Energy & Materials Sector

• KRX announced KOSDAQ Global rebalancing. Annually in June, effective date follows June options expiry. Passive flow trading on Thursday, the 13th. 49 companies designated, with nine excluded and eleven added.
• Predicting passive capital movement is challenging, but attention must be given to price impacts because reshuffle predictability is low, lacking preemptive trading setups.
• We must anticipate the SSF reshuffle in August, likely including new KOSDAQ Global constituents. KRX plans to list SSFs for all remaining constituents, potentially advancing setup timing for price increases.

• The Alumina Ltd (AWC AU) IE considers Alcoa (AA US)’s scheme offer (0.02854 Alcoa shares per Alumina share) fair and reasonable as the terms are within its valuation range. 
• The offer is conditional on FIRB and Alumina/Alcoa shareholder approval. FIRB approval should be forthcoming as Alcoa already owns most of Alumina’s sole assets (AWAC).
• The support of the substantive shareholders and the re-rating of Alcoa shares since 12 March (entry into a SID) has materially lowered the vote risk. This is a done deal.

• Debt restructuring in 2021 reduced interest costs and improved profitability, with promoters increasing their stake by 4%.
• Revenue and EBITDA have grown significantly, with a revenue CAGR of 35% and EBITDA CAGR of 72% over the past 3 years.
• Strong export presence and increasing domestic market share indicate robust growth potential despite global economic fluctuations.

• ADF Group reported Q1 financial results that largely beat our estimates, including revenue of $107.4M (+34% YoY) vs. $90.1M and EBITDA of $23.1M (+130% YoY) vs. $17.2M.
• ADF announced a cash utilization strategy including its intention to repurchase up to 3.0M shares from insiders and the doubling of its semi-annual dividend to $0.02/share.
• ADF Group (DRX:TSX, ADFJF:OTC) reported Q1 financial results today before market open that smashed our expectations across the board with the most notable beat being EBITDA coming in at $23.1M vs. $17.2M expected.

• Alumina Ltd (AWC AU) and Alcoa (AA US) announced an NBIO on the 26th Feb, before entering  into a Scheme on the 12th March. 
• Alcoa is offering  0.02854 new shares for each Alumina share, a 13% premium to undisturbed. Key shareholders Allan Gray and CITIC are supportive.
• The Scheme Booklet is now out, with a Scheme Meeting to be held on the 18th July. Expected implementation on the 1 August. The IE says fair & reasonable.

• Indo Tambangraya Megah (ITMG IJ) reported an inline Q1 FY24, with stabilizing price. Net cash at 875 mn USD is 50% of mkt cap. 
• If coal prices remain stable at 135 USD/ton, the company will be able to churn out 400 mn USD of profits (~24 mnt sales).  
• With a minimum 65% dividend payout ratio, we derive a dividend yield of 15%. This number could be an upside risk as payout ratios have also been 100%.

• Crude oil prices crater as OPEC meeting outcome fails to support oil prices. Despite OPEC+ extending larger cuts until end-2025, prices fell on fears of excess supply.
• Henry Hub Gas prices rose sharply last week driven by expectations of a hotter-than-expected summer in the US & Outages in Norway.
• Energy majors fell sharply on 3/June and ended the week in the red. BP and Exxon Mobile were downgraded. Berkshire ramped up holdings in Occidental.

• International Paper, a prominent player in the paper and packaging industry, recently disclosed its financial results for the first quarter of 2024.
• These results are pivotal when assessing the company’s current operational efficiency and financial health, especially considering its potential acquisition by Suzano, a Brazilian firm also in the paper and packaging sector.
• The reported quarter saw International Paper navigating through a mix of challenges and strategic advancements.

• The FY23 financials were in line with our forecasts.
• The high impact Anchois East well continues to be expected to spud in August.
• A drilling success could increase the size of Anchois to over 1 tcf (300 bcf net to Chariot).

• Baosteel’s SOE background helps bring more advantages- This deal is a consolidation of assets under SASAC, which may involve some strategic intent at national level. Baosteel has an upper hand. 
• ORG cannot afford to fail considering the strategic significance of CMPC for ORG. Major shareholder of CPMC Zhang Wei has picked ORG side, making it maintain the hope of winning.
• For arbitrageurs, the good news is CPMC would be acquired by either Changping Industrial or ORG, with high certainty.Baosteel is also worth watching since it could be a new leader. 

