Energy & Materials Sector

• Diversey Holdings is a provider of cleaning and hygiene products in the hospitality, healthcare, food and beverage, food service, retail, and facility management sectors.
• Their suite of solutions combines patented chemicals, dosing and dispensing equipment, cleaning machines, and services.
• Headquartered in the US, Diversey is a multinational serving more than 85,000 customers in over 80 countries with a network of 8,500 employees.

• Ecolab is a major provider of water, hygiene and infection prevention solutions and services.
• The company has been benefitting from the recent price increases which has resulted in consistent double-digit organic sales growth in recent results.
• They also invested in select breakthrough innovations to help customers save more water, energy, and cost, especially in Europe.

• This is our first report on PPG, a well-known manufacturer of paints, coatings and specialty materials.
• The company performed well in several of its companies, notably PPG Comex.
• They also began collaborating with the HD Supply team to find new paint clients, particularly in the commercial maintenance sector.

• This is our first report on Ecolab, a major provider of water, hygiene and infection prevention solutions and services.
• The company delivered a below-par result with revenues just about meeting Wall Street expectations on account of the price increases.
• The company saw overall pricing increasing from 9% to 12% and consistent double-digit organic sales growth of 13%.

• PPG is a renowned manufacturer and distributor of paints, coatings and specialty materials.
• The company’s recent financial performance has been solid and has been supported by ongoing real-time price hikes.
• The company has consistently performed well in several of its companies, notably PPG Comex.

• In March 2022, longtime Cosmo Energy Holdings (5021 JP) holder Mubadala sold the last 15.7% of Cosmo Energy in a block sale after having sold 5% 8 months earlier.
• A month later it was revealed noted Japanese activist Murakami-san had bought 5.1%. A week later it was 8.3%. Then he bought more. Cosmo announced a buyback in May 2022.
• By November Murakami-san had 19.8%. But behind the scenes there had been discussions and those are now coming to light. Cosmo has announced possible defence measures.

• Refiner/retailer Bangchak Corporation (BCP TB)‘s board has approved the purchase of a 65.99% stake in Esso Thailand (ESSO TB) from Exxon Mobil (XOM US).
• The purchase price is subject to a price adjustment mechanism and will only be known upon completion of the SPA. The indicative Offer Price is THB 8.84, 20% below undisturbed. 
• Once completed – tentatively anticipated in the 3Q23 – a mandatory tender offer will be triggered for the remaining 34.01% of shares out in Esso. 

• Holcim is reinventing itself. Recent acquisitions such as Elevate (formerly Firestone Building Products), Malarkey, and PRB Group are supporting the Company’s move towards becoming a global ‘green’ leader in building. 
• New 2025 Strategy ‘Accelerating Green Growth’ in full force. Transformation in the making.
• Strong balance sheet, strong cash flow generation. Holcim’s profile has evolved for the best, including improved ESG standings, and therefore, we expect a re-rating of the Company. Over 25% upside

• Survival Technologies (1279515D IN) is looking to raise around US$121m in its upcoming India IPO. The deal will be run by JM Financial, and ICICI Securities.
• Survival Technology (ST) is a contract research and manufacturing services (CRAMS) focused speciality chemical manufacturer in India.
• As per CRISIL, the firm is one of the leading CRAMS companies in India in terms of manufacturing of select chemical products as of Mar 22.

• We currently see the market indexes as consolidating within broad horizontal trading ranges, and we expect these ranges to continue for months, and quite possibly for the entirety of 2023.
• We see the top-end of the range at 4100-4165 on the S&P 500, while the bottom-end is at the 2022 lows (3490).
• With yesterday’s break above 3910 it tells us a tradable rally has begun, with 4100-4165 our target

• Harmony Gold’s profitability ratios are severely compressed at both their current levels and their cyclical peaks.
• Apart from lucrative dump mining sites, the company generally operates a high-cost model.
• The security’s total return prospects are gloomy as Harmony’s stock lacks carry returns and its price returns remain severely speculative.

• Matador Resources’ exponential growth trajectory could be crushed by less supportive oil and gas prices, which might compress the firm’s earnings per share.
• However, acquisitions and expansion projects will be challenging during a period embodied by unfavorable capital structures and recession risk.
• It’s been ten months since we covered Matador Resources’ (NYSE:MTDR) stock.

