Utilities Sector

• The SSE180, SSE380 and SZSE1000 indices rebalance at the close on Friday and that will lead to changes to the list of stocks eligible for Northbound Stock Connect.
• Deletion from the Northbound Stock Connect Buy and Sell list will result in MSCI and FTSE deleting stocks from their indices. That selling will take place at the close Friday.
• We expect 37 stocks to be deleted from the MSCI and FTSE indices at the close on 9 December – the announcements should be made later today or tomorrow.

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

• A “valuation system with Chinese characteristics” has the media, ostensibly, discussing whether this implies a premium for SOEs and companies aligned with national goals.
• In early 2020, SOE-backed clean energy play CGN New Energy Holdings (1811 HK) was subject to a potential privatisation from its parent; but it failed to materialise. 
• During the 14th and 15th Five-Year Plans (2021-30) period, China’s installed capacity for wind and solar power is expected double.

• Operating under the brand name J-Power, Electric Power Development C (9513 JP) is leading Japan’s efforts to make carbon dioxide-free electricity by 2050.
• The company’s investments in gasification and carbon dioxide separation technology and carbon dioxide-free hydrogen generation from coal are close to commercialisation.
• With the technology to serve other power producers to develop their own environmentally-friendly power projects, J-Power could turn into a global-leader in the power generation space in the next decade.

• While China Gas Holdings (384 HK) expects better gas dollar margin HoH, there are still high profit uncertainties and its full-year operational guidance does not look exciting.
• The expectation of flat to 10% YoY decline in new residential household connections is not encouraging. With 1H FY23 profit only amounted to 42% of consensus, we see downgrade risks.
• Despite achieving positive free cash flow, its high gearing of 69.9% (+4pp HoH) is still very stretched relative to peers. We prefer Kunlun Energy (135 HK).

• There are 15 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) at the upcoming rebalance that will be implemented at the close of trading on 9 December.
• While most of the deletions are in line with forecasts, there are a few differences on the inclusions as the index committee has used its discretion to overlook some names.
• The Industrials, Materials and Utilities sectors gain index spots at the expense of Health Care, Financials, Consumer Staples and Consumer Discretionary.

• It’s unclear whether the stocks that lost ％ TOPIX had been overpriced or whether selling pressure caused temporary underperformance. However, it’s clear these illiquid stocks are unsuitable for institutional investors.
• While users want TOPIX liquidity to increase, TSE insists on aligning its criteria for TOPIX stock selection with prime market listing criteria, which takes precedence over the interests of users.
• Rather than asking these companies to take on daunting task of dramatically raising both profit margins and growth, TSE should bring TOPIX criteria to threshold that institutional investors invest in.

• Manufacturing Sentiment in the US continues to decline. US manufacturing neared stagnation in October as orders contracted for the fourth time in five months, while an index of prices paid fell to a more than two-year low.
• As most commodity groups are heavily correlated with the ISM data, this will provide significant headwinds over the next six months or so, according to our leading indicators.
• By now, there is quite a divergence in industrial production in general. We expect industrial production to crash over the next few months, which will continue to be a nasty factor for commodity demand.

• Iberdrola SA has not abandoned its strategic plan in the United States, which includes the acquisition of PNM Resources through its American subsidiary Avangrid Inc.
• Iberdrola is convinced that the transaction will be unblocked in the coming weeks, either because the appeal prospers or because of changes in the regulator.
• I retain my TP of $50.3 cash takeout price (consideration offered by Avangrid/Iberdrola) vs. my $49.8/share median implied valuation. My TP represents 8.5% upside plus a 2.9% dividend yield.

• With the beginning of this week’s newsletter, I probably won’t make any new friends in my home country.
• What makes me sad is that literally nobody is speaking about the untapped natural gas reserves we have underground in Germany that are indeed accessible.
• A short calculation: In 2021 Russia delivered 55 billion cubic meters to Germany or 55% of the total German gas consumption.

• Clearly, the pace of decline of deemed cross-held shares held in retirement benefit trusts is slower than the pace of decline of ordinary cross-held shares held on the balance sheet.
• Companies with deemed shareholdings tend to have larger total assets than companies with general policy shareholdings (policy shareholdings account for 7.3% of total assets).
• Although they are less visible, the reduction of deemed shareholdings will come later because shares of important business partners and banks are contributed to retirement benefit trust as deemed shareholdings.

• Respect the trend – inflation continues to trend down but also continues to surprise on the upside in terms of analysts’ expectations.
• Getting inflation back into the target corridor will be a slow and painful process as inflation is broadly driven by the components of shelter, transportation services, medical services, and not only food and energy, which get the most headlines in the newspaper.
• On the other hand, we’re on the right track, as the YoY comparisons have declined since July.

• After one month from the September batch of Hong Kong Connect inclusion, we provide an analysis on the stock inclusion for 12 stocks. 
• We analysed the inclusion by performance post announcement, performance post inclusion, inflows and analyst coverage.
• We continued to observed outperformance post the HSCI announcement but not the actual inclusion despite the fact that southbound inflows has a significant impact on the trading volume.