Utilities Sector

• With concerns on weaker 1H22 profit and lower industry return (due to Lianjiang offshore project) now behind us, China Longyuan Power (916 HK) is well set for better 2H22.
• Utilisation hours should see improvement while new capacity growth is another major driver. The upgrades of aged and small-sized units will almost double its existing capacity. 
• Receipt of Rmb11.4bn subsidies clearly represented an acceleration in collection. This will stay as contributor to better cash flow and enhance financial position. 

• We believe KEPCO is well-positioned within the utility sector to benefit from growing support for nuclear restarts among policy makers and the general public
• Given its substantial nuclear power generating capacity, KEPCO will likely see best-in-class balance sheet and cash flow-generation over the next several years.
• This puts KEPCO well ahead of peers in terms of both environmental credentials and attractive shareholder returns.

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. ABM Investama
2. China Jinmao Holdings
3. Lifestyle International Holdings
4. Geely Auto
5. First Pacific Co

and more…

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.

• ABM Investama
• Azure Power Global Ltd

• In this insight, we take a look at the names leading the race to become ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the December 2022 Rebalance.
• Based on the latest data, I expect one ADD/DEL for SENSEX, one ADD/DEL for BSE 100, and 3 ADDs/DELs for BSE 200. 
• The potential ADDs/DELs for SENSEX could see index flows of US$100mn or more but the other index changes are both small in size and volume impact (days-to-trade).

• Nuclear power is a clean energy source that contributes to energy savings and emissions reduction in society.
• SASAC backed CGN Power (1816 HK) is China’s leading nuclear play, accounting for 55% of on-grid nuclear power generation, but just 1.2% of China’s total installed capacity of power generation.
• As one of the few listed nuclear -plays in Asia, CGN trades at undemanding multiples, together with an attractive ROE and yield.

• CGN Power (1816 HK), as China’s largest nuclear power company, has its profit outperformed coal-fired and wind power peers in 1H22 given its stable cost control and higher tariff.  
• We expect contribution from Hongyanhe #6, normalised operations from existing projects, further margin expansion, solid project pipeline and positive new project potential to be the key earnings drivers. 
• Its target to reach capacity of 70GW by 2035 should underpin long-term outlook. YTD, the stock has outperformed most peers, yet valuation multiples are still cheaper than peer average.

• We are two-thirds of the way through the review period for the December review of the S&P BSE SENSEX Index (SENSEX INDEX). Changes become effective at the close 16 December.  
• We see Adani Green Energy (ADANIGR IN) as the highest ranked non-constituent in inclusion zone, while Dr. Reddy’s Laboratories (DRRD IN) is the lowest ranked constituent in deletion zone.
• Passive trackers will need to trade over 10 days of delivery volume on Adani Green Energy (ADANIGR IN) and Dr. Reddy’s Laboratories (DRRD IN), so the impact will be significant.

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

• The benchmark, CRB Commodity Index, ended the week 2,4% higher
• While natural gas made a higher high, the fertilizer complex remained in a sideways market for some time.
• Last week fertilizer prices saw an awakening, as especially European natgas prices rallied further. US Gulf Urea futures jumped 20% while Middle East Urea futures jumped 18% w/w.

• Even though shareholder proposals have increased, only 77 of the more than 2,000 companies with a fiscal year ending in March have submitted shareholder proposals, or only a few percent.
• Japanese institutional investors begins to examine the content of proposals and exercise their voting rights. It’s serious matter that until now they haven’t exercised them in accordance with Stewardship Code.
• It will still take substantial amount of time to move away from a shareholder meeting protected by a cross-shareholding structure and toward a shareholder meeting that promotes dialogue with shareholders.

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
• China Oil And Gas

• The benchmark, CRB Commodity Index, ended the week -0,5% lower EU CO2 Price to the moon The price of carbon in the EU’s emissions trading system hit a new all-time high on Friday.
• The key reason for the rise was the surge in gas contracts for delivery next year.
• That is making it more likely that increased burning of coal for power generation as an alternative to gas is more than a short-term blip to get the EU through a difficult winter.

• Core net profit rose a healthy 10.9% at ENN Energy (2688 HK) in 1H22 despite challenges from pandemic lockdowns and surge in input costs.
• We expect to see sequential improvement in both dollar margin for gas sales and overall gross margin in 2H22. Excellent integrated energy pipeline should add to earnings momentum.
• Gearing improved 2.2pp in 1H22 and there is more room to deleverage in 2H22. While the stock’s valuation is not particularly cheap, it has probably already hit the trough.