Energy & Materials Sector

• Maurel & Prom has made an offer to acquire Wentworth for 32.5 p per share in cash, valuing Wentworth at £61.7 mm.
• Deducting the cash value from the offer price suggests an offer price of 19.6 p per share for Wentworth’s non cash assets.
• This compares to a read through value of Wentworth’s non cash assets based on the share price of Wentworth on 2 December of p per share (25 p less12.9 p).

In the next webinar, we welcome Smartkarma Insight Provider Gauri Anand , who will be sharing with us her Top indian Equity Picks and the investment philosophy behind each of her picks. Have any burning questions about companies like Indian Energy Exchange (IEX IN), VA Tech Wabag (VATW IN), or UPL Ltd (UPLL IN)? Get them answered in the live Q&A that will conclude the session.

The webinar will be hosted on Wednesday, 21 December 2022, 17:00 SGT/HKT.

Gauri Anand is a mid-small cap specialist based in India. With a focus on equities, Gauri combs top down and bottom up approaches to identify themes and value stocks at its inflexion point. Sector agnostic with a value oriented – Inflexion approach, Gauri dives into bottom Up ideas with a biased towards Sustainability and ESG. 

• Nearing the end of the review period for the March rebalance, we see China Shenhua Energy Co H (1088 HK) replacing China Feihe (6186 HK) in the HSCEI INDEX.
• Estimated one-way turnover is 1.64% resulting in a one-way trade of HK$1.02bn with passives needing to buy 1x ADV on China Shenhua Energy and selling 1.7x ADV on China Feihe.
• The change will lead to an increase in the fair value of the HSCEI 2023 dividend futures by over 3 DIPS. Could be more if China Shenhua pays a special.

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.

• US manufacturing contracted in November for the first time since May 2020 as output weakened in the face of a third-straight month of shrinking orders.
• According to data released Thursday, the ISM’s gauge of factory activity slid to 49 from 50.2 in the prior month.
• The measure has fallen in five of the last six months and stands below 50, the threshold separating expansion and contraction, for the first time since the pandemic lockdowns.

• There are 26 inclusions and 5 deletions for the index resulting in a one-way turnover of 46.3% and a one-way trade of TWD 79.52bn (US$2.6bn). That is HUGE!
• There at 14 stocks that have over 5 days of ADV to buy from passive funds while there are 20 stocks with more that 5 days of ADV to sell.
• Over the last 2 weeks and 4 weeks, short interest has decreased on most of the adds while increasing on all the deletes and most of the stocks with outflows.

• 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  21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Genex Power Ltd (GNX AU), Golden Energy & Resources (GER SP), 111 Inc (YI US), Origin Energy (ORG AU). 
• Lowest spreads – Tyro Payments (TYR AU), Nitro Software Ltd (NTO AU), Warrego Energy (WGO AU), Uzabase Inc (3966 JP), Lifestyle International Holdings (1212 HK), Nearmap Ltd (NEA AU). 

• The index changes for the FTSE TWSE Taiwan Dividend+ Index for the December 2022 index review were confirmed after market close on Friday 2nd December 2022. 
• There will be 26 ADDs and 5 DELs which are mostly in line with Quiddity’s expectations.
• In this insight, we take a look at our revised expectations for capping flows taking into account the confirmed index changes for the December 2022 review

• Beach Energy (BPT AU)’s revised offer of A$0.25 per share was quickly gazumped by Hancock’s revised off-market proposal of A$0.28 for Warrego Energy (WGO AU). All other terms remain unchanged.
• Speculation that Strike Energy (STX AU) would also be a takeover target has resulted in its all-scrip offer rising to A$0.248 per share (at last close).
• Expect another round of the takeover battle as the bidders are well capitalised and the strategic importance of Perth Basin as Australia’s premier onshore basin.

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
• Medco Energi

• KRX unveiled the rebalancing results of the CSI KRX China-Korea indices for Korean constituents yesterday.
• There is still insufficient evidence data to estimate specific passive impact. The previous rebalancing in June showed no clear correlation between constituent changes and price impact.
• Although it may be risky to trade on this rebalancing, monitoring the correlation of their passive impact at this point, one year after the release, seems worthwhile.

• Gina Rinehart’s Hancock Prospecting has joined the bidding war for Warrego Energy (WGO AU) with a A$0.23/share, all cash, off-market Offer versus Beach Energy (BPT AU)‘s management-backed A$0.20/share Scheme Offer.
• Hancock has already lodged the Bidder’s Statement. There is no minimum acceptance condition attached to  this offer.
• Warrego currently recommends Beach’s Offer, subject to no superior proposal emerging. Beach has matching rights under the SID entered into on the 14 November. 

• Lygend Resources & Technology (2245 HK) priced its IPO at HK$15.80 per share to raise net proceeds of HK$3.5 billion (US$450 million). The shares will start trading tomorrow.
• We previously discussed the IPO in Lygend Resources & Technology IPO: Riding the Wave and Lygend Resources & Technology IPO: Valuation Insights.
• Peers have re-rated and the IPO price continues to imply a discount to the median peer CY2023 P/E multiple. Therefore, the IPO price remains attractive.

