Energy & Materials Sector

• CPMC Holdings (906 HK) disclosed a competing pre-conditional voluntary offer from ORG Technology Co., Ltd. A (002701 CH) at HK$7.21, a 4.9% premium to Changping Industrial’s HK$6.87 offer.  
• Like the Changping Industrial offer, ORG’s offer is pre-conditional on regulatory approvals and has a 50% minimum acceptance condition. Changping Industrial has secured all regulatory approvals except SAMR. 
• ORG’s skinny premium and precarious irrevocable from Mr Zhang Wei suggests Changping Industrial’s next move is to secure Mr Wei’s irrevocable with a revised higher offer.

• 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: MMG (1208 HK) US$1.2 billion rights issue. Shift Up (462870 KS) seeks to raise up to US$320 million.
• Event-Driven developments: Asia Cement China (743 HK), CPMC Holdings (906 HK), Chilled & Frozen Logistics Holdings (9099 JP),  Nagatanien Holdings (2899 JP), Teijin Ltd (3401 JP), Altium Ltd (ALU AU). 

• After six months had elapsed, and CPMC Holdings (906 HK)‘s Offeror just needing SAMR/SAFE clearance before launching a firm bid, a competing Offer from ORG Technology (002701 CH) appeared unlikely. 
• Yet in a surprise move, ORG has made a pre-conditional (NDRC, SAFE, MoC, SAMR, and shareholder approval) Offer at HK$7.21/share, a 4.9% premium to the ongoing SASAC/NCSSF Offer. 
• ORG’s pre-con Offer also has a 50% acceptance condition. ORG and concert parties have 24.43%. And Zhang Wei (22.01%) has given has an irrevocable. Directors have 0.87%. Intriguing situation. 

• The European gas market panics despite 70% storage levels after Norwegian outage.
• Disruption exposes Europe’s vulnerability due to reliance on few gas suppliers. Norway supplied 30% of Europe’s gas in 2023.
• Rising demand from Asia eating up some of Europe’s gas imports. Competition between the two continents to intensify as global demand picks up.

• Frontline management reported an impressive Q1 2024 during the earnings call due to the booming security situation in areas such as the Gulf of Aden and the Red Sea, which has influenced the company’s decision-making.
• Consequently, all Euronav vessels now sail under Frontline.
• However, the earnings were impacted negatively due to disruptions in the Suez Canal passages.

• Article discusses anchoring and insufficient adjustment in behavioral finance using Long Kansai Paint as an example
• Despite profits increasing, stock price remains low leading to valuation at an 8-year low
• Comparisons to global paint industry benchmarks show potential for KP to improve performance and valuation

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.

• Countries across the ASEAN region continue to invest on developing their respective EV markets with governments introducing new initiatives and offering further incentives.
• The price war among Chinese EV players has escalated in recent month, causing pressure on non-Chinese players. European and Japanese EV makers are increasingly looking at ASEAN for cost advantage.
• The four companies we looked at have reported earnings and we have discussed their latest results and our investment thesis.

• SHFE silver premium over COMEX silver has escalated to 7%, exacerbated by falling SHFE silver inventories, indicating a deepening shortage in China.
• Surging demand from China’s rapidly growing solar industry and renewable data centers is deepening the global silver deficit, now projected to continue at record levels for a fourth year.
• The strong bullish outlook for silver suggests that the bullishness in silver prices is likely to continue in the near-term.

• Sidara has submitted a fourth and final 230p/share cash proposal. Wood’s Board has changed tack and will grant due diligence. PUSU has been extended to 3 July.
• This proposal represents 39.4% premium, implied equity value of £1,591 million ($2,033 million) and implied EV of £2,983 million ($3,122 million), and (still good value) 6.4x EV/NTM Fwd EBITDA.
• The market is cautious (gross spread 12.5%). There’s potential for a “best & final” firm offer. However, if Sidara withdraws a significant sell-off in Wood’s shares is expected.

• Long Brookside Energy offers high-quality assets at a significant discount to its net present value and reserves value
• Investors are essentially getting 5,000 acres, 1,400 barrels of production, and 12 million barrels of reserves in the South SCOOP play in Oklahoma for a bargain
• Management is actively buying back shares to take advantage of the undervaluation, with plans for more buybacks in the future

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.

• 1Q24 production was 802 bbl/d with average realized price of US$82/bbl. This is in line with our expectations.
• Operating netbacks for the period stood at C$2.2 mm, also in line with our expectations
• Operating cashflow before changes in working capital was (C$0.37 mm).

• Asia Cement China (743 HK) disclosed a Cayman scheme privatisation offer from Asia Cement (1102 TT) at HK$3.22. Including the dividend, the total offer is HK$3.26, 1.7% below the last close. 
• The offer, which is final, is unattractive as it is materially below net cash and historical trading ranges. The disparity cannot be justified by the potential cash burn this year.
• While no shareholder holds the 10% blocking stake, the high AGM minority participation rates and emerging retail opposition suggest a high chance of a deal break. 

