Energy & Materials Sector

• There are 3 changes for the IDX30 Index, 6 changes for the LQ45 Index, and 7 changes for the IDX80 Index at the rebalance to be implemented on 31 January.
• Largest passive inflows are expected to be on Sumber Alfaria Trijaya Tbk Pt (AMRT IJ) and Surya Esa Perkasa (ESSA IJ). 
• With only 4 days to implementation, there will be relatively big moves on stocks that have large flow/impact from passive fund trading.

• It’s a fair bet Hancock Prospecting and Mineral Resources (MIN AU) are actively discussing the final stages for Warrego Energy (WGO AU) behind the scenes.
• It is unlikely MinRes aggressively builds a ~19% stake in a company subject to a two-way takeover battle, and declares its position “strategic” with no intention of making an Offer. 
• This stake may be a bargaining chip from MinRes to keep Hancock on the sidelines in its tilt for Norwest Energy NL (NWE AU).

• Aag Energy Holdings (2686 HK) entered a trading halt pending the release of an announcement under the Hong Kong Code on Takeovers and Mergers on 26 January. 
• It is likely that Xinjiang Xintai Natural Gas (603393 CH), the largest shareholder representing 56.95% of outstanding shares is seeking to privatise AAG. 
• The potential bid is likely privatisation through a scheme. Multiples from Xinjiang Xintai’s previous voluntary cash offer in 2018 suggest an offer north of HK$2.00. 

• Back on the 14 May 2018, AAG Energy Holdings (2686 HK) announced a partial offer (50.5%) from Xinjiang Xintai Natural Gas (603393 CH) at HK$1.75/share. 
• This morning AAG was suspended pursuant to Hong Kong Code on Takeovers and Mergers.
• I expect a Scheme Offer from Xinjiang Xintai, which currently holds 56.98%. Potentially, Fosun (656 HK) has returned to the well.

• Nitto Denko (6988 JP) today announced Q3 results, lower full-year guidance with one-quarter left to go, sharply undercutting implied Q4 results vs the Street.
• The company also announced a buyback of 4.1-4.7% of shares out over the next 6mos. Assuming the share price falls in reaction, this could be closer to the top end.
• The buyback is non-negligible as a portion of Likely Real World Float and as such the situation is worth a look – for those with a position and those without.

• Exxon Mobil Corporation is engaged in energy business. The Company’s principal business involves the exploration for, and production of, crude oil and natural gas, and the manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a range of specialty products.
• The Company’s segments include Upstream, Downstream and Chemical.
• The Upstream segment is organized and operates to explore for and produce crude oil and natural gas.

• Back on the 10 January, Norwest Energy NL (NWE AU) rejected Mineral Resources (MIN AU)‘s off-market scrip Offer.
• It was apparent what MinRes needed to bump. This was an easy win if they do. On cue, they have now increased the scrip terms and NWE’s directors are supportive. 
• Scrip terms are now 1 MinRes for every 1,300 NWE shares – from 1,367. I think NWE could have held out for more, but it is what it is. 

• Origin Energy (ORG AU)’s exclusivity agreement with Brookfield/EIG expired on 24 January. Brookfield/EIG is reportedly continuing its due diligence on its A$9.00 per share offer.
• Time often kills deals. There is speculation that recent price caps would result in Brookfield/EIG walking away or trying to recut the deal terms. ACCC approval is also an overhang.
• Peers’ share prices have risen despite the price cap which weakens the case for a recut to the deal terms. Brookfield/EIG clearly want Origin as it twice bid against itself. 

• Mining royalties and streams are low-risk alternatives to investing directly in mining companies and commodities
• Royalties and streams have vastly outperformed gold miners over the last 20 years since they are not exposed to exploration risk, capex inflation, or dilution risk while boasting high EBITDA margins and ROIC
• Recent trends include a focus on battery metals, large-scale M&A, and increasing popularity due to poor equity prices among miners Royalties are typically structured as a percentage of the total production or total sales (commodity agnostic).

• Exxon Mobil continues to defy gravity even as markets rolled over in 2022.
• There are better alternatives for those looking for passive income streams, but shareholders should be prepared for more turbulence ahead, according to the author.
• Exxon Mobil’s long-term success is still optimistic on the long- term success of the company.

• 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.
• Every recommendation requires definitive evidence of all 3 pillars to be regarded as a high probability outcome. 
• 5703 JP has a LT double bottom in place and comprehensive MT uptrend confirmation (weekly RSI). Only an appropriate weekly close is required this week to confirm the MT uptrend.

