Utilities Sector

• Genex Power Ltd (GNX AU) received an improved non-binding offer from Skip Capital/Stonepeak at A$0.25 per share, an 8.7% bump from the previously rejected A$0.23 offer.
• The headcount test is emerging as a key risk as retail shareholders are voicing their displeasure. The offer is underwhelming based on precedent transactions and average sell-side price targets. 
• The Board hopes that granting non-exclusive due diligence and stating an intention to recommend a binding A$0.25 offer will force rival bidders to kickstart an auction.    

• A news report has indicated that SEBI is looking to tighten criteria used for inclusion and continued availability of stocks in the Futures & Options (F&O) segment of the market.
• Our analysis shows 30 stocks could be deleted from the F&O segment while another 12 are close to deletion zone. If applied objectively, 22 stocks could be added to F&O.
• Deletion from the F&O segment could see two stocks dropped from the Nifty Next 50 Index while inclusion in F&O could see two stocks added to the NIFTY Index.

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
• Olam Group

• A slow 1H22 new project momentum and a slight retreat in net profit are not expected to materially alter the positive outlook for China Everbright Water (1857 HK). 
• We estimate project pipeline equals to about 28% of its existing operating capacity. They will underpin growth prospects over the next two years.
• New project growth should accelerate in 2H22 given the increase in local governments’ special purpose bonds issue. Cost inflation is expected to moderate sequentially as well.

• S&P DJI commenced a market consultation for the S&P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.
• We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.
• There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.

• Of course, When the BOJ’s ETF purchases were active, there were concerns about their impact on stock price formation, but now the impact is much smaller.
• However, the BOJ has a presence in listed companies as a silent major shareholder, it is highly questionable whether its voting rights are being properly exercised.
• While the silent major shareholder exists, overseas investors have played major role in enhancing corporate governance. In addition to cross-shareholding structures, they also have to contend with the silent shareholder.

• The Nikkei suggests that the aging population may be the cause. However, performance is assumed to be factor, even when young people open accounts, they investment mostly in foreign stocks.
• In the end, what matters most is that the listed company presents growth expectations. This is what leads to stock performance.
• While tax and other support are one of the factors that motivate individuals to invest, if companies aren’t attractive for investment, their investments are likely to be in foreign stocks.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• The highest spreads are 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Resapp Health (RAP AU), Ramsay Health Care (RHC AU), Yashili International Holdings (1230 HK), Link Admin. 
• Lowest gross spreads are Hwa Hong Corp (HWAH SP), Excelpoint Technology (EXLP SP), Giordano International (709 HK), MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), MACA Ltd (MLD AU). 

• A “Long China Three Gorges Renewables (600905 CH), short Huaneng Power Intl Inc-A (600011 CH)” pair trade should generate good return in China’s utilities sector given the current industry dynamics.
• The key supporting factors are: CTGR has pure exposure to renewable, faster capacity growth and a stronger balance sheet. They should underpin better earnings quality and outlook relative to HPI.
• CTGR trades on higher PER and P/B multiples, but these should not be hurdles as they are just reflection of more promising prospects. We expect CTGR’s YTD outperformance to continue.

• The reason for the limited increase in GPIF’s ESG investments must be thought of separately in terms of GPIF-specific factors and the overall trend in ESG investing.
• Because investors consider which combination of managers in their asset allocation will work best for the overall portfolio, there are factors that cannot be determined by individual ESG investing alone.
• ESG investing has been expanding, but with so many ESG indices and vendors in disarray, some problems are pointed out. It’s important to review the effectiveness of the ESG indices.

• Leading water treatment company going through its crucible – negative sentiment, low expectation thus low valuation 
• Mean reversion a high possibility, tailwinds for the sector getting strong 
• Opportunities galore – new energy, general, PLI, non-PLI Capex, sewage water treatment, upgradation and desalination 

• The six-month reference period for NIFTY September 2022 Rebalance ends tomorrow.
• In this insight, we take a look at the names that could become ADDs/DELs for the NIFTY 50, 100, and 500 Indices in the September 2022 Rebalance.
• In addition, I have discussed some trading opportunities with interesting potential index flow dynamics.

• JG Summit Holdings (JGS PM) aims to raise around US$185m via selling 2.5% of Manila Electric Company (MER PM) (Meralco) via a block trade.
• This appears to be the first selldown by JG Summit and doesn’t appear to have been very well flagged either.
• In this note, we will talk about the deal dynamics and  run the deal through our ECM framework.

• Renewable energy play Genex Power Ltd (GNX AU) has announced a non-binding indicative proposal from Atlassian’s Scott Farquhar and Stonepeak, by way of a Scheme, at A$0.23/share. 
• That’s around a 64% premium. Farquhar holds a 19.9% stake. 
• Farquhar, along with Atlassian co-founder Mike Cannon-Brookes, backed Genex capital raising in March last year.

• Genex Power Ltd (GNX AU) shares rose 44% on the back of an A$0.23 per share offer from Skip Capital and Stonepeak. Skip also increased its stake to 19.99%.
• At first glance, the offer looks generous in comparison to peer multiples and recent share prices. However, the offer is opportunistic partly due to Genex’s 500MW pipeline of projects. 
• Benchmarking the precedent transaction multiples suggests that Genex’s existing portfolio is worth at least A$0.27 per share. The Board should engage for a higher price.