Utilities Sector

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.

• Pertamina Geothermal Energy PT

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Eletrobras’ ESG as “Strong”, in line with the Environmental pillar, while its Social and Governance scores are “Adequate”. Controversies are “Immaterial” and Disclosure is “Adequate”.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Eletrobras’ ESG as “Strong”, in line with the Environmental pillar, while its Social and Governance scores are “Adequate”. Controversies are “Immaterial” and Disclosure is “Adequate”.

• Higher for longer rate regime makes it difficult for NextEra Energy Partners to raise debt to fund high growth forcing a reduction in growth forecasts.
• Markets have reacted sharply to slashed forecasts with shares of NEP (-52%) & NEE (-22%). Growth is expected to remain lower in the future.
• NEE has performed markedly better than NEP. This is reflected by analyst price targets. However, NEE’s long-term growth story has stumbled raising investor concerns.

• Power output for China Power International (2380 HK) is healthy in Jul-Aug, following the solid trend in 1H23. The drop in hydropower has moderated and wind and solar stayed decent.
• Capacity growth will reach 43% in FY23. With just 7.8% YoY in 1H23, most of the new capacity will be added in 4Q23, accelerating both output and profitability.
• The parent SPIC’s massive clean energy assets are candidates for potential injection. CPI’s high EPS CAGR of 28.8% means that it well deserves premium valuation multiples. 

We view China Oil and Gas (COG) as “Medium Risk” on the LARA scale. This takes into account: [1] regulatory risk, with the company having experienced over three years of delays in cost pass-throughs for tariffs in Qinghai (albeit these have since been resolved); [2] COG’s exposure to oil price volatility in the small upstream oil & gas segment; and [3] the company’s track record of aggressive debt-funded acquisitions, albeit management has said that it is not keen on increasing indebtedness for expansion or acquisitions.

COG’s main asset is its 51% interest in downstream gas provider China City Natural Gas, with the remaining 49% held by Kunlun Energy, a subsidiary of SOE PetroChina. Hence, cash leakage from dividends is significant. We believe the relationship with Kunlun helps secure COG’s gas supply and improves the company’s ability to obtain gas distribution concessions. In addition, PetroChina’s parent, China National Petroleum Corporation, previously provided financing to CCNG at competitive rates.

Our Credit Bias on COG is “Stable”, given the company’s solid revenue growth from natural gas sales and distribution, despite volatilities associated with the upstream oil exploitation and production business. COG has historically maintained a sound liquidity profile and reasonable access to funding. That said, we remain cautious over the financial performance of Shandong Shengli (for which COG is the single largest shareholder at 22%). This is as COG has provided guarantees for Shengli’s banking facilities, which could impact COG’s credit profile.  

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• The rebalance of the NIFTY, Nifty Next 50, NSE Nifty Bank, CPSE ETF (CPSEBE IN) and a bunch of other indices will be implemented at the close of trading today.
• Depending on the index, there are constituent changes, changes to the number of shares and free float, plus capping changes. Put together, there is a lot of flow and impact.
• The round-trip trade will be in excess of US$1bn. Add in the futures & options expiry and volumes will be extremely high in the last 30 minutes of trading.

• Because of significant business overlap, CK Infrastructure Holdings (1038 HK) looks very similar to Power Assets Holdings (6 HK). And CKI is coming up cheap on my monitor versus PAH. 
• Preceding my comments on CKI/PAH are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We view Cemig’s ESG as “Strong”, in line with its “Strong” Environmental score, while the Social and Governance scores are “Adequate”. Controversies are “Immaterial” and Disclosure is “Strong”.

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.

• ENN Natural Gas

• In this insight, we take a look at the Potential ADDs/DELETEs for the BSE SENSEX, 100, and 200 Indices in the December 2023 Rebalance.
• The BSE AllCap index Rebalance was completed in September 2023. There were 77 ADDs and 73 DELs. 
• Since the BSE AllCap index is the main universe for the BSE 200, 100, and SENSEX indices, there have been some changes to our December 2023 index change expectations.

Jersey Electricity (JEL) continues to deliver steady 5% dividend growth, while managing consumer tariffs amid turbulent energy markets. Forward energy purchases have helped protect JEL and Jersey consumers from volatile wholesale markets over the last year, but this protection will decline from FY24. JEL should benefit from Jersey’s carbon-neutral goals, which will see increased electrification of the island, notably due to the displacement of carbon-intensive heating and transport with low-carbon energy purchased via subsea cables. We see the almost flat unit demand of recent years rising to a 2% CAGR through to 2030.