10 Dec 2021: Wilmar International Ltd (WIL SP), Ganfeng Lithium Co Ltd (1772 HK)

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SINGAPORE

Wilmar International Ltd (WIL SP): It’s the season

BUY Entry – 4.20 Target – 4.38 Stop Loss – 4.11
Wilmar is Asia’s leading agribusiness group that encompasses the entire value chain of the agricultural commodity business, from cultivation and milling of palm oil and sugarcane, to processing, branding and distribution of a wide range of edible food products in consumer, medium and bulk packaging, animal feeds and industrial agri-products such as oleochemicals and biodiesel.
Crude palm oil: The new wave. Seasonally, December has been a strong month for crude oil prices. Malaysian palm oil futures bounced back above MYR 4,900 per tonne in early December but have pulled back slightly below MYR 4,800 per tonne yesterday. Malaysia’s palm oil stockpile at the end of November likely fell 3.5% from the previous month to a four-month low of 1.77mn tonnes. At the same time, production likely rose 1%, while exports were forecast to grow 11.9%. The sell-off last week caused palm oil to hit the lowest level since early October, as investors feared the Omicron variant could further hit the global economic recovery. However, palm oil prices are likely to recover as Omicron fears subside, coupled with the supply and demand dynamics moving into the season.

Generic 1st Crude Palm Oil (K01 Comdty): December 2020 rally

Aggressive share buy-backs. The company had been buying back tranches of shares over the last month and into December.

Positive consensus estimates. Wilmar currently has a rating of 13 BUYS and 0 HOLD and SELL, with a 12M TP of S$5.98, representing an upside potential of 41.7% as of yesterday’s closing price of S$4.22.

Rex International Holding Ltd (REXI SP): Power up on oil

REITERATE BUY Entry – 0.295 Target – 0.340 Stop Loss – 0.270
Rex International Holding Limited operates as an independent oil exploration and production company. It operates through Oil and Gas, and Non-Oil and Gas segments. The company offers Rex Virtual Drilling, a liquid hydrocarbon indicator, which uses seismic data to search for oil. The company is involved in the oil and gas exploration and production activities with a focus in Oman and Norway.
Rebound in oil prices. WTI crude futures climbed more than 2% to above US$71 per barrel, while Brent crude futures gained about 2% to above US$74.5 per barrel yesterday. Both WTI and Brent crude futures gained a total of approximately 7.7% and 6.5% respectively, after the major sell-off 2 weeks ago when the Omicron variant was first announced. Oil prices recovered as uncertainties around the new variant and its economic implications start to ease, as a South African health official reported over the weekend that Omicron cases had only shown mild symptoms, while top US infectious disease official Dr. Anthony Fauci said that the initial data on the omicron variant was “encouraging.”
Second producing field near completion. The company announced last Wednesday that the completion of Rex’s 90% subsidiary Lime Petroleum AS’s acquisition of 33.8% of the Brage Field is now expected to be completed by 15 December 2021. Brage Field will add around 3.4k barrels of oil production per day net to Rex’s subsidiary, Lime Petroleum.
Diversifying into the clean and green space. In November, Rex announced that its 90% subsidiary Lime Petroleum AS has entered into an agreement with Nautilus Carbon Services AS to participate in the first phase of a larger project involving several other joint-industry project partners, which aims to secure a storage site in the Norwegian Continental Shelf where CO2 can be injected and safely stored permanently. This project is in line with the global goal to reach net-zero emissions by 2050.
Joining the big guys. Last Thursday, Rex announced that the company has submitted an application to SGX in relation to the proposed transfer from the Catalist to the Mainboard of the exchange, which approval signify the credibility of Rex, given that companies seeking a listing on the Mainboard must meet the entry criteria, which includes minimum profit and/or market capitalisation levels.

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HONG KONG

Ganfeng Lithium Co Ltd (1772 HK): Buy at the lower bound of the consolidation range

Buy Entry – 135 Target – 160 Stop Loss – 125
GANFENG LITHIUM CO., LTD. is a China-based company principally engaged in the research, development, production and sales of deeply processed lithium products. The Company’s main products include lithium compounds, lithium metal and lithium batteries. The Company’s products are mainly used in electrical vehicles, chemicals and pharmaceuticals. The Company distributes its products in the domestic market and to overseas markets.
Lithium carbonate reached a new high. Lithium carbonate prices in China rose to RMB204,500/tonne as of 9th December. As holiday seasons (from Christmas to Chinese new year) draws near, production is expected to slow down as refinery plants will be gradually under the annual overhaul (7 to 30 days). However, EV companies accelerated to stock up lithium carbonate inventories before the holidays. The strong demand for raw materials for batteries will continue to push prices higher at least till 1Q22.
Overseas expansion approved. Recently, the board approved the acquisition of 50% equity interest in Netherlands SPV Company by GFL International Co., Limited, a wholly-owned subsidiary of the Company at a price of US$130 million with its own funds. The exploitation licence of Goulamina Spodumene Mine Project will be transferred to Netherlands SPV company. Ganfeng is considering the 2nd phase expansion of the Goulamina Spodumene Mine Project. The production capacity of the project will increase by 75% from 2.3 million tons to 4 million tons per annum; the production capacity of spodumene concentrate will also increase accordingly, compared to about 450,000 tons per annum, placing Goulamina Spodumene Mine Project among the largest producers globally.
Updated market consensus of the EPS growth in FY22/23 is 40.3%/21.4% YoY respectively, which translates to 31.0x/25.5x forward PE. Current PER is 49.2x. Bloomberg consensus average 12-month target price is HK$205.31.