• Mineral Resources (MIN AU) has revised its offer from 1 MinRes share for every 1,367 NWE shares to 1 MinRes share for every 1,300 NWE shares. The offer is unconditional. 
• The Norwest Energy NL (NWE AU) Board now recommends the offer. Most of the value uplift is due to the 17.4% increase in MinRes’ share price since 15 December.
• MinRes’ revised off-market takeover offer is fair in comparison to Warrego Energy (WGO AU)’s bids and historical ranges. However, this is predicated on the MinRes maintaining its share price run.

• Bubble-Stock China Internet Investment Finance Holdings (810 HK) (CIIFH) was suspended on the 10 January pursuant to the Hong Kong Code on Takeovers and Mergers. 
• It has now announced a possible voluntary conditional takeover. No price was mentioned and terms remain indeterminate.  
• CIIFH, which invests primarily in listed Hong Kong securities, is trading at an eye-watering 59.5x NAV. 98% downside from here is conceivable. 

• Asian Paints (APNT IN) reported flat year-over-year volumes and flat sales in domestic decorative paints in 3Q FY23. The company’s gross margin recovery is aligned with easing raw material prices.  
• The company attributed the rough quarter to a heavy base from last year’s price increases and a prolonged monsoon, which impacted October volumes.
• We believe that the volumes are lower than what has been reported.  Increasing competition could challenge APNT’s premium valuation.

• NEXTracker (NXT US) , a leading solar tracker and software solutions provider for utility-scale and distributed generation projects, filed for an IPO.
• According to Crunchbase, NEXTracker (NXT US)  has raised ~$548M in funding over four rounds, and investors include Sigma Partners, DBL Partners, SJF Ventures, and American private equity firm TPG.
• We have a favorable view of the upcoming Nextracker IPO and see upside potential to the last round valuation of ~$3B, when the company announced a strategic investment from TPG. 

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.

• JSW Steel Ltd
• Reliance Industries

• Marathon Oil delivered a mixed result for the quarter as it surpassed the revenue expectations of Wall Street.
• It brought 13 wells to sales, among which 8 were 2-mile laterals and the productivity for these extended laterals is very strong.
• We provide the stock of Marathon Oil Corporation with a ‘Hold’ rating with a revision in the target price.

• Warrego Energy (WGO AU)’s offers from Hancock and Strike Energy (STX AU) close on 31 January and 13 February, respectively. As time passes, the chance of a further bump is slim.
• Mineral Resources (MIN AU) is the kingmaker. A MinRes/Strike pairing results in a combined min of 49.83% to a max of 73.93% of outstanding shares (if Hancock retains its stake).
• A MinRes/Hancock pairing results in a combined min of 45.21% to a max of 69.32% of outstanding shares (if Strike retains its stake). This is the likely scenario.

• With only 5 trading days to go in the review period, we see no constituent changes to the NIFTY Index (NIFTY INDEX) at the March rebalance.
• Pidilite Industries (PIDI IN) is the highest ranked non-index constituent, but its free float market cap does not exceed 1.5x the free-float market cap of Bharat Petroleum Corp (BPCL IN). 
• We do not expect LTIMindtree (LTIM IN) to be added to the index in March post the merger between Larsen & Toubro (LT IN) and Mindtree Ltd (MTCL IN). 

• Sentiment is very important when it comes to trading any financial asset. In terms of commodities, Goldman Sachs seems to be still a bit too optimistic for me.
• This year has started with a pullback in prices driven by warm weather shock and rising interest rates, Jeff Currie, the head of commodities at the investment bank, said at a presentation in London on Monday.
• But demand in China starting to rebound and there’s insufficient investment in supply, meaning the year as a whole will be a “Goldilocks” moment for rising prices, he said. 

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
• Yankuang Energy Group

• At this point, one constituent change is expected, and LG Chem is expected to replace KT&G.
• The return of the equal-weighted long/short basket trade for the constituent changes in the past two years was recorded from 2.3% to 3.8%.
• Both LG Chem and KT&G are expected to have a significant rebalancing flow impact. It can be an event that brings a juicy day trading return.

