Energy & Materials Sector

• Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry.
• Overall, net outflow over the past week was ~US$1.8bn, split between Shanghai (-US$2.0bn) and Shenzhen (+US$0.20bn).
• The largest inflows were into Satellite Chemical (002648 CH) and CATL (A) (300750 CH). The largest outflows were in Kweichow Moutai (600519 CH) and China Merchants Bank A (600036 CH).

• The number of FTSE TWSE Taiwan Dividend+ Index constituents will be increased from 30 to 50 in one step at the December rebalance.
• There are a few other changes to the index methodology, mainly around the cutoff ranks for inclusion/exclusion with a few additional constraints.
• We forecast 25 adds and 4 deletes to the index with one-way trade over US$2.2bn and big impact on many stocks due to inclusion, exclusion, capping and funding.

• 3Q22 production was ~12,229 bbl/d. This is below the guidance of 14.25 mbbl/d due to a continuing shortage of barges caused by the low level of the Amazon river during the dry season.
• With the upcoming end of the dry season, the shortage of barges is expected to disappear in 4Q22. The eventual goal is to send 600,000 bbl per month (~20 mbbl/d) eastbound to Brazil and Iquitos.
• No firm date for the restart of the ONP pipeline has been provided yet and the company is now excluding any contributions from sales through the ONP in its new guidance of 16.5 mbbl/d for 4Q22 (19.5 mbbl/d previously).

• We see improvements in the underlying drivers of Anhui Conch Cement (914 HK) over the last two months, and we believe value has emerged for long-term investors.
• There is a slight recovery in cement price in Sep, and the proceeds from local governments’ special purpose bonds issuance will make incremental stimulus to demand. 
• Net cash now amounts to 37.5% of share price, providing support to its over 9% prospective dividend yield as well as potential value-enhancing M&As. 

• On 7 October, SKC Co Ltd (011790 KS) announced that it will conduct a share buyback of 1.89 million shares, representing 5% of outstanding shares.
• We continue to maintain a Negative view of SKC Co.
• We remain concerned about lack of clear measures to protect existing minority shareholders if its major subsidiaries (such as Nexilis) complete IPOs in the next several years.

• Pivoting the world’s biggest transformation; addresses chemistry needs of the new economy 
• These new themes will outgrow world GDP growth – perhaps almost >2x 
• BASF is systematically aligning to the emerging trends, investing in future technologies and is integrating all of this sustainably in its value chain

• San Miguel (SMC PM)  has announced the acquisition of 88.5% of Eagle Cement (EAGLE PM)  at P22.02/share a 43% premium to last close, the completion of which triggers an MTO.
• The deal will trigger notification and clearance with the Philippine Competition Commission.
• The PCC effectively squashed the sale of LafargeHolcim Ltd (LHN SW)‘s 85.73% stake in Holcim Philippines (HLCM PM)  to SMC in 1Q20 over anti-trust concerns.

• Eagle Cement Corp (EAGLE PM)/ECC’s selling shareholders (88.50% of the outstanding shares) have signed a SPA to sell their stake to San Miguel (SMC PM) at PHP22.02 per share.
• Post-Completion of the SPA, San Miguel will be required to launch a mandatory tender offer to acquire the remaining 11.50% minority shares at PHP22.02 per share. 
• As the regulator previously viewed San Miguel and ECC as part of the same group, regulatory approval should be forthcoming. At the last close, the gross spread is 14.1%.

• DuPont delivered a solid set of quarterly results in a challenging environment.
• The Roger acquisition also made great progress and DuPont is supposed to close the deal in the next quarter.
• Also, DuPont continues to actively invest in both introducing new products and advancing the technology within its existing product portfolio.

• Growatt Technology (1833969D CH) is a distributed energy solution provider looking to list in the Hong Kong Stock Exchange. The company plans to raise proceeds of US$ 500m.
• The company has the #1 market share for PV inverters and energy storage inverters, allowing them strong potential to benefit from the growing market.
• The company was able to experience strong revenue growth amidst increasing demand for energy solutions globally. Growatt’s margins also have improved with scale, making us largely positive on the company.

• The Williams Companies delivered a solid result in the second quarter surpassing Wall Street expectations on all counts.
• With 14% growth, the second quarter continued the year’s promising start, reflecting both the success of the company’s core business and the potential gains from its upstream joint ventures.
• Increased maintenance work during the current year’s second quarter contributed to greater operating and maintenance expenditures.

• Greatpower Nickel & Cobalt Materials (1919613D CH) is looking to raise about US$300m in its upcoming Hong Kong IPO. The deal will be run by Haitong and China Securities International. 
• Greatpower Nickel and Cobalt Materials (GNCM) is a supplier of new energy battery materials in China, with a dual focus on nickel and cobalt for the production of cathode materials. 
• The company is principally engaged in the processing and sales of refined cobalt products as well as the trading of nickel and cobalt-related products. 

• Sherwin-Williams continues the home improvement theme started last month by Home Depot and Lowe’s (HD, LOW | Disclosure: None).
• SHW is the dominant player in the architectural coatings industry.
• The scientific-sounding industry classification translates into paint for the interior and exterior of buildings.

• We see 4 potential inclusions to the FTSE All-World and All-Cap indices that will be implemented at the close of trading on 16 December.
• There are a couple of other recent listings that are close to the investable market cap threshold and could be added to the All-Cap index.
• Given the lack of IPO in the April to August period, the rebalance will be quieter than usual though lock-up expiries will keep things interesting.

• Friday post-close, Idemitsu Kosan (5019 JP) announced a deal to buy out subsidiary Toa Oil Co Ltd (5008 JP). Cornwall has agreed to tender, so it’s a done deal. 
• This is at ¥3,150/share, which is nearly 30% higher than the bid 21 months ago, where Cornwall bought enough to block, but it is a disappointing outcome for governance.
• A clearly problematic tolling agreement with the parent, and what could be ¥100bn of excess land value are ignored. Minority investors get hosed. One of the problems of minority investments.

• IEX is a play on digital infrastructure (hedge against inflation), electricity reforms, decarbonisation and energy transition
• An opportunity that offers virtuous growth, minimalistic capital needs and presents a scalable business model (addressing INR 8trn electricity market)
• India will see an average power consumption growth of 5% over the foreseeable period. Power Exchanges should outgrow this meaningfully

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…