Energy & Materials Sector

• Brookfield and EIG/MidOcean are Offering Origin Energy (ORG AU) shareholders $9.00/share, a 54.9% premium to last close, by way of a Scheme. The Offer is non-binding and indicative.
• Negotiations kicked off at $7.95 for the LNG developer in early August. Exclusive due diligence has been granted. 
• A firm offer will be contingent on ACCC and FIRB approval. Such a takeover may actually play into the Albanese government’s future energy plans.

• 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 look at peers and undertake a peer comparison.

• We have a positive rating on Hyosung Advanced Materials. We believe the stock has a 25%+ upside over the next 12 months.
• The company recently announced that it has succeeded in developing an ultra-high-strength carbon fiber which is 14 times stronger than steel.
• There is an opportunity for the share price to be re-rated going forward if the company succeeds in grabbing higher share in the global carbon fiber market segment.

• In August, BHP Group Ltd (BHP AU) launched a $25/share bid – a price it saw as attractive and what target OZ Minerals Ltd (OZL AU) saw as opportunistic. 
• Copper had fallen, and peer stock prices had fallen too. Since then, copper has rebounded and peers have too so what was a 25-30% premium no longer exists.
• This means the price of OZL should “enjoy” different dynamics going forward.

• Origin Energy (ORG AU) received a conditional, non-binding indicative proposal from Brookfield and EIG at A$9.00 per share, a 54.9%  premium to the undisturbed price (9 November).
• The Board will grant eight weeks of due diligence access and intends to unanimously recommend a binding offer at A$9.00 per share. The offer is attractive.
• Regulatory approvals are an overhang and would likely require price concessions. At the last close, the gross spread to the offer is 14.9%.

• A Brookfield/MidOcean consortium has made a conditional, non-binding, indicative proposal to acquire 100% of the shares in Origin Energy (ORG AU) at A$9/share in cash.
• The offer values Origin Energy (ORG AU)‘s equity at A$15.5bn and is a 54.9% premium to the last close. The premium is over 50% even using longer term VWAPs.
• There will be changes to the S&P/ASX family of indices to maintain the number of index members. We will know more once an indicative timeline is published.

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.

• Central China Securities
• China Fortune Land
• Country Garden Holdings Co
• Kawasan Industri Jababeka
• Longfor Properties
• Medco Energi

• Back on the 5 October, San Miguel (SMC PM) announced the acquisition of Eagle Cement (EAGLE PM) at P22.02/share. On the 28 October,  Philippine Competition Commission said it had no issue.
• The Tender Offer is now out, and the Offer is open for acceptance. The IFA considers the Offer price to be fair.
• The Offer closes on the 5 December with an expected payment on the 14 December. 

• Chevron’s third quarter financial results were strong as the company surpassed Wall Street expectations in terms of revenues as well as earnings, with $624 million in favorable foreign exchange effects and $177 million in pension settlement costs.
• Among key updates, Chevron collaborated with Mitsui Oil to investigate the technical and financial viability of advanced geothermal power generation in Japan.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Like most other oil majors, Exxon Mobil too is trading close to its 52-week high.
• The company an delivered outstanding quarterly results driven by higher natural gas realizations, stronger refinery throughput, solid refining margins, and strict cost control.
• In the Permian Basin, Exxon increased output to almost 560,000 oil equivalent barrels per day, continuing their rapid expansion from the previous year.

• This is our first report on iron ore mining major, Vale SA.
• In the quarter, Vale continued the decharacterization of the two structures, Dike 4 and Baixo Joao Pereira dam.
• The operationally challenging quarter made Vale revise its copper and iron ore guidance for the year.

• We see two inclusions and two exclusions for the MSCI Australia Index at the November SAIR. Passive trackers will need to trade between 5-8x ADV on the stocks.
• Cumulative excess volume on the stocks has been increasing steadily over the last few months, indicating a fair amount of pre-positioning.
• Short interest on the potential deletions has spiked over the last couple of months and pre-positioning could be close to (or larger than) the estimated passive selling.

• The MTO in relation to San Miguel (SMC PM)’s acquisition of 88.50% of Eagle Cement Corp (EAGLE PM)’s shares is open. The MTO will end on 5 December. 
• The MTO price is PHP22.02. The net MTO price after deducting the selling charges (0.621% of value) is estimated to be PHP21.8833. 
• At the current price and for the 14 December payment, the gross and annualised spread to the net MTO price is 1.8% and 19.2%, respectively.