• With ORG offering a 4.9% higher price and securing Zhang Wei’s acceptance, the ball is now back in Baowu’s hands. Good reasons exist for Baowu to raise its offer price. 
• Baowu’s subsidiary Shanghai Baosteel Packaging-A (601968 CH) needs CPMC Holdings (906 HK) more than ORG, given its smaller market share and weaker profitability.
• At ORG’s offer price, CPMC’s PERs for FY24 and FY25 of 15.4x and 14.2x are cheaper than Baosteel Packaging’s 22x and 18.7x. This gives additional justifications for a higher offer. 

• Champion Iron (CIA AU) reported an inline result for FY24, with revenue/profits up 9%/16% YoY.  Q4 revenue/profits were -28%YoY/-73%YoY due to lower pricing on 60% of volumes in transit. 
• The company-guided production volumes have reached the annualized 15 mnt mark, but logistics continued to be challenging in Q1. Easing is expected in August, and base case a 1.5-year destock.
• The name carries some risks trading at 7x PE FY25 (March end), but it could be one to watch in case the 65-62 spread widens.

• Unpredictable Corn Supply from South America The grain supply from South America, especially corn, is among the most unpredictable globally.
• During the 2022-23 season, Argentina’s corn production dropped by nearly 29% due to drought, but then surged by 26% in the 2023-24 season, influenced by the El Niño phenomenon.
• Similarly, favorable weather conditions boosted Brazil’s corn production by approximately 17% in 2022-23. However, in 2023-24, it declined by 16% due to varying weather patterns.

• The Jetstream # 1 appraisal well has been tested at a rate of up to 0.8 mmcf/d with helium concentration of 8.7%-14.5%.
• The flow rate initially reached 0.15 mmcf/d with flowing tubing head pressure of 34 psi. The bottom hole pressure was 162 psi.
• A compressor was then installed at the well head to reduce the flowing tubing head pressure to 20 psi, thereby increasing the difference between the flowing pressure and the reservoir pressure.

• Author discusses investment in STNG for over-earning potential and short-term catalyst
• Mentions other stocks like VAL, TDW, and TNK in oil & gas industry
• Believes STNG stock price won’t fall significantly and discusses intrinsic value in comparison to bitcoin volatility through haiku

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• The State 36-2R well has reached TD.
• The well penetrated a folded and naturally fractured section of the Cane Creek reservoir, encountering drilling mud gas shows of a similar magnitude to the original well.
• Pore pressure analysis suggests formation pressures estimated at approximately 9,300 psi (which is broadly consistent with previously drilled offset wells).

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), Ansarada Group Ltd (AND AU), Asia Cement China (743 HK), Greatview Aseptic Packaging (468 HK).
• Lowest spreads: Alumina Ltd (AWC AU), Great Eastern Holdings (GE SP), Pact Group Holdings (PGH AU), Nagatanien Holdings (2899 JP), Mimasu Semiconductor Industry (8155 JP), QV Equities Ltd (QVE AU). 

• The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND’s renewed buy streak continued this past week; every day net positive. Strong net buying. NORTHBOUND saw small net buying on renewables, utilities, and semiconductors.
• AH Premia rebounded off multi-year lows, on average, this past week as Hang Seng/other HK indices fell and A-shares did not do much. Liquid Hs underperformed As by 2%.

• Since the China/Taiwan situation looks increasingly tense, Xu Xudong/Far Eastern Group may be eager to privatize ACC considering geopolitical conflicts and political risks. Its business is subject to strict regulation.
• HK$3.22 Offer Price is disappointing, but the privatization isn’t completely impossible (The headcount does not apply now). A certain number of investors are still willing to accept the Offer Price. 
• For arbitrageurs, the return looks not bad. However, considering the high uncertainties/failure risks, we still advise investors to be cautious. HK$2.5/share is a price point worth participating in.

• SOUTHBOUND was again a net buyer, for HK$27.2bn this week, on small two-way volumes. China Mobile (941 HK) dominated as it reached dividend ex-date. Other high-div SOEs also saw buying.
• It is not clear how much of this is H/A discounts, expected dividend tax removal, and the KPIs for SOE CEOs to raise prices and payout ratios, but it continues.
• Valuations are acceptable. Flows are good. Policy changes are afoot. SOUTHBOUND may continue to see inflows – national team and otherwise.

