Energy & Materials Sector

• PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) is looking to raise about US$650m in its Indonesian IPO.
• Harita Nickel is a vertically integrated pure-play nickel company operating on Obi Island, Indonesia.
• For our peer comparison exercise, we looked at international nickel mining companies and also included downstream players in the nickel value chain such as Huayou Cobalt and Lygend Group.

• There were a bunch of rebalances on Friday across Asia resulting in big flows across multiple stocks and countries.
• The coming week is quieter with no scheduled rebalances – though the KOSDAQ 150 Index rebalance could take place dependent on Kuk Il Paper Mfg (078130 KS)‘s trading resumption. 
• Inflows to China and Taiwan ETFs while Korean ETFs had outflows. Market volatility resulted in redemptions from iShares MSCI Emerging Markets (EEM) and IShares MSCI Min Vol Emerging Markets (EEMV).

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. China Jinmao Holdings
2. Lifestyle International Holdings
3. Geely Auto
4. First Pacific Co
5. Tata Motors Ltd

and more…

The Asia HY Trade Book for March 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.

• African Rainbow Minerals Limited’s near 30% year-to-date drawdown has presented a value gap.
• The company’s security’s undervalued status, coupled with a dividend yield of above 15%, present us with optimism.
• We assign a strong buy rating to African Rainbow minerals Limited with an indefinite horizon.

On 13 March, Pan African Resources (PAF) announced the completion of the final component in its funding package for its Mintails dump retreatment project outside Johannesburg. The funding is in the form of an innovative transaction with Rand Merchant Bank (RMB) in the style of a synthetic forward sale agreement, whereby Pan African will sell 4,846oz of gold per month to RMB for 24 months, commencing in March at a fixed price of ZAR1,025,000/kg (US$1,750/oz at the prevailing forex rate), in return for an upfront premium of ZAR400m (US$22.0m). Including the upfront premium, the effective price at which the group will sell these ounces (representing c 30% of annual group production) will be ZAR1,135,604/kg (US$1,938/oz at prevailing rates) over the full 24-month period.

• 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 talk about the not so positive aspects of the deal.

• PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ), an Indonesian nickel play, has launched an IDX IPO to raise US$650 million. Book building ends on 21 March.
• Harita is expected to become Indonesia’s largest pure nickel producer based on volume expectations of Harita’s nickel mining production in 2022.
• The key elements of the bull case rest on good underlying revenue growth, near-term capacity expansion, high profitability, capex nearing the peak and manageable leverage.

• Revenue grew 51.7% Y/Y to $0.7 million, compared with $0.5 million in 3Q22.
• Growth in the top-line figure was primarily driven by sales of WAM-V autonomous vehicles and better margins derived from Strategic Consulting Services. 
• A key driver of the revenue trajectory is the order activity, which is up 111% to $3.8 million YTD, with significant additional order activity in various stages of negotiation.

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

• On the 17 February, AAG Energy Holdings (2686 HK) announced an Offer of HK$1.85/share (declared final) by way of a Scheme from major shareholder Xinjiang Xintai Natural Gas (603393 CH).
• At a 10.1% premium to undisturbed and just a 2.2% premium over the highest closing price of HK$1.81/share in the past year, the Consideration price was unreasonable. 
• FY22 numbers are now out, which further illustrates the Offer price’s inadequacy. AAG’s trailing PER and EV/EBITDA are  3.6x and 1.4x. Net cash accounts for 41% of AAG’s market cap.

• Following Kuk Il Paper Mfg (078130 KS)‘s designation as an Administrative Issue, the stock will be deleted from the KOSDAQ 150 Index and replaced with Lake Materials (281740 KS).
• The timing of the index change is currently uncertain but will be implemented latest by the close of trading on 6 April.
• Lake Materials (281740 KS) was up today and is nearing its highs. There could be another leg higher on the inclusion but we’d be wary of chasing the stock higher.

• Aag Energy Holdings (2686 HK) released solid FY22 results which magnify the scheme risk of Xinjiang Xintai Natural Gas (603393 CH)‘s pre-conditional privatisation offer of HK$1.85 per share.
• The FY22 metrics show that the offer values AAG at a lower EV/1P Reserve and EV/Production vs the 2018 offer. It is unattractive in comparison to historical and peer multiples.
• The solid FY22 results and lack of dividends amplify the risk that minorities vote NO. The downside is capped as the shares are trading below the undisturbed price.

• 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 talk about the positive aspects of the deal.

• Over 85% of the way through the review period, we see 14 potential index changes at the June rebalance that will be implemented at the close on 9 June.
• We estimate a one-way turnover of 2.28% at the June rebalance leading to a one-way trade of CNY 5.95bn.
• The potential adds have outperformed the CSI 300 Index over the last two months but have underperformed the potential deletes. The gap has been narrowing recently.

• China Shenhua Energy Co H (1088 HK) could replace Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the June rebalance.
• Short interest on China Shenhua Energy Co H (1088 HK) is pretty small while the short interest on Country Garden Holdings Co (2007 HK) is large and possibly getting bigger.
• The change could result in a big increase in the fair value for the HSCEI 2023 dividend futures. Currently, we estimate an increase of up to 9 DIPS.

Wheaton Precious Metals (WPM) released its Q422/FY22 financial results in the context of known production and sales volumes. As a result, financial results were very close to our prior expectations for both Q422 and FY22. The main (positive) variances were in depletion (US$3.3m) and ‘other’ income (US$1.9m), to result in net earnings that were US$5.0m better than our prior forecasts for both periods (equating to a positive percentage variance of 5.1% for the quarter and 1.0% for the full year).

