Energy & Materials Sector

• In this insight, we take a look at the potential ADDs/DELs for the NIFTY 50, 100, and 500 Indices in the run up to the March 2023 Rebalance.
• In October 2022, NIFTY Indices Ltd initiated a market consultation recently on the “treatment of merger/demerger in Nifty equity indices” and its outcome has been confirmed now.
• Separately, Tata Motors DVR (TTMT/A IN) – previously ineligible for NIFTY 100 Inclusion for liquidity reasons – could become eligible for the March 2023 Rebalance event.

• Growatt Technology (1833969D CH), a leading PV invertors manufacturer, is pre-marketing a US$500 million HKEx IPO in October, according to press reports.  
• We previously discussed the IPO in Growatt Technology IPO: The Bull Case and Growatt Technology IPO: The Bear Case. 
• The PHIP which disclosed the 1H22 results and latest developments suggests that Growatt is delivering high growth, profitability and cash generation. 

• This is our first report on International Flavors and Fragrances (IFF), one of the global market leaders in the production of cosmetic active and natural health ingredients for use in consumer products.
• The increase in sales in the quarter was driven primarily by double-digit growth in its pharma and nourish solutions divisions.
• In spite of its volatile market environment, IFF continues to execute its operational priorities for achieving strong bottom and top-line results.

• International Flavors and Fragrances, commonly abbreviated as IFF, is one of the world leaders in the manufacture and distribution of cosmetic active and natural health ingredients for use in consumer products.
• In spite of its volatile market environment, IFF continues to execute its operational priorities for achieving strong bottom and top-line results.
• It also continues to progress against its portfolio optimization efforts, having completed successfully the divestiture of its Microbial Control business.

• Coal stronger for longer is making Indo Tambangraya Megah (ITMG IJ) a significant value investment with 40% of the market cap in cash and 2.5x PE FY22 after going ex-dividend. 
• The company continues to churn out 6-7% of the market cap in cash every month, with coal prices at Newcastle over 300$/ton (current spot at 350$/ton).
• Paying out >70% of its profits, the company trades at a 25% dividend yield at the very least, with a normalized yield of 10% at a 130-150$/ton coal price. 

• Lygend Resources & Technology (LR HK) is looking to raise up to US$595m 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 revisit our earnings assumptions and share our thoughts on valuation.

• Lygend Resources & Technology (2245 HK), a nickel play, has launched its IPO to raise up to US$595 million. 
• We previously discussed the IPO in Lygend Resources & Technology IPO: Riding the Wave. 
• In this note, we present our forecasts and look at valuation. Lygend is attractively valued at the IPO price range. We would participate.

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

• The Rabobank issued a research note last week where they forecasted that prices for agricultural commodities like coffee, feed grains and oilseeds could dip next year as many major economies enter recession, but also stated that they will remain high in historical terms.
• We think the general call is correct, but the timing isn’t. We already see this dip move playing out at the moment.
• Just take a look at coffee, cotton, oil, or copper. We believe this dip in the long-term cyclical bull market will end towards Q2 of 2022 before the rally in many commodity markets resumes again as demand strikes back.

• This is our first report on Brazilian energy major, Petrobras.
• The company had a disappointing quarter and failed to meet Wall Street expectations in terms of revenues as well as earnings.
• In terms of carbon capture, Petrobras has the largest carbon capture program that offshores the bored.

• This is our first report on Italian oil and gas major, Eni SpA.
• The company delivered an excellent result which was an all-around beat and made noteworthy strategic advances.
• Despite shortfall in the refining margins and lower crude oil prices, net income rose.

• Lotte Chemical offers 8.5M new shares, which is ₩1.1T based on the provisional price of ₩130,000. This is a capital increase rate of 24.8%.
• This event has already been leaked in advance from early last week, so it isn’t easy to expect a significant return from the short-selling approach immediately after the announcement.
• Instead, we should pay attention to the KOSPI 200 passive inflow that occurs the day before the ex-date. It is estimated to be approximately 0.8x ADTV.

• 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 – I-Tail (ITC TB) launches an up to US$593 million SET IPO, Lygend Resources & Technology (LR HK) set to launch an HKEx IPO to raise US$700-800 million.
• Event-Driven developments – OZ Minerals Ltd (OZL AU), Perpetual Ltd (PPT AU)/Pendal Group (PDL AU), Nearmap Ltd (NEA AU), Halcyon Agri (HACL SP), Yashili International Holdings (1230 HK). 

• OZ Minerals Ltd (OZL AU) has received a revised non-binding indicative offer from BHP Group Ltd (BHP AU) at A$28.25 per share, a 13.0% premium to the previously rejected offer.
• The Board has granted four weeks of due diligence and intends to recommend a binding offer at A$28.25 per share, in the absence of a superior proposal.
• While the offer is below the rumoured Board’s target of a A$30 offer, it is still attractive. At the last close, the gross spread to the offer is 3.3%.

• Lygend Resources & Technology (LR HK), a nickel play, is set to open its books for an HKEx IPO to raise US$700-800 million, according to press reports.
• Lygend had the largest nickel ore trading volume in China in 2019, 2020 and 2021, with a market share of 26.8% in 2021.
• The fundamentals are solid as the consolidation of HPL has delivered strong growth and an improved margin profile, at manageable leverage.

