Over 25-yrs in Global Materials & Soft Commodities

Charles Spencer

Alpha Factors

Equity Bottom-Up

China National Building Material / Equity Bottom-Up

China National Building Material Company Limited manufactures cement products. The Company produces silica cements, commodity concretes, cement clinkers, and other products. China National Building Material also produces glass fibers, composite materials, and other products.

China National Building Material (3323 HK)

<ul type="disc">
<li>Chinese cement prices look vulnerable to a 1H20 correction of ~10% after jumping ~20% in 2H19 on supply constraints &amp; temporary demand factors.  Industry contacts highlight that demand is already slowing and pricing has begun to roll-over. </li>
<li>We recommend getting defensive and shorting names with significant earnings sensitive to pricing like <a href="https://www.smartkarma.com/entities/china-national-building-ma-h" target="_blank" data-smartkarma-citation="entities:184:1" rel="noopener">China National Building Material (3323 HK)</a>, whilst pairing this with a long on more solidly positioned producers like <a href="https://www.smartkarma.com/entities/anhui-conch-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:159:1" rel="noopener">Anhui Conch Cement Co Ltd H (914 HK)</a> . </li>
</ul>


Chinese cement prices look vulnerable to a 1H20 correction of ~10% after jumping ~20% in 2H19 on supply constraints &amp; temporary demand factors.  Industry contacts highlight that demand is already slowing and pricing has begun to roll-over. 
We recommend getting defensive and shorting names with significant earnings sensitive to pricing like China National Building Material (3323 HK), whilst pairing this with a long on more solidly positioned producers like Anhui Conch Cement Co Ltd H (914 HK) . 


Time to Get Defensive on Chinese Cement: Short CNBM/Long Anhui Conch

Golden Agri-Resources Limited cultivates, harvests, processes, distributes, and sells crude palm oil and palm kernel.  The Company also refines crude palm oil into cooking oil, margarine, and shortening for sale and distribution.

INVESTMENT CONCLUSION: An improved outlook for CPO pricing should support the shares into the S$0.30s.  Pricing expectations have improved as a result of strong biodiesel demand outstripping low production.  CPO prices have jumped 33% from June, yet <a href="https://www.smartkarma.com/entities/golden-agri-resources-ltd" target="_blank" data-smartkarma-citation="entities:1142:1" rel="noopener">Golden Agri Resources (GGR SP)</a> shares are down 20% in the same period.

INVESTMENT CONCLUSION: An improved outlook for CPO pricing should support the shares into the S$0.30s.  Pricing expectations have improved as a result of strong biodiesel demand outstripping low production.  CPO prices have jumped 33% from June, yet Golden Agri Resources (GGR SP) shares are down 20% in the same period. 

Golden Agri: Pricing Up / Stock Down:  Trading Buy

PT Vale Indonesia Tbk produces nickel in matte, an intermediate product, from lateritic ores at its integrated mining and processing facilities near Soroako, Sulawesi

INVESTMENT CONCLUSION:  We recommend Buying <a href="https://www.smartkarma.com/entities/vale-indonesia-tbk" target="_blank" data-smartkarma-citation="entities:19226:1" rel="noopener">Vale Indonesia Tbk (INCO IJ)</a> shares with a price target of Rp.4,500/sh.  INCO is a beneficiary of stronger <a href="https://www.smartkarma.com/entities/nickel" target="_blank" data-smartkarma-citation="entities:26790:1" rel="noopener">Nickel (NICKEL COMDTY)</a> prices and we forecast 4Q19 EBITDA jumping back toward the US$100mn level or US$400mn on an annualized level, which is well ahead of the current consensus forecasts today.

INVESTMENT CONCLUSION:  We recommend Buying Vale Indonesia Tbk (INCO IJ) shares with a price target of Rp.4,500/sh.  INCO is a beneficiary of stronger Nickel (NICKEL COMDTY) prices and we forecast 4Q19 EBITDA jumping back toward the US$100mn level or US$400mn on an annualized level, which is well ahead of the current consensus forecasts today. 

PT Vale Indonesia: Consensus Looks Too Conservative - Trading Buy

Angang Steel Co Ltd (H) / Equity Bottom-Up

Angang Steel Company Limited produces steel products which include cold rolled sheets, steel rail, pipe billets, wire rods, thick plates, and other steel products.

INVESTMENT VIEW: We highlighted in our April upgrade note that Chinese steel fundamentals were at cycle trough and have the potential to quickly rebound.  However, fundamentals have remained weak and <a href="https://www.smartkarma.com/entities/angang-steel-co-ltd-h" target="_blank" data-smartkarma-citation="entities:203:1" rel="noopener">Angang Steel Co Ltd (H) (347 HK)</a> share price has fallen since our recommendation.  There are still positive catalysts which could lead to a recovery in industry conditions but our earlier optimism for a quick turn-around has faded.  Despite that, the shares look too cheap to sell at just 0.4x BV and we continue to own them but lower our 12-month price target to HK$3.25 to reflect the more mixed investment case we see at the moment.

INVESTMENT VIEW: We highlighted in our April upgrade note that Chinese steel fundamentals were at cycle trough and have the potential to quickly rebound.  However, fundamentals have remained weak and Angang Steel Co Ltd (H) (347 HK) share price has fallen since our recommendation.  There are still positive catalysts which could lead to a recovery in industry conditions but our earlier optimism for a quick turn-around has faded.  Despite that, the shares look too cheap to sell at just 0.4x BV and we continue to own them but lower our 12-month price target to HK$3.25 to reflect the more mixed investment case we see at the moment.  

INVESTMENT CONCLUSION: We recommend avoiding shares linked to the Indonesian plantation sector, like <a href="https://www.smartkarma.com/entities/golden-agri-resources-ltd" target="_blank" data-smartkarma-citation="entities:1142:1" rel="noopener">Golden Agri Resources (GGR SP)</a> and <a href="https://www.smartkarma.com/entities/wilmar-international-ltd" target="_blank" data-smartkarma-citation="entities:172:1" rel="noopener">Wilmar International (WIL SP)</a> until the risks associated with a recent spike in transboundary haze passes.  Over the past few days, there has been a sharp deterioration in air pollution throughout Southeast Asia as a result of an escalation of fire clearing activities across Sumatra and Kalimantan.

INVESTMENT CONCLUSION: We recommend avoiding shares linked to the Indonesian plantation sector, like Golden Agri Resources (GGR SP) and Wilmar International (WIL SP) until the risks associated with a recent spike in transboundary haze passes.  Over the past few days, there has been a sharp deterioration in air pollution throughout Southeast Asia as a result of an escalation of fire clearing activities across Sumatra and Kalimantan.  

Golden Agri & Wilmar – Avoid till the Smoke Clears

Commodities analyst with over 25-years of experience. Combining industry knowledge with predictive analytics to develop deep insights for market participants making investment decisions and capital allocations.