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

• NPORE shown to be an ideal separator solution for both typical and high-temperature applications. 
• In a recently published white paper, the advantages of NPORE were validated through long-term discharge-rate and cycling testing by Japanese developer iElectrolyte Co., Ltd. using an ionic liquid-based lithium-ion battery (designed for extreme temperature applications).
• NPORE provides outstanding heat resistance compared with conventional polymer separators, which show significant shrinkage at elevated temperatures due to the melting of the polymer (see Figure 1).

Newmont’s Q4/FY22 results, released on 23 February, exhibited stronger production than we had anticipated, albeit accompanied by costs that failed to decline as much as we had hoped. Nevertheless, both production and costs for the full year met the company’s guidance to within its usual tolerance range of ±5%. In addition to its Q4/FY22 results, Newmont also provided updated medium-term guidance for production, costs and capex to FY27 to reflect recent inflationary pressures within the industry, and this note updates both our forecasts and valuation to reflect the company’s updated guidance. In the meantime, Newmont’s potential merger with Newcrest clearly remains alive, with the potential to transform the company if it is successfully brought to fruition.

• This is our first report on WestRock Company, one of the largest providers of fiber-based paper and packaging solutions in the world.
• Pension and foreign exchange rates also had a $57 million negative impact on its year-over-year consolidated adjusted EBITDA growth.
• But Corrugated Packaging improved quarter over quarter, with North American packaging shipments increasing 2% to 373 million square feet per day.

• WWR provided an investor update for 4Q22 and FY22 results, which included a full-year net loss of $11.1 million, compared with a $16.1 million loss in 2021, driven by lower product development costs, partially offset by higher general and administrative costs, as the company continues to add to its team.
• For the year, WWR spent $52.8 million in capex on Phase I of its Kellyton, AL graphite plant and has $75 million in cash remaining on its balance sheet as of the end of 2022, with no debt.
• Agreement with Tier I battery OEM. WWR has entered into an agreement with a Tier I EV battery manufacturer that can result in a finalized offtake agreement for potentially all graphite anode material from the plant.

• This is our first report on one of the largest producers of nitrogen products in the world – CF Industries.
• CF’s overall performance was fairly good against the backdrop of a continually tight global supply-demand balance for nitrogen.
• We initiate coverage on the stock of CF Industries with an ‘Outperform’ rating.

• According to S&P Global, the renewable output by the grid operator MISO averaged 333,012 GWh in Q4.
• Despite Bonneville Power Administration’s (BPA) renewable output slipping 12% in Q4, it remained the footprint with the most renewable market share at 75.6% of its total fuel mix for Q4.
• The latest ACP data shows that the total installed solar capacity in the US grew by 17% year on year, reaching 74.126 GW in Q4.

• This is our first report on FMC Corporation, a major agricultural sciences company in the U.S.
• FMC achieved significant results in the quarter because of high volume growth and aggressive pricing and it managed to deliver an all-around beat.
• Its new product sales are growing quickly, nearly doubling year over year, accounting for 11% of overall sales in the quarter.

• Having completed the large-scale pilot program in December 2022, TMC, along with its NORI partners, consultants, and independent observers, generated and collected a wealth of environmental, technical, and economic data pertaining to deep-sea mining operations the company intends to undertake on commercial scale once the ISA exploitation application is accepted and approved.
• TMC also announced that it joined an international consortium to develop the first ESG handbook for marine minerals in an effort to establish global uniform standards for the evaluation of ESG performance of marine mineral projects.
• In preparation for its exploitation contract application, the company has engaged Bechtel Australia Ltd., a global leader in engineering, procurement, and construction, to collect and compile the various technical and economic studies, including environmental studies, being prepared by the consultants that will form the basis for NORI’s application to the ISA for an exploitation contract.

• The review period for the June rebalance ends 30 April. We expect the changes to be announced 26 May with the implementation taking place after the close on 9 June.
• We expect the index committee to continue using a 6-month minimum listing history resulting in two changes to the index.
• One way turnover is estimated at 1.6% resulting in a one-way trade of CNY 1,442m. The impact on the deletions will be larger than that on the inclusions.

• Dacian Gold Ltd (DCN AU), Gold Resource (GORO US) and Wallbridge Mining Co (WM CN) will be deleted from the index at the close on 17 March.
• One way turnover is estimated at 2.8% resulting in a one-way trade of US$96m. There is over 1 day of ADV to trade on 22 stocks.
• The largest inflows are on Triple Flag Precious Metals (TFPM US), Osisko Gold Royalties, Zhaojin Mining Industry, New Found Gold (NFG CN), Yamana Gold, IAMGOLD and First Majestic Silver.

• There are no constituent changes for the MVIS Global Rare Earth/Strategic Metals Index at the March rebalance. There are free float and capping changes though.
• One way turnover is estimated at 3.1% and will result in a one-way trade of US$19m. Flows are relatively small with no impact over 1x ADV on any stock.
• The June rebalance should have constituent changes with an increase in the number of stocks in the index universe.

• Corteva had a strong fourth quarter and managed to deliver an all-around beat.
• Strong organic sales led to $370 million in profitability for the quarter, an increase in the margin of more than 200 basis points.
• Strong demand for new products was the primary factor in the 9% annual increase in crop protection volume.