• Hancock’s offer of A$0.23 is at a 15% premium to Beach Energy (BPT AU)’s A$0.20 offer and a 21.1% premium to Strike Energy (STX AU)’s scrip value on 29 November. 
• The Hancock off-market offer for Warrego Energy (WGO AU) has no minimum acceptance condition or a material adverse change clause. The offer closes on 31 January 2023.
• STX could be Hancock’s next logical target to facilitate Perth Basin consolidation. Between STX and BPT, BPT is more likely to return with an improved offer.  

• For the month of November, 11 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$20bn.
• The average premium for the new deals announced (or first discussed) in November was ~52%, and a year-to-date average of 41%.
• This compares to the average premium for all deals in 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 33%, 31%, and 31.5% respectively.

The Asia HY Trade Book for November 2022 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.

• Lygend Resources & Technology (2245 HK) raised US$470m in its Hong Kong IPO.
• Lygend Resources & Technology (Lygend) is a nickel trading and production firm with a portfolio covering multiple areas across the nickel industry value chain.
• In this note we will talk about the trading dynamics.

• Indocement Tunggal Prakarsa (INTP IJ) has had a tough year with rising energy costs prompting price increases which impacted demand but 3Q2022 saw a strong rebound in sales growth.
• Margins remained under pressure but increasing prices and the use of alternative fuels are helping to offset the impact of energy costs and more recently coal prices have been declining. 
• Indocement continues to impress with its focus on sustainability, significantly beating on emissions and dust. Valuations look attractive versus history and with a potential recovery in earnings in 2023.

• Adaro Energy (ADRO IJ) continues to extract huge gains from increased production of coal and higher prices, hitting record levels of sales in 3Q2022 coupled with record margins. 
• There may be some ASP impact from greater domestic market obligation in 4Q but prices remain firm and production should easily make it if not beat guidance. 
• Adaro‘s efforts to diversify away from coal are bearing fruits with the construction of its aluminium smelter in Kalimantan already underway with Hyundai already signing an offtake MOU.  

• There are 50 changes a side for the CSI 500 Index at the upcoming rebalance that will be implemented at the close of trading on 9 December.
• One-Way turnover at the rebalance is estimated at 12.64% leading to a one-way trade of CNY 9.3bn. The Materials, Information Technology and Consumer Discretionary sectors are net gainers.
• 9 adds to the CSI 500 Index are deletes from the CSI 300 Index while 7 deletes from the CSI 500 Index are adds to the CSI 300 Index.

• Growatt Technology (1833969D CH), a leading PV inverters manufacturer, is pre-marketing a US$1.0 billion HKEx IPO, according to press reports.  
• We previously discussed the IPO in Growatt Technology IPO: The Bull Case, Growatt Technology IPO: The Bear Case and Growatt Technology IPO: Growing Watts. 
• In this note, we present our forecasts and take the first look at Giant Biogene’s potential valuation range. 

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

• Value accretion by unlocking the voting eligibility of treasury shares won’t happen as the company holds no treasury share.
• But KOSPI 200 passive flows will pose a noteworthy trading point. PASSIVE’s selling outflow will be about 700-800K shares, 1.6x ADTV.
• Market cap imbalance, primarily driven by the tender offer dynamic and the split ratio that is excessively focused on Holdco, will likely exacerbate Holdco → Opco migration after re-listing.

• After the spin-off and relisting of holdco/opco shares, we believe that there is a greater probability of OCI Co (opco) shares outperforming OCI Holdings (holdco).
• However, the degree of outperformance of OCI Co vs OCI Holdings is not likely to be similar to other recent spin-offs such as F&F Co and F&F Holdings.
• We have a long-term bullish view of OCI over the next one to two years. It is trading at P/E of 3.1x and P/B of 0.6x based 2022 earnings estimates.

• On 23 November, Korea Zinc announced that it will swap its treasury shares with LG Chem and Hanwha Corp and sell part of its treasury shares to other investors.
• Korea Zinc could gain additional dividend payments by exchanging part of its treasury shares with shares of LG Chem and Hanwha Corp. 
• Potential separation of Young Poong and Korea Zinc between the Choi and Jang families is likely to be an on-going process, although it is difficult to tell the exact timing. 

• Media reports indicate that Lygend Resources & Technology (2245 HK) has priced its IPO near the low end of the range at HK$15.80/share and will raise HK$3.67bn (US$470m).
• Most of the cornerstone investors will be classified as non-float and the stock will not be included in the MSCI or FTSE indices due to low float market cap.
• Importantly, Lygend Resources & Technology (2245 HK) will not meet the threshold for inclusion in the HSCI which means no inclusion to Southbound Stock Connect and no mainland flows.

• Packaging Corporation of America (PCA) is a leading manufacturer of containerboard and corrugated packaging products in the U.S.
• The company has had a decent financial performance despite supply chain issues and continues to receive good realizations from the implementation of its previously announced increase in price across all product lines, corrugated prices, and domestic containerboard.
• PCA is also benefiting from its plants and mills through material usage initiatives and process efficiency optimization efforts.

• RPM International is a well-known specialty chemicals company and has been performing well financially off-late as per its recent results.
• As the company increased its market share, concrete mix and repair products have also experienced good growth in recent times.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.