• TC Energy Corporation’s TRP.PR.D preferred shares offer attractive total return with limited risk over the next 5 years
• Best suited for PAs and small funds in Canada due to low trading volume and tax advantages
• Consider purchasing a basket of Canadian fixed-reset preferred shares for maximum exposure, potentially converting to Series 8 with a floating dividend rate based on the 90-day Government of Canada treasury bill rate

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• CPMC Holdings (906 HK) disclosed a competing pre-conditional voluntary offer from ORG Technology Co., Ltd. A (002701 CH) at HK$7.21, a 4.9% premium to Changping Industrial’s HK$6.87 offer.  
• Like the Changping Industrial offer, ORG’s offer is pre-conditional on regulatory approvals and has a 50% minimum acceptance condition. Changping Industrial has secured all regulatory approvals except SAMR. 
• ORG’s skinny premium and precarious irrevocable from Mr Zhang Wei suggests Changping Industrial’s next move is to secure Mr Wei’s irrevocable with a revised higher offer.

• 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: MMG (1208 HK) US$1.2 billion rights issue. Shift Up (462870 KS) seeks to raise up to US$320 million.
• Event-Driven developments: Asia Cement China (743 HK), CPMC Holdings (906 HK), Chilled & Frozen Logistics Holdings (9099 JP),  Nagatanien Holdings (2899 JP), Teijin Ltd (3401 JP), Altium Ltd (ALU AU). 

• After six months had elapsed, and CPMC Holdings (906 HK)‘s Offeror just needing SAMR/SAFE clearance before launching a firm bid, a competing Offer from ORG Technology (002701 CH) appeared unlikely. 
• Yet in a surprise move, ORG has made a pre-conditional (NDRC, SAFE, MoC, SAMR, and shareholder approval) Offer at HK$7.21/share, a 4.9% premium to the ongoing SASAC/NCSSF Offer. 
• ORG’s pre-con Offer also has a 50% acceptance condition. ORG and concert parties have 24.43%. And Zhang Wei (22.01%) has given has an irrevocable. Directors have 0.87%. Intriguing situation. 

• The European gas market panics despite 70% storage levels after Norwegian outage.
• Disruption exposes Europe’s vulnerability due to reliance on few gas suppliers. Norway supplied 30% of Europe’s gas in 2023.
• Rising demand from Asia eating up some of Europe’s gas imports. Competition between the two continents to intensify as global demand picks up.

• Frontline management reported an impressive Q1 2024 during the earnings call due to the booming security situation in areas such as the Gulf of Aden and the Red Sea, which has influenced the company’s decision-making.
• Consequently, all Euronav vessels now sail under Frontline.
• However, the earnings were impacted negatively due to disruptions in the Suez Canal passages.

• Article discusses anchoring and insufficient adjustment in behavioral finance using Long Kansai Paint as an example
• Despite profits increasing, stock price remains low leading to valuation at an 8-year low
• Comparisons to global paint industry benchmarks show potential for KP to improve performance and valuation

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Countries across the ASEAN region continue to invest on developing their respective EV markets with governments introducing new initiatives and offering further incentives.
• The price war among Chinese EV players has escalated in recent month, causing pressure on non-Chinese players. European and Japanese EV makers are increasingly looking at ASEAN for cost advantage.
• The four companies we looked at have reported earnings and we have discussed their latest results and our investment thesis.

• SHFE silver premium over COMEX silver has escalated to 7%, exacerbated by falling SHFE silver inventories, indicating a deepening shortage in China.
• Surging demand from China’s rapidly growing solar industry and renewable data centers is deepening the global silver deficit, now projected to continue at record levels for a fourth year.
• The strong bullish outlook for silver suggests that the bullishness in silver prices is likely to continue in the near-term.

• Sidara has submitted a fourth and final 230p/share cash proposal. Wood’s Board has changed tack and will grant due diligence. PUSU has been extended to 3 July.
• This proposal represents 39.4% premium, implied equity value of £1,591 million ($2,033 million) and implied EV of £2,983 million ($3,122 million), and (still good value) 6.4x EV/NTM Fwd EBITDA.
• The market is cautious (gross spread 12.5%). There’s potential for a “best & final” firm offer. However, if Sidara withdraws a significant sell-off in Wood’s shares is expected.

