Utilities Sector

• 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. 

• 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.