Utilities Sector

• 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.

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

• China Longyuan Power (916 HK) is now attractively priced at 5.9x and 5.2x PERs for FY23 and FY24, respectively. The 2Q23 result clearly showed that business is gathering momentum.
• Margins have demonstrated good improvement despite weaker tariffs and coal sale business. With a very low base in last year, its 2H23 earnings growth will be impressive.
• There is positive progress on new project sign-up which has secured its pipeline. Asset injection from parent will stay as a major theme in the next two years.

• A 100-year-old firm, Next Era Energy is America’s largest utility firm and the world’s largest renewable energy producer commanding a market cap of USD 136.6B.
• Significant capex into Next Era Energy Resources combined with the benefits of the Inflation Reduction Act to drive stock outperformance.
• Downside exposure remains from idiosyncratic risks, weather shocks and an economic recovery which warrants risk management considerations.

• APA Group (APA AU) is looking to raise A$675m (US$430m) in its primary follow-on to partially fund its acquisition of the Alinta Energy assets in the Pilbara region.
• The deal is a well flagged one with APA having been one of the last remaining bidders on the asset. Short interest has been on the rise as well.
• However, the deal doesn’t seem accretive at our end, and the results reported today seemed to have missed analyst expectations.

The H1/23 results of China Oil and Gas (COG) were broadly in line with our expectations. The credit profile remains satisfactory, supported by a decrease in borrowings. We view positively management’s goal of reducing long-term debt.

Overall, the operating environment was favourable as expected. That said, there was a dip in residential sales vis-a-vis H1/22, given unusually high sales in 2022 due to COVID lockdowns. According to the company, volume growth was 15% y-o-y in January and February 2023.

COG is keen to reduce financing costs and extend its maturity profile by refinancing the USD 290 mn syndicated loan that falls due on December 31st. The company is in discussions with banks and is planning to launch a new syndicated loan to take out the USD 290 mn. The new syndicated loan is likely to be priced at a similar level as the existing facility.

• US Oil Inventories Log Biggest Ever Weekly Decline US weekly oil inventories (ex SPR) fell by over 17 million barrels, as last weeks EIA data showed.
• This draw marked the largest weekly drop in history and shows that the US demand for oil remains strong – this fits an (at least in the mid-term) improving economic momentum picture that we painted in our latest macro outlook.
• Meanwhile, the divergence between the price of crude (reversed line in red) and the inventory data (black line) remains quite large.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Aegea’s ESG as “Strong”, in line with its Environmental and Social pillars, while Governance is “Adequate”. Controversies are “Immaterial” and Disclosure is “Strong”.
• Aegea is the largest water and sewage private company in Brazil, providing services throughout the water cycle process (e.g. water supply as well as water and sewage collection/treatment).