• After Chinese cement play Asia Cement China (743 HK) (ACC) was suspended on the 28th May, a punchy Offer from its parent Asia Cement (1102 TT) was expected. 
• Not to be. Asia Cement is offering $3.22/share, best & final. A 3.01% discount to last close, ~ 45% premium to undisturbed, and a whopping 37% discount to net cash.
• Asia Cement plus concert parties hold 73.38%, so a blocking stake at the Court Meeting is 2.662%. One (possible) aspect in Asia Cement’s favour is that ACC is not shortable.  

• OPEC+ decided to extend production cuts to the end of 2025. It also plans to ease voluntary output cuts starting this October.
• Easing hints sent oil prices tanking, shedding 5% over two days. Weak demand and ample supply thanks to overproduction by OPEC+ members lend little price support.
• Summer driving season will ramp up gasoline demand. Weather might dampen demand, but panic buying will more than offset the demand pullback.

• Archer Ltd reorganized to address over-leveraged balance sheet hindering reinvestment and growth
• Company’s $506 million net debt at 5.3x leverage led to challenges in credit facilities due to ESG pressures and price volatility
• Secured 1st lien credit facility, 2nd lien bond, and equity financing at discounted rate to strengthen capital structure for future growth

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.

• Mmg Ltd (1208 HK) today announced a 2:5 Rights Offering to raise US$1.15bn at HK$2.62/share in order to pay down debt from their recent Botswanan copper mine acquisition. 
• It was a sizeable acquisition, and the near-term EV/EBITDA of the acquisition is 10x or above. The longer-term EV/EBITDA is in the 3s based on expansion later this decade.
• The Rights Offering is underwritten, supported by its 67.5% owner. SOUTHBOUND holds 10+%. There are short dynamics, arb dynamics, “don’t wanna spend more” dynamics. There’s a path here.

• Mmg Ltd (1208 HK) will raise HK$9.1bn (US$1.2bn) through 2 rights shares for every 5 existing shares rights offering. The rights price is HK$2.62, a 24.7% discount to the TERP.
• The rights proceeds will be used to repay existing debt, which will allow it to use other funds to better support the ongoing development of the operating mines.
• MMG shares should continue to decline heading into the ex-rights date. The shares go ex-rights on 11 June, and the rights start trading from 24 June to 2 July (inclusive).

• Back in February last year, the Aussie Treasurer prohibited Yuxiao Fund from buying an additional 9.92% in Northern Minerals (NTU AU) which would have increased its stake to 19.9%.
• On the 20th November 2023, Yuxiao sought the removal of Nicholas Curtis as director of the rare-metal play at an EGM; however Curtis resigned his post and the EGM cancelled.
• The Aussie Treasurer has now made orders requiring Yuxiao and four (deemed) associated investors to sell their holdings (~10.4% all-in) within 60 days. 

• Short term overhang from expanded share count and selling from unwilling participants
• The copper supply and demand story is intact and the fundamentals of the company remain strong
• Parent’s uptake of the rights is positive but the stock will take time to build a base for the next leg up 

• Conocophillips is set to acquire Marathon Oil in an all-stock deal (0.2550 COP US per 1 MRO US) valued at $22.5 billion ($30.33/share), including $5,379 million in net debt.
• Most of the frenzy in the US oil industry has focused on the consolidation within the Permian Basin, a maturing region that offers opportunities to reduce costs and increase profitability.
• The acquisition of Marathon will add highly complementary acreage to ConocoPhillips’ existing U.S. onshore portfolio. Spread as of 4 June is 2.6%/4.7% (gross/annualised, assuming settlement by late Q4).

• May was silver’s time to shine, hitting 12-year highs up 13.7% on the month, significantly outperforming gold and other metals.
• The silver equities also followed suit, up 13.4%.
• Gold and copper posted smaller gains, despite both metals setting all-time highs mid-month, closing up 0.2% and 1.7%, respectively.

• Yankuang Energy Group (1171 HK) is looking to raise up to US$608m through a primary follow-on, via selling 270m H-shares.
• The deal is a somewhat large one to digest, at 10.6 days of three month ADV and 2.7% of current mcap.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• The June 2024 index review results for the SSE 50 and SSE 180 indices were announced after market close on Friday 31st May 2024.
• There will be 5 changes for the SSE 50 index and 18 changes for the SSE 180 index.
• These changes could collectively cause one-way index flows of ~US$1.8bn during the June 2024 index rebal event. In this insight, we take a look at our final flow expectations.

• Brent crude has weakened by $10 since early April, with the prompt time spread indicating plentiful supply relative to consumption
• Demand for crude oil for combustive fuels like gasoline and diesel is expected to peak towards the end of the decade, while demand for natural gas liquids used in petrochemical production is set to rise
• Preliminary demand data for April showed signs of improvement, with observable oil inventories increasing, particularly in China, due to lower oil prices prompting stockpiling

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• The Holy Grail of Commodity Trading? If there is a holy grail of commodity trading, I would say it’s becoming a master in reading the movements in the futures forward curve.
• Knowing how futures contracts change and how the curve shifts from contango to backwardation, and vice versa, gives commodity traders a lot of useful info about the physical supply and demand.
• While many market participants argue about the meaning and definition of backwardation and contango, the direction in which the spreads are actually moving is far more important to us.