• BHP Group has made a revised conditional, non-binding and indicative proposal to acquire all shares in OZ Minerals Ltd (OZL AU) at A$28.25/share, 13% higher than its earlier offer.
• The OZ Minerals Board has agreed to give BHP Group Ltd (BHP AU) exclusive due diligence access for 4 weeks and intends to unanimously recommend the revised proposal.
• Barring a competing proposal, this is BHP Group‘s best and final price – expect the stock to trade close to A$28/share today.

• After nearly 3 months of no talks and movement, then a flurry of both, BHP Group Ltd (BHP AU) and OZ Minerals Ltd (OZL AU) have an agreed Revised Proposal.
• OZ Minerals Board has agreed to support the Revised Proposal at A$28.25/share, a 13% bump, subject to due diligence provided on an exclusive basis for four weeks.
• A fully-franked dividend or capital return will be allowed (Scheme price to be adjusted). This will probably trade tight. One owns a call option on copper for probably 3-4 months.

• Numerous local media mentioned today that Lotte Chemical (011170 KS) is getting ready to announce a major rights offering to acquire Iljin Materials.
• The size of the rights offering has not been finalized but the range of the rights offering could be about 1 trillion won to 2 trillion won.
• There are additional concerns about Lotte Chem funding additional capital into Lotte E&C, which could face more financial difficulties in the local construction sector.

• 3Q22 is probably the worst quarter for Anhui Conch Cement (914 HK) in this cycle. Demand has picked up sequentially, with 4Q22 average cement price up 7% QoQ.
• It expects the spending of special purpose bond proceeds and possibly push forward of 2023 quotas to benefit infrastructure demand. The stabilisation of property market also helps.
• Cost management efforts will soon pay off, providing room for recovery in margin. Solid financial position with net cash equals to 34.5% of share price is an added strength.

• Inner Mongolia Baotou Steel Union Co. Ltd., the world’s largest rare earth mining company, is still pressing for a significant price increase from its only customer even though the buyer’s shareholders rejected two previous proposals.
• Higher prices for Baotou Steel Union’s output of the key materials for green technologies could lead to a broader price increase for the minerals.
• China has the world’s largest deposits of the 17 closely related rare earth metals.

• On 15 November, Ecopro Group announced a major equity grant for 2,706 employees that work for various affiliates of the Ecopro Group.
• The company announced that it will provide equity grant shares worth about 10 million won per employee (for most of the Ecopro Group full time employees as of 30 September).
• We like what Ecopro Group is trying to do with this equity grant program and we believe this equity grant program will positively impact Ecopro Co and Ecopro BM. 

• DuPont’s stock price has surged past our target price and is witnessing a strong momentum after the company posted a solid set of results this quarter in an extremely challenging environment.
• The revenue growth of the company included solid organic growth.
• We provide the stock of DuPont with a ‘Buy’ rating and a revision in the target price.

• Occidental delivered a decent quarter with revenues above market expectations but missed out on the earnings expectations of analysts.
• OxyChem delivered robust, strong earnings while its Permian, Rockies, International, and Gulf of Mexico teams have delivered a good operational performance.
• In the Delaware Basin, Occidental delivered a good quarter-to-date results, demonstrating its high quality of subsurface and inventory expertise.

• The Stokes’ family-backed Beach Energy (BPT AU) is offering Warrego Energy (WGO AU)‘s shareholders $0.20/share, in cash, by way of a Scheme. That’s a 36% premium to the one-month VWAP.
• A contingent value payment may be payable to Warrego shareholders from the sale of Warrego’s Spanish assets within 12 months
• Warrego’s board unanimously recommend the Beach deal. The transaction is expected to complete in early March.  The wild card is whether Strike Energy (STX AU) pitches a revised Offer.

• Fundamentally speaking, it was nearly a perfect week for commodities as much major news aligned during the week after China eased some Covid restrictions, raising hopes of a demand recovery in the world’s second-biggest economy. 
• Almost all major commodities traded higher following China’s move to reduce the time that travelers and close contacts of infected people must spend in quarantine, a significant amendment to the Covid Zero policy.
• China’s loosening of restrictions strengthened a rally that began on Wall Street, with risk assets rising after US inflation slowed.

• ConocoPhillips’ stock has continued its phenomenal bull run and continues to reach new highs as the company delivered a solid third quarter result surpassing Wall Street expectations in terms of revenues as well as earnings.
• This is especially true for U.S. shale, where the rate of production increase across the board is being constrained by quickly rising costs and an exceedingly constrained supply.
• The company is well-positioned to address these long-term supply challenges thanks to the depth and high quality of its unconventional U.S. inventory and broad global portfolio.

• Beach Energy (BPT AU)’s all-cash proposal is A$0.20 per share and Strike Energy (STX AU)’s all-scrip proposal is 0.775x STX shares per Petrel Energy (WGO AU) share. 
• BPT’s all-cash offer provides value certainty. On the other hand, STX’s all-scrip offer lets shareholders get exposure to 100% interest in the West Erregulla project.
• Both offers are reasonable but far from knockout bids, which suggests room for a further bidding round. At the last close, BPT’s offer is 3.2% higher than STX’s offer.

• Lygend Resources & Technology (LR HK) is looking to raise about US$600m in its upcoming 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 look at assumptions, and share our thoughts on valuation.