Energy & Materials Sector

• Glencore is looking to raise US$293m (A$422m) from selling its stake in Yancoal Australia (YAL AU). This would be a clean up sale.
• Glencore has been sitting on its stake for a while now, and the two have a JV in the Hunter Valley Operations, the latter which commenced in Jul 2017.
• The deal, while a large one to process at 135.6 days of three month ADV, represents just 5.6% of Yancoal Australia’s current mcap.

The Asia HY Trade Book for July 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.

• Revised guidance with 17.6% higher sales that caused a 40% increase in operating profit and an increase in EPS by 344% by 1H 2022.
• Spin off its Korean subsidiary by this August for up to KRW 900 bn or USD 692 million or almost as big as W Scope Corp (6619 JP)currently. 
• The company is trading at a 65% PBR discount to its Chinese peers which are bigger but less growth catalysts. Don’t sell too early. 

• Gem Co Ltd A (002340 CH) is looking to raise around US$245m in its Swiss GDR listing.
• Proceeds will be used mainly for overseas expansion, such as the development of the Indonesian Nickel Resource Base and development of its production base and recycling center in Europe.
• In terms of discount, relative to the most recent two deals, Keda Industrial and Ningbo Shanshan, GEM’s GDRs are offered at a more enticing 11.7-14.2% discount to its A-shares,

• Shareholders of Polish refiner PKN Orlen approved the proposed takeover of smaller rival Grupa Lotos, bringing Poland closer to creating a national champion better able to compete against global players.
• This takeover has been planned for a long time and could not proceed until the EU gave the green light with a long list of remedies.
• Gross spread (as of 22 July) is 5.63%. Shares of Lotos will cease trading next week. Long 1 LTS PW/short 1.075 PKN PW.

• The following names are “on the workbench”, ie., names we are working on that look interesting from the short side. They are discussed, with charts, in the PDF attached below.
• We like to be as transparent as possible in our short idea generation process.  
• Today, we are flagging: Scotts Miracle-Gro, Corsair Gaming, CF Indus, Gap Inc, Hub Group.

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.

• Honghua Group
• Tata Steel Thailand

• At the September rebalance, we expect changes to the S&P/ASX 100 Index, S&P/ASX 200 (AS51 INDEX) and S&P/ASX 300 Index. Announcement is on 2 September with implementation on 16 September.
• Potential adds/deletes with large flow and impact include Shopping Cntrs Austrls (SCP AU), Sayona Mining (SYA AU), Charter Hall Social Infrastructure REIT (CQE AU) and Capricorn Metals (CMM AU).
• Shorts have increased significantly on a few stocks over the last few weeks, indicating that there could be some pre-positioning on these stocks.

• We have gone through days 1-5 of the review period for the MSCI September rebalance. There are multiple review cutoffs in the coming week.
• The announcement of the changes to the LQ45/IDX30/IDX80 indices should be made early in the coming week and implemented at the close on 29 July.
• China had the largest ETF inflows over the last week, while there were outflows from Korea focused ETFs.

• 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$1.83bn, split between Shanghai (-US$1.3bn) and Shenzhen (-US$0.5bn).
• The largest inflows were into Yunnan Chuangxin New (002812 CH) and Shanghai Baosight (600845 CH). The largest outflows were in Sungrow Power (300274 CH) and Ping An Bank (000001 CH).

• WTI 105 short zone working again for a low near the 89/85 zone to set up a better buy level. Oil still struggling with supply/demand constraints.
• 105 has been our firm sell zone. Gap lower will cut the legs out from under the XLE bounce.
• We expect USD strength to resume and will put additional pressure on oil. Choppy overlapping decline warns of an upcoming WTI low as the descending pattern matures.

• China’s central government formally launched a state-owned iron ore giant to consolidate China’s massive mining investments and coordinate global purchases of steelmaking materials for the world’s largest steel producing nation
• With registered capital of 20 billion yuan ($3 billion), China Mineral Resources Group was established Tuesday in the Xiongan New Area
• Creation of the enterprise is seen as part of China’s long-pursued goal of enhancing its position in the global iron ore trade

We view Adaro as “Low Risk” on the LARA scale, due to: [1] the company’s large scale (being the second-largest coal miner in Indonesia) and low-cost position ( However, Adaro’s coal product mix has a low calorific value of 5,000 CV/kg, hence it commands lower prices (30-45% below the benchmark). Customers are primarily (c. 90%) power plants in the region which exhibit stable demand patterns. The company’s coal, Environcoal, is environmentally friendly (low ash, sulfur and nitrogen content). The main risk factors are significant operational and regulatory risks due to Adaro’s primary reliance on a single-site coal mine. 