Tata Steel’s Q4 and FY 2023-24 numbers were weak in our view, with the restructuring of the UK operations weighing on group performance and offsetting the robust Indian business. The financial risk profile deteriorated significantly, due to lower earnings and soft cash flows. Liquidity was inadequate, driven by the poor cash flows and large dividends.

We expect the steel industry’s operating environment in FY 2024-25 to be constructive and support Tata Steel’s earnings. However, the company’s solid earnings for the Indian operations should be offset by the restructuring of the UK business, for which another GBP 1.6 bn of additional costs is projected. It is unclear if there is light at the end of the tunnel.

• 1Q24 production (excluding NGL) in the Williston was 1,151 boe/d.
• This is 140 boe/d above our expectations and ~100 boe/d above 4Q23 production.
• Production in March (excluding NGL) had increased to 1,212 boe/d.

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

• The northern flank at Hibiscus, appraised by the DHIBM-7P pilot vertical well, is estimated to hold 8-12 mmbbl gross reserves (Panoro WI: 17.5%).
• This is above our early estimate of 8 mmbbl.
• The well was drilled from the pilot hole of the recently drilled Hibiscus South well that had already encountered 5-6 mmbbl recoverable resources in a north-east extension of the field.

• SLCA has seen a decrease in shares and reduction in debt, making its enterprise value cheaper
• Core thesis remains unchanged, with focus on potential split of company’s two businesses for separate valuations
• Recent acquisition in frack sand business by Atlas Energy provides comparable valuation exercise for SLCA, suggesting potential value of company’s assets and opportunity for increased valuation in the future

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.

• Blackstone (BX US) is widely reported to have agreed to acquire Teijin Ltd (3401 JP)’s 55% stake in Infocom Corp (4348 JP) at a valuation of JPY260 billion. 
• If the valuation refers to market cap and Teijin shares its tax benefits, Teijin’s sale proceeds are around JPY128 billion, which is 42% of its market cap.
• However, since 9 May, Teijin shares have been flat vs. Infocom shares are up 63%. Teijin’s medium-term plan suggests that the Infocom proceeds could result in substantial share buybacks.

• There are 12 changes for the CSI 300 Index (SHSZ300 INDEX) and 50 changes for the CSI Smallcap 500 Index (SH000905 INDEX) in June. Most changes were expected.
• There are a lot of stocks with over 1 day of ADV to trade. The round-trip trade in June is estimated to be US$5bn.
• The adds have outperformed the deletes for both indices but the return profile of a long adds/ short deletes trade for the CSI500 Index is a lot smoother.

• I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed on Smartkarma this week:Huafa Property Services Group (982 HK)‘s Scheme. Asia Cement China (743 HK) also suspended pursuant to the Takeovers Code. 
• Key updates took place on: QV Equities (QVE AU), Boral (BLD AU), Greatview Aseptic Packaging (468 HK), Sciclone Pharmaceuticals (6600 HK), and Chilled & Frozen Logistics Holdings (9099 JP).

• On the 9th May, Shandong Xinjufeng (301296 CH) (XJF) made a pre-conditional voluntary general Offer at $2.65/share (best & final), contingent on a 50% acceptance. Final/special dividends to be added.
• GAPack(468 HK) has made it clear that XJF is a competitor of GAPack. And Mengniu (2319 HK) may review its relationship if pre-cons are satisfied/waived; or the Offer gets up.
• XJF has announced the necessary applications have been sent to NDRC, MoC, and SAMR; and it prepping for a shareholder meeting to approve the Offer. 

• Eagle Materials, a producer of building materials such as cement and concrete, concluded the fiscal year 2024 with robust financial performance, reflecting in its record revenue of $2.3 billion and record diluted EPS of $13.61.
• The financial results were primarily attributed to the company’s dedicated workforce and superior quality products, which continue to attract customer support and investor confidence.
• A highlight of Eagle Materials’ operational performance was its effective execution of safety measures.

• 24mos ago, Kansai Paint (4613 JP) announced a new MTMP, a large buyback, and plans to unwind cross-holdings. Big. 15mos ago a large secondary offering kicked off the festivities.
• Key was Toyota sold. Then KP could sell its Toyota shares – two-thirds of its cross-holdings. The offering was one to buy. A buyback followed. KP vs Nippon Paint doubled.
• KP offered a CB recently with the delta hedge done by TN-3. Now there is a HUGE new buyback. Really big. This gets rid of more cross-holders. And there’s more.

• VAALCO has brought online four new long (2.75 mile) lateral wells in Canada.
• Three wells delivered IP rates of 500 bbl/d while the fourth well flowed 350 bbl/d for a total production capacity addition of 1.85 mbbl/d.
• This is a good result and compares with individual IP30 oil rates of 374-444 bbl/d achieved at the two wells drilled in 2023.

• The 1Q24 production of 2,730 boe/d was close to our expectations.
• Arrow’s cash position of US$11.6 mm was also in line.
• The first water disposal well at RCE is being brought into production and the conversion of the CN-4 well is currently waiting regulatory approval.