• Long Brookside Energy offers high-quality assets at a significant discount to its net present value and reserves value
• Investors are essentially getting 5,000 acres, 1,400 barrels of production, and 12 million barrels of reserves in the South SCOOP play in Oklahoma for a bargain
• Management is actively buying back shares to take advantage of the undervaluation, with plans for more buybacks in the future

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• 1Q24 production was 802 bbl/d with average realized price of US$82/bbl. This is in line with our expectations.
• Operating netbacks for the period stood at C$2.2 mm, also in line with our expectations
• Operating cashflow before changes in working capital was (C$0.37 mm).

• Asia Cement China (743 HK) disclosed a Cayman scheme privatisation offer from Asia Cement (1102 TT) at HK$3.22. Including the dividend, the total offer is HK$3.26, 1.7% below the last close. 
• The offer, which is final, is unattractive as it is materially below net cash and historical trading ranges. The disparity cannot be justified by the potential cash burn this year.
• While no shareholder holds the 10% blocking stake, the high AGM minority participation rates and emerging retail opposition suggest a high chance of a deal break. 

• After Chinese cement play Asia Cement China (743 HK) (ACC) was suspended on the 28th May, a punchy Offer from its parent Asia Cement (1102 TT) was expected. 
• Not to be. Asia Cement is offering $3.22/share, best & final. A 3.01% discount to last close, ~ 45% premium to undisturbed, and a whopping 37% discount to net cash.
• Asia Cement plus concert parties hold 73.38%, so a blocking stake at the Court Meeting is 2.662%. One (possible) aspect in Asia Cement’s favour is that ACC is not shortable.  

• OPEC+ decided to extend production cuts to the end of 2025. It also plans to ease voluntary output cuts starting this October.
• Easing hints sent oil prices tanking, shedding 5% over two days. Weak demand and ample supply thanks to overproduction by OPEC+ members lend little price support.
• Summer driving season will ramp up gasoline demand. Weather might dampen demand, but panic buying will more than offset the demand pullback.

• Archer Ltd reorganized to address over-leveraged balance sheet hindering reinvestment and growth
• Company’s $506 million net debt at 5.3x leverage led to challenges in credit facilities due to ESG pressures and price volatility
• Secured 1st lien credit facility, 2nd lien bond, and equity financing at discounted rate to strengthen capital structure for future growth

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Mmg Ltd (1208 HK) today announced a 2:5 Rights Offering to raise US$1.15bn at HK$2.62/share in order to pay down debt from their recent Botswanan copper mine acquisition. 
• It was a sizeable acquisition, and the near-term EV/EBITDA of the acquisition is 10x or above. The longer-term EV/EBITDA is in the 3s based on expansion later this decade.
• The Rights Offering is underwritten, supported by its 67.5% owner. SOUTHBOUND holds 10+%. There are short dynamics, arb dynamics, “don’t wanna spend more” dynamics. There’s a path here.

• Mmg Ltd (1208 HK) will raise HK$9.1bn (US$1.2bn) through 2 rights shares for every 5 existing shares rights offering. The rights price is HK$2.62, a 24.7% discount to the TERP.
• The rights proceeds will be used to repay existing debt, which will allow it to use other funds to better support the ongoing development of the operating mines.
• MMG shares should continue to decline heading into the ex-rights date. The shares go ex-rights on 11 June, and the rights start trading from 24 June to 2 July (inclusive).

• Back in February last year, the Aussie Treasurer prohibited Yuxiao Fund from buying an additional 9.92% in Northern Minerals (NTU AU) which would have increased its stake to 19.9%.
• On the 20th November 2023, Yuxiao sought the removal of Nicholas Curtis as director of the rare-metal play at an EGM; however Curtis resigned his post and the EGM cancelled.
• The Aussie Treasurer has now made orders requiring Yuxiao and four (deemed) associated investors to sell their holdings (~10.4% all-in) within 60 days. 

• Short term overhang from expanded share count and selling from unwilling participants
• The copper supply and demand story is intact and the fundamentals of the company remain strong
• Parent’s uptake of the rights is positive but the stock will take time to build a base for the next leg up 

• Conocophillips is set to acquire Marathon Oil in an all-stock deal (0.2550 COP US per 1 MRO US) valued at $22.5 billion ($30.33/share), including $5,379 million in net debt.
• Most of the frenzy in the US oil industry has focused on the consolidation within the Permian Basin, a maturing region that offers opportunities to reduce costs and increase profitability.
• The acquisition of Marathon will add highly complementary acreage to ConocoPhillips’ existing U.S. onshore portfolio. Spread as of 4 June is 2.6%/4.7% (gross/annualised, assuming settlement by late Q4).

