Utilities Sector

• The review period for the price cutoff for the MSCI May Quarterly Comprehensive Index Review (QCIR) ended 28 April. MSCI should select a day from week one.
• The most changes are expected in China and there are a couple of stocks that could trigger the Extreme Price Increase thresholds.
• Some stocks appear on the list of potential changes on certain days during the review period and their addition/deletion will depend on the day that MSCI chooses for computation.

• The reduction of credit loans by Korea Investment & Securities and Kiwoom Securities in the past week may have accelerated unwinding of positions of 8 stocks related to CFD selling.  
• The balance of credit loans for KOSPI increased 12.7% YTD. On the other hand, the balance of credit loans for KOSDAQ increased by 36.1% YTD. 
• As local securities companies further reduce credit loans and regulators also restrict CFD related leverage, a sound pair trade could be to go long KOSPI 200 and short KOSDAQ 150. 

• Five days ago, Tokyo Gas (9531 JP) announced a revision to earnings for the year to 31 March 2023. Today they reported results, and announced March 2024 guidance.
• The company also announced a buyback programme to spend up to ¥113 billion to repurchase up to 53mm shares (12.2% of TSO). ¥113 billion is a very specific number. 
• With the price where it is, ¥113bn is “only” 9.6% of shares out but this is very interesting indeed.

• The biggest story in the Korean stock market in the past three days has been the crash in 8 stocks related to CFD derivatives.
• As a result of the CFD related margin call selling, the following are the major impact on the 8 related stocks and the overall Korean stock market in our view.
• They include a) overshooting on the downside on 8 related names, b) negative impact on the major rechargeable battery names, and c) negative impact on the overall Korean stock market. 

• YTD, China Longyuan Power (916 HK) has seen its share price weak, but we believe focus should not be on the poor FY22 result and the moderate 1Q23 generation growth.
• Based on 5.5-6.5GW planned capacity expansion in FY23, this will mean a solid growth of 17.7-20.9% YoY. Coupled with efficiency improvement, we expect a sharp rebound in FY23 profit.
• With impairment on Ukraine mostly made and reversal of exchange and trading losses, there will be a big swing in bottom line. We welcome the improvement in cash flow too.

• UK reserve power – Pyebridge YE22E revenue £1.9-2.1m; 2xPOCs funded
• Debt to equity conversion ~ £0.7m – strengthening balance sheet 
• South Africa WTE – Sustineri -Gauteng CHP 2.5 MW net. signed

• Fundamentally strong company with track record of high profitability and efficient operations. 
• Installed power generation capacity will more than double to ~5,500 MW by FY24 and another 4-5x by FY30. 
• Potential for DPS to improve from a trailing 1.70 INR to INR 2.50 by FY24, implying an attractive dividend yield of 7.5%. 

• Every quarter, Indian companies report their “Shareholding Pattern” for all to see. They show holdings by category type, and holders over 1%. 
• The big news in Q1 in AdaniLand was the failed FPO, thwarted by the Hindenburg Research report, and the Adani Promoter sale of stakes in 4 companies to GQG Partners. 
• The details in the change of the shareholder structure are, however, interesting.

• In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the June 2023 Rebalance.
• There are only few more days left in the reference period used for the constituent selection process for the June 2023 Rebalance.
• Currently, I see 6 ADDs/DELs for the BSE 100 index and 4 ADDs/DELs for the BSE 200 index.

• The Adani names are seeing new news and commentary. SEBI is probing offshore deals for rules violations, SEBI filed an interim report Sunday with the Court, Cements are refinancing US$4bn.
• GQG’s Jain was interviewed by Bloomberg TV in NY saying he sees his Adani basket being a “multi-bagger in five years.” 
• Assuming growth and margins equivalent to peer max rates, all profits reinvested, and 100% gain in stock price in 5yrs, NP CAGR=33%, 2028 EV/EBITDA average of four names is 29.4x. 

COG’s FY 2022 results were in line with our expectations. The credit profile remains satisfactory, supported by a decrease in borrowings. We view positively that long-term debt and time deposits were lower.

We agree with management that the operating environment is likely to be favourable in 2023. 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 a portion of bank borrowings with a syndicated loan. Management said that COG is currently in talks with banks over a syndicated loan.

Management confirmed that the company is not keen on increasing indebtedness for expansions or acquisitions.

• China Power International (2380 HK) will enjoy another year of strong earnings improvement in FY23, as coal-fired segment returns to profit and new energy capacity drives growth.
• Solar and wind capacity will increase 66.5% and 23.1%, respectively, raising new energy’s proportion to over 70%. Profitability for hydropower also looks to recover in this year.
• There is huge room for asset injection from SPIC given the parent’s new energy capacity of 139GW, with only 20GW in CPI. Its FY23 PER of 8.4x PER is attractive.