• Rex International Holding (REXI SP) has announced further investments outside of its core oil&gas portfolio both related to its major shareholder. A major red flag.
• It is unclear whether these investments will bring real value to Rex as minority investors generally hate related party transactions without clear justification.
• The latest drilling campaign in Oman again encountered operational issues giving fuel to the bears that Rex is not capable of successfully operating its own fields.

• China Internet Investment Finance Holdings (810 HK) (CII), an investment manager, is currently suspended pursuant to the Hong Kong Code on Takeovers and Mergers. 
• CII has thrice responded to unusual price action in its share price in the past four months. Shares are up a staggering ~1,000% in the past six months.
• This insight provides some background information on CII. Trading at 64x book value, this is one avoidable company. 

• In its Target Statement released this afternoon, Norwest Energy NL (NWE AU) has rejected Mineral Resources (MIN AU)‘s off-market scrip Offer.
• Norwest concluded the Offer was opportunistic and did not boast an appropriate premium for control.
• MinRes’ Offer closes on the 6 February – unless extended.

• The subscription starts on January 19, so the pricing is January 16, three trading days earlier. The shorting restriction runs until January 16, which means the 16th is inclusive.
• There was no arb spread opening during the last four trading days of the subscription rights trade period. Nonetheless, this event had some impact on Lotte Chemical’s futures trading.
• Considering this, the trade that can be considered at this point would be unhedged shorting. We target potential inflow to adjust the second issuing price downwardly and post-listing overhangs.

• Essential Metals (ESS AU) has entered a SID with a Tianqi Lithium (002466 CH)/IGO Ltd (IGO AU) JV at A$0.50, a 44.9% premium to the undisturbed price (6 January).
• The scheme is subject to shareholder and FIRB approval. The FIRB should approve a 49% Aussie-owned offeror for a project to be processed in Australia.
• There is a possibility of a competing bid as the offer is far from a knockout bid and ESS lacks substantial shareholders. The scheme meeting is in April. 

• In this insight, we take a look at the potential index changes for S&P ASX 20, 50, 100, 200, 300 in the run up to the March 2023 Rebalance.
• I expect there to be one, two, and four changes, respectively, for the ASX 20, ASX 100, and ASX 200 indices in the March 2023 Rebalance. 
• For ASX 300, there could be 14 ADDs and 12 DELs in the March 2023 Rebalance including some high impact names based on days-to-trade.

• Mineral Resources (MIN AU)‘s off-market takeover offer at 1 MIN share for every 1,367 NWE shares closes on 6 February. The target’s statement will be despatched by early to mid-January.
• The Norwest Energy NL (NWE AU) Board recommends shareholders take no action. The timing is opportunistic and motivated by recent Perth Basin consolidation activity. 
• Hancock’s latest bid for Warrego Energy (WGO AU) suggests that Norwest is worth at least 20% more than MinRes’ offer. Expect the Board to reject the offer.

• TEMC announced its IPO price of 28,000 won, which was lower than the IPO price range of 32,000 won to 38,000 won.
• There were 560 institutions that participated in the IPO bookbuilding survey and the demand ratio was 31.3 to 1.
• Our base valuation is 38,363 won per share, representing a 37% upside to the IPO price of 28,000 won. The reduced IPO price has made the IPO more attractive.

• Chevron has nearly doubled since I first laid out my investment thesis, all the while negative sentiment remained high.
• Short-term volatility is to be expected, however, remaining focused on the long-term competitiveness of the business is more important, according to the company’s chief executive.
• Flashback to early 2021: Share prices of high-growth and technology companies are making new highs.

• In the world of natural resources, iron ore is probably the most China-centric commodity — even more than crude oil, copper or soybeans.
• Beijing accounts for more than 70% of the world’s imports of the mineral.
• Therefore it’s not hard to see that there is a direct correlation between Iron ore prices and the health of the Chinese economy.

• Small lithium player Essential Metals (ESS AU) has entered into a Scheme with the Tianqi Lithium JV, comprising Tianqi Lithium (9696 HK) (51%) and IGO Ltd (IGO AU) (49%). 
• The Scheme Consideration of A$0.50/share is a 45% premium to last close, and a 36.3% premium to the 30-day VWAP. 
• Standard Scheme conditions apply. FIRB required. The Scheme Booklet is due out in March, with a shareholder meeting expected in April 2023. Possible implementation in May 2023.

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.