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. Guangzhou R&F Properties
3. Sunac China Holdings
4. Evergrande
5. Central China Real Estate

and more…

• Pickle Crow represents a medium to long-term development proposition with potential for exploration results that shift the paradigm along the journey.
• We model one of many potential development pathways as a starting point for valuation.
• With a decent lead-time to first gold, exploration results will be the main share-price driver near-term.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Pan American Silver (PAAS) has reported preliminary operational results for FY22. Consolidated silver and gold production of 18.5Moz and 552.5koz were within the earlier guidance ranges (previously revised for silver). PAAS continues to progress its recently announced plan of arrangement to buy all non-Canadian assets of Yamana Gold. Shareholder votes for both companies are scheduled for 31 January, while the leading proxy advisors ISS and Glass Lewis have recommended PAAS shareholders to vote in favor of the proposed share issue to acquire all outstanding Yamana shares. We put our forecasts and valuation of PAAS under review pending upcoming shareholder approvals of the deal, which we believe could be an important catalyst for the stock.

• Back on the 11 January, refiner/retailer Bangchak Corporation (BCP TB)‘s board approved the purchase of a 65.99% stake in Esso Thailand (ESSO TB) from Exxon Mobil.
• The purchase price remains indeterminate (the indicative price is Bt8.84/share), based on a pricing adjustment mechanism as it relates to Esso’s financial accounts at the close of the stake purchase.
• Esso is down 17% since the announcement, and 37% from its recent (Oct-22) high. That seems excessive. 

• With roughly a week left in the reference period, we take a look at the potential ADDs/DELs for the NIFTY 50, 100, and 500 Indices for the March 2023 Rebalance.
• For NIFTY 50, Pidilite Industries (PIDI IN) is the highest-ranked Potential ADD while Bharat Petroleum Corp (BPCL IN) is the highest-ranked Potential DELETE according to our estimates.
• In this insight, we take a look at the recent price performance of names that can potentially be involved in index changes and our flow expectations.

• ACF identifies PPTA as a US national strategic asset (Sb)and best-in-class gold asset.
• Sb: Proven & Probable Reserves 148 Mlbs at 0.06% in 104 Mt.
• Au: Proven & Probable Reserves at 4.8 Moz gold (Au) @ 1.43 g/t.

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
• O-Net Technologies (Group)

• Nickel Industries Ltd (NIC AU) is looking to raise US$185m with the majority of proceeds used to acquire 10% interests in nickel producing assets within the Indonesia Morowali Industrial Park.
• The Indonesia Morowali Industrial Park is part of its ongoing collaboration with Tsinghan Group, a private Chinese nickel and stainless steel producer.
• In this note, we will talk about the firm’s track record and run the deal through our ECM framework.

• We are initiating coverage of Seadrill Ltd. (SDRL) with a Buy Rating and $50 target.
• SDRL emerged from Chapter 11 bankruptcy protection in February 2022 and its shares began trading on the NYSE in October 2022
• The current environment for drill ships is supportive for the business with day rates rising over the past year. With expectation of no new ship builds to saturate anytime soon

• Semen Indonesia came through the worst of 2022 with flat sales, despite lower volumes, with profits rising by +18.9%, driven by cost savings, reduced debt, and use of DMO coal.
• 4Q2022 may see a slowdown given. the onset of the rainy season but the company is well-positioned to ride a recovery in 2023 with additional capacity from Semen Baturaja.
• Semen Indonesia (SMGR IJ) is well set up for a recovery in earnings for the next two years, with great synergies to come from Semen Baturaja. Valuations are well-below historic.

• With the shrinking domestic market, the steel brokerage business is no longer a profitable business for trading companies, so Nippon Steel needs to strengthen its own sales capabilities.
• While this TOB will have negative impact on Nippon Steel’s balance sheet and profit margins in the short term, the steel market may be moving more significantly than we think.
• While it would be better for Nippon Steel to make NISSOL 100% subsidiary, I suspect that NISSOL is still being kept as a card to be sold for cash generation.

The Asia HY Trade Book for January 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.

• Plans are being made to reroute Inkai’s production to avoid Russian infrastructure and port reliance.
• The firm’s joint acquisition of equipment supplier, Westinghouse, might add valuable cost synergies and improve Cameco’s economies of scope.
• Uranium prices remain supportive, and an operational pivot could realign Cameco stock’s valuation.

• Commodity trading houses have shown a stunning performance since 2020.
• So far, there are only a few arguments for why this should change in the near future.
• But also precious metals miners are shining – nevertheless, they have quite some performance to pick up compared to other miners as well as the broad commodity market.