable cash generation and careful capital deployment and its free cash flow conversion has been above 90% on average over the last four years.
• Baptista Research looks to evaluate the different credit strengths and credit risks of the company as well as a line-by-line analysis of the financial statements of the company for the past four years.

• FMC Corporation is a major agricultural sciences player in the U.S.
• The company has been witnessing high volume growth and its aggressive pricing has helped build a strong financial position.
• Agricultural markets remain strong with high commodity prices, expanding cropland, and optimistic grower sentiment.

• CF Industries is one of the largest producers of nitrogen products across the globe.
• CF’s overall performance was fairly good against the backdrop of a continually tight global supply-demand balance for nitrogen.
• Baptista Research looks to evaluate the different credit strengths and credit risks of the company as well as a line-by-line analysis of the financial statements of the company for the past four years.

• WestRock Company is one of the largest providers of fiber-based paper and packaging solutions across the globe.
• The company has been on the receiving end of strong economic volatility and this has affected its financial performance in 2022.
• Baptista Research looks to evaluate the different credit strengths and credit risks of the company as well as a line-by-line analysis of the financial statements of the company for the past four years.

• PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ), an Indonesian nickel play, has launched an IDX IPO to raise US$1 billion. Book building ends on 24 March.
• In Harita Nickel IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The key elements of the bear case rest on weakening market sentiment, high single customer dependence, gross margin pressure, high cash burn, rising cash collection cycle and deteriorating cash conversion.

• The IE considers Tianqi Lithium (9696 HK)/IGO Ltd (IGO AU) JV’s A$0.50 offer for Essential Metals (ESS AU) to be fair and reasonable as it is higher than its A$0.283-0.468 valuation. 
• Odey, the recent substantial shareholder, hoped for a competing proposal which has not materialised. On 10 March, Odey sold down 21% of its holding at A$0.48 per share.
• Barring an unlikely competing proposal, this is done. At the last close price and for the 5 May payment, the gross and annualised spread is 3.1% and 28.4%, respectively.

• Back on the 9th Jan, small lithium player Essential Metals (ESS AU) entered into a Scheme with Tianqi Lithium JV, comprising Tianqi (9696 HK) (51%) and IGO (IGO AU) (49%). 
• The Scheme Booklet is now out, with a Scheme Meeting tabled for the 20 April. The Independent Expert reckons the Scheme Consideration is fair. FIRB is no longer required. 
• This is done and has traded tight from the onset.

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

• This is our first report on Vulcan Materials Company, a renowned producer, distributor, and seller of construction materials.
• Vulcan’s last quarter was a major disappointment as it failed to meet the revenue expectations as well as the earnings expectations of Wall Street.
• We initiate coverage on the stock of Vulcan Materials Company with a ‘Hold’ rating.

• META announced a Joint Development Agreement (JDA) with a confidential global battery OEM for its NPORE® battery separator materials. 
• The company is partnering with a top 10 battery OEM to jointly develop and adapt NPORE as a battery separator solution.
• Details were limited given the confidential nature of the JDA, but we will look for updates on the upcoming 4Q earnings call.

• PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) is looking to raise about US$650m 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 look at our earnings assumptions, and share our thoughts on valuation.