Lithium carbonate prices

China International Capital Corp Ltd (3908 HK): Benefitting from a new wave of dual listings

REITERATE Buy Entry – 20.8 Target – 23.5 Stop Loss – 19.5
China International Capital Corp Ltd is a China-based company mainly provides investment banking services to domestic and overseas enterprises, institutions and individuals. The Company mainly operates its businesses through six segments. The Investment Banking segment mainly provides equity financing, debt and structured financing and financial consulting services for enterprises and institutions. The Stock segment mainly provides comprehensive financial services for stock business to professional investors. The Fixed Income segment mainly provides interest rate and foreign exchange, credit business, securitization business, derivatives and futures business. The Investment Management segment is mainly engaged in asset management business, fund management business and private equity investment fund business. The Wealth Management segment mainly provides wealth management products and services. The Research segment mainly provides research services to customers.
Monetary easing in China. The People’s Bank of China also on Monday said it will reduce most banks’ reserve requirement ratio by 0.5 percentage point next week, releasing RMB1.2tn (US$188bn) of liquidity. It is viewed as some relief for the property sector. However, the central government will not compromise once property prices resurge again. Hence, the curb on the property market will continue. The easing measures are more like a seasonally tactical tweak on the macro economy as liquidities are tight at the end of the year. Liquidity injection will benefit the equity market to some extent as the authority still restrict fund flows to the property market.
A wave of dual listing in Hong Kong could restart again. Recently, US-listed Chinese stocks were sold off due to the concern of VIE-based structure. Meanwhile, Didi Chuxing (DIDI US) announced it will delist from the US market and proposed to be listed in Hong Kong. These events could trigger another wave of dual listing in Hong Kong moving forward. CICC, as one of the largest investment bank in China could have more underwriting businesses. Furthermore, other Chinese unicorn companies are expected to choose Hong Kong as the primary listing location.
Updated market consensus of the EPS growth in FY22/23 are 19.2%/19.3% YoY respectively, which translates to 7.3x/6.1x forward PE. Current PER is 8.9x. Bloomberg consensus average 12-month target price is HK$26.37.

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Market Movers

United States

Top Sector Gainers

Sector	Gain	Related News
Health Care Equipment & Services	0.42%	CDC strongly encourages Pfizer Covid booster shots for 16- and 17-year-olds amid omicron fears
Household & Personal Products	0.31%	RH Rises 11.5% on Q3 Earnings Beat, Ups ’21 View on Solid Demand
Food & Staples Retailing	0.12%	U.S. Online Retail Prices Rose a Record 3.5% in November

Top Sector Losers

Sector	Loss	Related News
Automobiles & Components	-5.18%	Risk-Off Before Inflation Data Spurs Flight to Megacap Quality
Semiconductors & Semiconductor Equipment	-2.68%
Real Estate	-1.36%	Bain Capital Closes $3 Billion Fund for U.S. Real Estate Deals

Gamestop (GME US) shares tumbled 10.3% yesterday after the company announced mixed quarterly results. GameStop reported revenue of $1.297 billion, beating analyst expectations of $1.19 billion, and lost $1.39 per share, significantly lower than the 52-cent per-share loss forecast. The company previously disclosed that it received a subpoena from the SEC calling for additional material related to an SEC investigation into the trading of GameStop stock and others.
Lucid Group (LCID US) shares plummeted 18.3% yesterday after the company announced that it intends to offer $1.75 billion in convertible senior notes to institutional investors in a private sale. The investors will also have the opportunity to purchase an additional $262.5 million in notes within 13 days from the day the debt is first issued. Debtholders will have the option to convert their notes into Lucid’s stock at a rate that will be determined during the offering.
Broadcom (AVGO US) shares rose 6.4% in after hours trading after the company released quarterly results. Broadcom reported a profit of $7.81 per share, compared with estimates of $7.74 per share. Revenue for the quarter came in at $7.41 billion, above estimates of $7.36 billion.
Oracle (ORCL US) shares jumped 10.4% in after hours trading after it reported earnings and revenue beats for its fiscal second quarter. Earnings per share was at $1.21, beating estimates by $0.10, and revenue came in at $10.36 billion, beating estimates of $10.21 billion.
YUM! Brands (YUM US) shares climbed 1.1% yesterday after Atlantic Equities upgraded its rating on the stock to “Overweight” from “Neutral”, citing the possibility of rising returns from parent company of restaurant chains KFC, Pizza Hut and Taco Bell. Atlantic Equities also said that Yum! was its favoured name in the quick restaurant category.

