China Specialist, Auto and Industrial Specialist

Victoria Li

20 years experience as sell side analyst focusing on China's Industrial and Auto sectors

Thematic (Sector/Industry)

Indonesia Building products / Thematic (Sector/Industry)

Construction (and consequently cement demand) will be relatively more resilient during a covid-19 lockdown and could outperform the market in the first 3-6 months of a recovery. We have seen this play out in China where cement prices have been relatively resilient compared to rest of the economy. The market has rewarded Chinese cement stocks which have outperformed significantly YTD.  We think Anhui Conch (914.HK) and CR Cement (1313.HK) could continue to outperform till June-July and would be our preferred picks in 2Q'20We see similar dynamics playing out in India where the supply-demand fundamentals have been getting better over the last 3-4 years and early indicators have pricing and volumes holding up relatively well. The Indian cement stocks, while having outperformed the local market, are still down double-digit-percentages YTD. While there are uncertainties as to when the lockdowns will be lifted and the nature of the recovery post the lockdowns, cement will be one of the beneficiaries in our view. Hence we would wait till the end of 2Q'20 and rotate into the Indian cement stocks (Ultratech(UTCEM.IN), ACC(ACC.IN)) for 2H2020 as the recovery in China will start getting fully recognized in the cement stocks and the local market may start to rotate away from the infrastructure/construction-related plays which have outperformed We see the risk/reward in the Indonesian cement stocks as less attractive as the industry supply-demand fundamentals were very fragile going into the covid-19 downturns. Near term we see the fasting season-related construction slowdown exacerbating the lockdown impacts in 2Q'20. Though the Indonesian cement stocks (Semen Indonesia (SMGR.IJ), Indocement(INTP.IJ)) have fallen more than the JCI index and the regional cement peers, the valuation multiples are in line with the Indian cement stocks where you could see a much sharper rebound

Construction (and consequently cement demand) will be relatively more resilient during a covid-19 lockdown and could outperform the market in the first 3-6 months of a recovery. We have seen this play out in China where cement prices have been relatively resilient compared to rest of the economy. The market has rewarded Chinese cement stocks which have outperformed significantly YTD.  We think Anhui Conch (914.HK) and CR Cement (1313.HK) could continue to outperform till June-July and would be our preferred picks in 2Q'20We see similar dynamics playing out in India where the supply-demand fundamentals have been getting better over the last 3-4 years and early indicators have pricing and volumes holding up relatively well. The Indian cement stocks, while having outperformed the local market, are still down double-digit-percentages YTD. While there are uncertainties as to when the lockdowns will be lifted and the nature of the recovery post the lockdowns, cement will be one of the beneficiaries in our view. Hence we would wait till the end of 2Q'20 and rotate into the Indian cement stocks (Ultratech(UTCEM.IN), ACC(ACC.IN)) for 2H2020 as the recovery in China will start getting fully recognized in the cement stocks and the local market may start to rotate away from the infrastructure/construction-related plays which have outperformed We see the risk/reward in the Indonesian cement stocks as less attractive as the industry supply-demand fundamentals were very fragile going into the covid-19 downturns. Near term we see the fasting season-related construction slowdown exacerbating the lockdown impacts in 2Q'20. Though the Indonesian cement stocks (Semen Indonesia (SMGR.IJ), Indocement(INTP.IJ)) have fallen more than the JCI index and the regional cement peers, the valuation multiples are in line with the Indian cement stocks where you could see a much sharper rebound

Cement - Opportunities in India, Less so in Indonesia from the China Covid-19 Playbook