Our Credit Bias is “Positive”, given the improving fundamentals amid a highly favourable operating environment.

Controversies are “Immaterial”, with Adaro only facing one tax issue. That said, the tax issue is a non-concern for investors. The ESG Impact on Credit is “Neutral”. 

• We estimate PTTEP’s 2Q22 net profit to surge 170%YoY and 83%QoQ on the back of higher sales volume and average selling price.The solid performance is expected to continue in 2H22 
• Bright 2Q22 earnings outlook We expect PTTEP to post 2Q22 net profit of Bt19.3bn (+170% YoY, +83% QoQ), driven by solid average selling price and sales volume.
• The average selling price (ASP) is forecasted to increase to US$56/BOE (+32% YoY, +8% QoQ) as the reference Dubai crude oil price rose to US$108/bbl (+61% YoY,+13% QoQ) and gas

• In this insight, we take a look at the potential index changes for S&P ASX 300, 200, 100, 50, and 20 in the September 2022 Rebalance.
• I expect there to be 7 ADDs and 7 DELs for the ASX 200 Index and 23 ADDs and 18 DELs for the ASX 300 Index.
• Based on recent price performance, I believe the Potential ADDs could outperform the Potential DELs over the next few weeks.

• Soosan Industries had disappointing IPO book building results. The demand ratio from the institutional investors was 130 to 1 which is lower than some of the recent IPOs. 
• The IPO price has been determined at 35,000 won. Soosan Industries is one of the leading companies in Korea for providing maintenance services for nuclear power plant equipment in Korea.
• Our base case valuation of Soosan Industries is target price of 56,383 won per share, which is 61% higher than the IPO price of 35,000 won. 

• This is our first report on Corteva, a major agricultural player within the seeds and crop protection domain.
• The company registered its Enlist Duo and Enlist One herbicides through 2029 with the U.S.
• EPA.

• Tianqi Lithium (002466 CH) trades at an 84% premium to Tianqi Lithium (9696 HK) and the AH premium has been volatile since listing.
• Tianqi Lithium (002466 CH)‘s potential inclusion in the MSCI China and FTSE All-World Index could keep the AH premium at a higher level as compared to its peers.
• Tianqi Lithium (9696 HK)‘s inclusion to Southbound Stock Connect in August and potential inclusion to the MSCI and FTSE indices will help keep a lid on the AH premium.

• XME (metals/mining) and XLE are oversold rotation long plays for a rally off noteworthy support.
• SPX rally stall near 3,900 near term resistance (dip/rally) must be factored into commodity price action.
• USD is due for a marginal pullback that will provide fuel for oversold commodities. We like the AUD for a rally to 0.70.

• We maintain our BUY call with a TP of Bt445 based on 13.7xPE’22E,which is close to its 10-years trailing mean. We recommend investors to accumulate in light of 4% yield 
• Solid QoQ improvement expected in 2Q22 core profit We forecast 2Q22 core profit at Bt9.2bn,decline 46%YoY but edge-up 19%QoQ.The YoY erosion is due to weaker assumed gross margin of 16.2%
• We foresee chemical unit’s profit to fall 63%YoY but to march up 8%QoQ with wider spreads. In our view, the QoQ uptrend is underpin by solid PVC spread (+41%QoQ), despite 

• This insight is a follow-up to FTSE UK Quiddity Leaderboard Sep 2022: Sanne Group Deletion Seems Likely in 3Q 2022.  
• GSK’s spin-off of Haleon (HLN LN) and the completion of Vivo Energy (VVO LN) and Ultra Electronics Holdings (ULE LN) Deals could cause intra-review changes in the next two weeks.
• There could be more in the subsequent weeks too. Below is a closer look at the timeline and the potential replacement names for these index events.