• Talk about a crowded register. Gina Rinehart’s Hancock has 25.91%, Strike Energy (STX AU) has 19.9%, and now a new player, possibly MinRes (MIN AU), has taken a ~15% stake.
• 186mn shares in Warrego, or 15.2% were crossed in after market yesterday at HK$0.35/share. Regal Funds is understood to be one large seller. No shareholding disclosure has emerged. 
• Not one to rest on its laurels, Hancock immediately bumped the Offer to A$0.36/share, up from A$0.28/share, provided it gets to 40%. We need more popcorn.

• Hancock increased its Warrego Energy (WGO AU) off-market takeover bid by 28.6% from A$0.28 to A$0.36 per share along with a 40% minimum acceptance condition.
• Hancock’s latest move is an attempt to ward off a potential offer from a third suitor who has built up a 15% stake (rumoured to be Mineral Resources (MIN AU)). 
• Strike Energy (STX AU)’s all-scrip offer remains the highest as it is the next takeover target. However, Gina Rinehart’s ego suggests that she will persist no matter the cost.

We view JSW Steel as “Low Risk” on the LARA scale. The company has demonstrated a strong and resilient track record throughout the cycle. JSW’s large and growing scale, with increasing vertical integration, partly offsets the industry’s cyclicality as well as JSW’s aggressive expansion plan and acquisitions. The group has weathered the challenging operating environment well, despite a sharp slowdown in the Indian economy in 2019 and the COVID-19 pandemic. Furthermore, the company’s improving vertical integration (in terms of captive iron ore and coal supplies) has reduced exposure to supply and price volatility for raw materials. We note positively the Indian government’s continued willingness to support the domestic steel market, which has partly offset cheap exports from steel-surplus countries (e.g. China, Russia, South Korea and Japan). We also view favourably JSW’s position as the largest player in the Indian market, with a low cost base. The company has managed to turn around Bhushan Power & Steel, which had been acquired in bankruptcy court proceedings.

Our fundamental Credit Bias is “Negative”, due to the sharp deterioration in the operating environment. This was in turn driven by high coking coal prices and increased energy costs.

Controversies are “Immaterial”. While JSW has faced some issues (e.g. villagers’ protests against plants or controversial land sales by local governments to the company), such events are immaterial and quite common in India. The ESG Impact on Credit is “Neutral”. The metals & mining industry is exposed to regulatory and geopolitical risks, and the nature of the extraction process places JSW under scrutiny from environmental agencies and investors. However, the company has managed these well, considering the significant ESG efforts it has made.

• The AFR reports that Mineral Resources (MIN AU) was the buyer of 15% of outstanding shares at A$0.35, 25.0% above Hancock and 4.5% above Strike Energy (STX AU)’s offer.
• MinRes’ move is motivated by the desire to have a say in the recent Perth Basin consolidation. It recently lobbed an all-scrip takeover offer for Norwest Energy NL (NWE AU).   
• Warrego Energy (WGO AU)‘s three largest shareholders are now the three suitors. The emergence of MinRes (if confirmed) suggests that the takeover battle is far from done. 

• Market dynamics remain largely bearish/unchanged, and we are sticking with our call that breaks of supports on SPX, IWM,QQQ are likely to result in a test of the 2022 lows.
• The Nasdaq 100 (QQQ) is already testing its 2022 lows, but the S&P 500 and Russell 2000 (IWM) are still 6-9% above their 2022 lows.
• Depending on how the market responds to its 2022 lows, that could be a better area to increase risk.

• Air Products and Chemicals is a behemoth in the industrial gases domain and is the third-largest industrial gas supplier in the world.
• The company has had a decent financial performance off-late as all its regions have seen a gradual improvement in price and volume.
• These initiatives support the company’s energy transition plan and will continue to be a significant source of revenue for it in the future.

• This is our first report on industrial gases major, Air Products and Chemicals.
• The company delivered an impressive result in the last quarter, surpassing Wall Street expectations in terms of revenues as well as earnings per share.
• We initiate coverage on the stock of Air Products and Chemicals, Inc. with a ‘Hold’ rating.

• The firm’s 7.75% dividend yield could escalate should production ramp up.
• However, a monthly Var5% of 24.73% could overshadow any income-based prospects.
• Sibanye’s operations to recover sharply in 2023 with its U.S. PGM back online and South African wage deals being settled.