• GrafTech International Ltd (EAF US) thesis has taken a turn for the worse with the suspension of the operations in Mexico (impact 50% of production in Q4 2022/H1 2023). 
• The negotiations of LTA pricing ( based on spot pricing ) in the near term also prove to be a headwind, with spot prices 40% below the contract. 
• At 7.3x PE FY23 (earnings down 60% YoY), the stock price reflects these challenges. The recovery for the company to normalized cash flow levels will take much longer.

• Copper’s bull wedge b -wave breakout stands out (high conviction set up) but needs a weaker USD for follow through. China is the wildcard but seems a bit early still.
• Gold trendline and price pivot at 1,700 the key level to clear or will retest the 1,620 triple lows. 
• DXY to rally off of 110 support within the triangle range and will see metals pullback. Bigger picture needs a break below 109.50 (bearish) to overlay with metals.

• We see 1 potential inclusion and 12 potential deletions for the MSCI Korea Index at the November SAIR. The final changes will depend on what day MSCI uses.
• Nearly all the stocks have over 4 days of ADV to trade from passive trackers. There have been big moves on short interest and excess volume on some stocks.
• The announcement will be made Friday morning pre-market open and there could be some big moves in the stocks this week.

• 3Q22 result of Kunlun Gas is weaker than expected, but this is due to lower other income and surge in non-operating expenses. Without them, profit growth is actually more encouraging.
• While there is gross margin squeeze on higher input costs, Kunlun managed to reduce operating costs by 14.1%, successfully mitigated the negative impact.
• Kunlun Gas contributed 62.5% of 1H22 net profit of Kunlun Energy (135 HK). Its solid 36.2% 9M22 earnings growth still points to healthy underlying momentum for its parent.

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.

• ABM Investama
• NagaCorp Ltd
• Times China
• Yuexiu Property

• Tianqi Lithium (9696 HK) and JD Health (6618 HK) could be inclusions while XPeng (9868 HK) and Longfor Properties (960 HK) are near certain deletions.
• There are a few stocks that are close to the deletion threshold and could be deleted from the index if they continue to sell off over the next few weeks.
• Tianqi Lithium (9696 HK) is also a high probability inclusion to the FTSE All-World Index at the December rebalance. That will bring in additional inflows to the stock.

• Adaro Energy (ADRO IJ) showed a sequential decline in earnings owing to a 6.8% QoQ decrease in pricing as discounts for their coal continued to build Vs. Newcastle.
• While the stock trades at a 2.8x FY22 PE and 1.3x EV-EBTIDA FY22E with a 21% dividend yield, the market is pricing in a substantial decline in coal prices.
• Adaro offers a significant margin of safety with 25% of the market cap in cash and decent capital allocation, but we prefer ITMG for its superior grades.

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.

• SK On announced that it recently received 1 trillion won in investment, valuing the company at 22 trillion won, 29% higher than SK Innovation’s market cap of 17 trillion won. 
• The recent investment of nearly 1 trillion won in SK On was in the form of convertible preferred stock (CPS), which guarantees a minimum return of 7.5%.
• Our SoTP valuation of SK Innovation suggests a target price of 254,396 won per share, which represents a 39% higher levels than current price.

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.

• Adaro Minerals
• Greenland Holdings Corp
• Longfor Properties
• UPL Ltd

Tata Steel’s Q2/22-23 results were weak as expected, albeit the company outperformed most of the industry. While many peers posted record losses, Tata Steel still achieved a profit, with reasonable EBITDA/ton. That said, the financial risk profile has deteriorated, with lower earnings and given large cash outflows for the Neelachal Ispat Nigam Limited acquisition. Liquidity is weak.

We revise downwards our forecasts for revenue growth and margins, to reflect the deteriorating performance. We expect Tata Steel to continue facing pressure, given the weak industry dynamics. That said, the company should also continue to outperform peers, given its scale and deep vertical integration. 

• Metal recycler Chiho Environmental Group Limited (976 HK) was suspended this morning pursuant to Hong Kong’s Takeovers Code. 
• For more than a year, the controlling shareholder group has been implementing a potential restructuring. The ultimate controlling shareholder is Tu Jianhua, an executive director of Chiho.
• This long drawn-out reorganisation may finally result in an Offer for Chiho.

• Los Andes Copper, our preferred copper junior exploration company, will have an updated PFS out in the coming 60 days.
• Meanwhile, regular insider buying continues by Chief Executive Michael Jones.
• Los Andes Copper remains key M&A target for larger diversified miners.