Utilities Sector

• It’s difficult to justify the low ROE based on criteria for judging reasonableness of NSK’s policy-shareholdings: “NSK will reduce policy-shareholdings that aren’t rationale for increasing corporate value over mid-to-long term.
• For NSK with a market capitalization of just under 500 billion yen, 50.1 billion yen in policy stockholdings plus 128.3 billion yen in retirement benefit trust shares is too much.
• Based on past performance trends, the ROE is not expected to rise all at once as profits recover, but the company may continue to raise shareholder returns through share repurchases.

• Largest 500 companies in prime market of 1,800 companies account for 90% of the market capitalization, which shows how low the listing standard of JPY10 billion tradable market capitalization is.
• It’s more important to implement measures that will grow corporate value over the medium-t0-long term than whether or not the market capitalization standard can be achieved by March 2025.
• Since companies that choose standard market at market reclassification include companies that don’t want to resolve corporate governance issues, more companies in standard market won’t be proactive in corporate governance.

• Dismal share price performance for China Gas Holdings (384 HK) has created an opportunity for bottom fishing. Management also looks positive with 30% profit growth guidance for FY23.
• There are rooms for good dollar margin recovery, unit sales rebound and improvement in free cash flow in FY24. Spin-off of value-added services is also a value-enhancing move. 
• De-Rating over the last three years has put the stock on undemanding multiples of 8x PER and 0.75x P/B. Its 14.8% 3-year EPS CAGR is also better than sector average.

We view ReNew Energy Global as “Medium Risk” on the LARA scale. The company is India’s largest renewable power producer (13.7 GW of total capacity and 8 GW of operating capacity at end-March 2023), and enjoys good access to capital. It benefits from stable cash flows and priority dispatch to the grid (e.g. solar), resulting in a robust business profile. The key risk is counterparty payments (DISCOMs). The merger with RMG Acquisition Corp II, a Nasdaq-listed SPAC, has increased ReNew’s transparency, reporting standards, checks and balances as well as cash proceeds to fund capex. The credit is weighed down by high leverage and the company’s aggressive expansion plan to triple its capacity by FYE 2024-25, with capex expected to surge 3-4x to USD 1.5-2.4 bn.

Our Credit Bias is “Stable”, due to the robust nature of the utilities business.

Controversies are “Immaterial”. The ESG Impact on Credit is “Moderately Positive” in our view, due to the nature of ReNew’s business (renewable energy). This should facilitate better access to capital, especially from ESG-minded institutional investors.

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. Central China Real Estate
2. Anton Oilfield
3. Seazen (Formerly Future Land)
4. Agung Podomoro Land
5. Hopson Development

and more…

Azure Power’s change of auditor, appointment of new CEO and CFO, and the company’s delisting are credit negative in our view. The company had previously informed onshore lenders that the audit of FY 2021-22 results was nearly completed, and that Azure might be able to avoid being delisted. However, auditor SR Batliboi & Co’s resignation does not bode well for the company. The new auditor and new management will take time to get up to speed on Azure and the results. 

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.

• Azure Power Global Ltd

• Since very few companies disclosed challenges, efforts to resolve them and progress, it’s unlikely that ‘gender pay gap’ will be disclosed in convincing manner, with this being the only exception.
• Japan’s Law for the Promotion of Women’s Activities does not prohibit gender discrimination and is not legally binding on gender equality, so the wage gap is only an effort target.
• While some proactive companies may accelerate their efforts as disclosures reveal gender pay gap, many are likely to move at modest pace to match the pace of those around them.

• Silver Dragon Water Supply Group (2210081D CH) is looking to raise at least US$100m in its upcoming Hong Kong IPO. The bookrunners on the deal are HSBC and Huatai International.
• Silver Dragon Water Supply Group (SDW) is principally engaged in the supply of tap water, raw water and pipeline direct drinking water in China.
• As per Frost & Sullivan (F&S), the firm had the largest water pipeline network in terms of water pipeline length among all water supply companies in China in 2022.

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.

• China Water Affairs

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.

• Azure Power Global Ltd
• Sino-Ocean Service

• Soybeans spike due to weather worries The worst U.S. Midwest drought since 2012 expanded over the past week despite mild temperatures as a lack of rain across the heart of the American farm belt threatened newly seeded crops.
• Below-average rainfall and high winds also exacerbated drought conditions in many regions.
• In the early growing stage of the crops, drought can be compensated by more rain in the later stages.

• Antin Infrastructure Partners (ANTIN FP) offers €5.85/share in cash for renewable producer Opdenergy Holdings (OPDE SM) (46% premium). Minimum acceptance is 75%, with irrevocables >71%, just 13.2% of the float is needed.
• Virtually a done deal, at fair price. Nevertheless, an agreement similar to those in MásMóvil and Solarpack takeouts leaves minorities with virtually no capacity to ask for a sweetening.
• Spread is Spread is 3.25%/6.56% (gross/annualised, assuming 20 December). Readacross: Ecoener, Grenergy, Audax, Solaria could all be the object of takeover bids (either from private equity or minority buyouts).