Utilities Sector

• 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. 

• Share price of China Longyuan Power (916 HK) has been under pressure over the last two weeks due to concern on future offshore wind power project return.
• We believe the low tariff of Rmb0.19/kWh won by a Huaneng Power Group consortium in Fujian is more an exceptional case and should not be taken as a new normal.
• China Longyuan’s growth has been well secured by its project pipeline as well as 21GW potential injection from parent. This round of de-rating is just too excessive. 

• The listing of EDF’s shares is resumed with the announcement of a minorities buyout offer at €12/share, a 53% premium to the undisturbed share price.
• It is a generous offer that also aims to avoid the outcry of EDF’s employees (c. 1% stake). Interloper risk is nil. Delisting is expected by the end of October.
• Gross spread is 2.13% which could lead to an interesting c. 8% estimated annual return if settlement takes place by the end of October. Long and tender.

• In the last six weeks, AGL Energy Ltd (AGL AU) has fallen and is now at the low end of its post-Brookfield bid trading range. Now below the A$8.25 bid.
• AGL has one generator down – the Loy Yang A Unit 2 – which will be back in late Sep. Guidance is left… unguided. There will be a related loss.
• In the meantime, the rest of the producing assets have probably been having a field day. But given shareholder structure, we’re still in limbo.

• We raised our DCF-driven target price to RM3.40 from RM3.10 on the back of 15%-23% upgrade in FY22-FY23 net profit forecasts on higher total margin spread assumption of RM2.60/mmbtu from RM2.50/mmbtu-RM2.40/mmbtu.
• We believe our previous assumptions were conservative as the strong 1QFY22 margin is to set a new base for the next three years. OUTPERFORM maintained
• Gas Malaysia Distribution Sdn Bhd (GMD) continued to register volume growth as all shippers have to pay for the usage of GMD’s distribution pipeline

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