Singapore

Nanofilm (NANO SP) shares jumped 2.8% yesterday. DBS Group Research upgraded its call on the stock to “Buy” from “Hold” with a higher target price of $4.96, saying that it believes that the worst is now over for Nanofilm, with earnings for FY2022 and FY2023 projected to grow at 44% and 16% respectively. Shares previously closed at its lowest point on 13 October, a day before Gary Ho was named the next chief executive.
Jardine Matheson (JM SP) shares closed 3.1% higher yesterday. The company announced on Wednesday that it plans to double the size of its share buyback scheme to US$500 million. The aim of the share-buyback scheme is to reduce the capital of the company, in line with an ongoing capital allocation policy.
mm2 Asia Ltd (MM2 SP) shares rose 1.9% yesterday after the company said that it will pause the spinoff and listing of its cinema business on the SGX Catalist board, explaining that it likely does not comply with chain listing requirements based on the company’s representations and the group’s financial information for the past 3 financial years. Mm2 also added that it will not submit a pre-admission notification “at this point of time” and will revisit the IPO process in the future “if appropriate”. The company now plans to look to continue developing its business and exploring other avenues to maximise shareholder value.
Sunpower Group (SPWG SP) shares surged yesterday on news that the company will be investing in a steam-production joint venture in China, which will supply a guaranteed portion of the output on a wholesale basis to a Suzhou-based subsidiary. Its subsidiary, Zhangjiagang Yongxing Thermal Power Co, will take a 28% stake for 16.8 million yuan in the joint-venture company, partnering Suzhou Green Enthalpy Thermal Technology Co, which will hold a 42% interest, and Zhangjiagang Water Group Co, with a 30% interest.
Golden Energy and Resources (GER SP) shares rose 3.3% yesterday. The company said that it is seeking note holders’ approval to modify the terms governing its 8.5 per cent senior secured notes due 2026 which would let Australian subsidiary Stanmore Resources and related entities take on more debt over a majority stake in the owner of 2 Queensland coal mines. The company and its subsidiaries would also be able to take on more debt – which could be secured – “to support the future corporate and operational activities” of the company and subsidiaries.

Hong Kong

Top Sector Gainers

Sector	Gain	Related News
Airline Services	5.41%	New data shows GSK-Vir drug works against all Omicron mutations
E-Commerce & Internet Services	3.77%	PBOC to Free Up $188 Billion for Lending to Businesses With New Reserve Requirement Cut
Commercial Vehicle	3.55%	In China’s EV Boom, It’s Too Early to Write Off Old Guard

Top Sector Losers

Sector	Loss	Related News
Coal	-1.55%	China’s November coal imports at highest in 2021
Food Additives & Flavouring	-1.54%	China’s grain output hits new high in 2021 as food security drive begins to pay off
Toys	-1.22%	NA

New Oriental Education & Technology Grp Inc (9901 HK), Hope Education Group Co Ltd (1765 HK). Education sector shares jumped yesterday. Shares rose 13.2% and 10.5% respectively. It was announced that the online education compliance process has entered a substantive stage. Recently, the Guangdong Provincial Department of Education announced the list of “ready for review” off-campus training institutions for online disciplines. In addition, New Oriental also announced its establishment of Oriental Selection Technology Co Ltd, which engages in performance brokerage, liquor management, publication wholesale, crop seed management , Radio and TV program production and operation.
China Lesso Group Holdings Ltd (2128 HK). Shares rose 12.8% yesterday as the prices of upstream raw materials have fallen. With the off-season PVC demand, the continuous accumulation of inventory has begun to limit the rebound of PVC futures. Recent PVC futures have continued to fluctuate in the core range of RMB 8,100 to 9000.
CGN New Energy Holdings Co Ltd (1811 HK), China Longyuan Power Group Corp Ltd (916 HK). Power sector shares extended their rally and shares rose 9.5% and 9.2% respectively. The Guangdong Provincial Development and Reform Commission approved the implementation of a plan where agency power purchase price includes three parts: average on-grid power price, auxiliary service fee and new profit and loss sharing caused by stable agricultural power prices. The related costs are shared by all industrial and commercial users who directly participate in market transactions and power grid companies purchase electricity as agents.

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