• May was silver’s time to shine, hitting 12-year highs up 13.7% on the month, significantly outperforming gold and other metals.
• The silver equities also followed suit, up 13.4%.
• Gold and copper posted smaller gains, despite both metals setting all-time highs mid-month, closing up 0.2% and 1.7%, respectively.

• Yankuang Energy Group (1171 HK) is looking to raise up to US$608m through a primary follow-on, via selling 270m H-shares.
• The deal is a somewhat large one to digest, at 10.6 days of three month ADV and 2.7% of current mcap.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• The June 2024 index review results for the SSE 50 and SSE 180 indices were announced after market close on Friday 31st May 2024.
• There will be 5 changes for the SSE 50 index and 18 changes for the SSE 180 index.
• These changes could collectively cause one-way index flows of ~US$1.8bn during the June 2024 index rebal event. In this insight, we take a look at our final flow expectations.

• Brent crude has weakened by $10 since early April, with the prompt time spread indicating plentiful supply relative to consumption
• Demand for crude oil for combustive fuels like gasoline and diesel is expected to peak towards the end of the decade, while demand for natural gas liquids used in petrochemical production is set to rise
• Preliminary demand data for April showed signs of improvement, with observable oil inventories increasing, particularly in China, due to lower oil prices prompting stockpiling

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• The Holy Grail of Commodity Trading? If there is a holy grail of commodity trading, I would say it’s becoming a master in reading the movements in the futures forward curve.
• Knowing how futures contracts change and how the curve shifts from contango to backwardation, and vice versa, gives commodity traders a lot of useful info about the physical supply and demand.
• While many market participants argue about the meaning and definition of backwardation and contango, the direction in which the spreads are actually moving is far more important to us.

Tata Steel’s Q4 and FY 2023-24 numbers were weak in our view, with the restructuring of the UK operations weighing on group performance and offsetting the robust Indian business. The financial risk profile deteriorated significantly, due to lower earnings and soft cash flows. Liquidity was inadequate, driven by the poor cash flows and large dividends.

We expect the steel industry’s operating environment in FY 2024-25 to be constructive and support Tata Steel’s earnings. However, the company’s solid earnings for the Indian operations should be offset by the restructuring of the UK business, for which another GBP 1.6 bn of additional costs is projected. It is unclear if there is light at the end of the tunnel.

• 1Q24 production (excluding NGL) in the Williston was 1,151 boe/d.
• This is 140 boe/d above our expectations and ~100 boe/d above 4Q23 production.
• Production in March (excluding NGL) had increased to 1,212 boe/d.

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

• The northern flank at Hibiscus, appraised by the DHIBM-7P pilot vertical well, is estimated to hold 8-12 mmbbl gross reserves (Panoro WI: 17.5%).
• This is above our early estimate of 8 mmbbl.
• The well was drilled from the pilot hole of the recently drilled Hibiscus South well that had already encountered 5-6 mmbbl recoverable resources in a north-east extension of the field.

• SLCA has seen a decrease in shares and reduction in debt, making its enterprise value cheaper
• Core thesis remains unchanged, with focus on potential split of company’s two businesses for separate valuations
• Recent acquisition in frack sand business by Atlas Energy provides comparable valuation exercise for SLCA, suggesting potential value of company’s assets and opportunity for increased valuation in the future

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Blackstone (BX US) is widely reported to have agreed to acquire Teijin Ltd (3401 JP)’s 55% stake in Infocom Corp (4348 JP) at a valuation of JPY260 billion. 
• If the valuation refers to market cap and Teijin shares its tax benefits, Teijin’s sale proceeds are around JPY128 billion, which is 42% of its market cap.
• However, since 9 May, Teijin shares have been flat vs. Infocom shares are up 63%. Teijin’s medium-term plan suggests that the Infocom proceeds could result in substantial share buybacks.

• There are 12 changes for the CSI 300 Index (SHSZ300 INDEX) and 50 changes for the CSI Smallcap 500 Index (SH000905 INDEX) in June. Most changes were expected.
• There are a lot of stocks with over 1 day of ADV to trade. The round-trip trade in June is estimated to be US$5bn.
• The adds have outperformed the deletes for both indices but the return profile of a long adds/ short deletes trade for the CSI500 Index is a lot smoother.