Short interview with Dr. Andrew West, managing director and founder at Longlead Capital Partners (notes below are for personal reference only, any mistakes in transcription are my own):

Some of the structural growth opportunities in Asia that they are looking at – have started to see a bit of underperformance from the big, crowded tech names as interest rates gone up, challenging some of the valuations there. One area they think is interesting is electric vehicles, which is on the sidelines of the tech industry but is drawing upon many of the technologies that come out of the industry. Continues to surprise people on the upside. Ford Motor recently addressed the market on its plans for electric vehicles, batteries etc. – they surprised everyone by committing to 40% of its vehicles being electric by 2030, far higher than most estimates. What that points to is the continued phenomenon where analysts in the market are having to upgrade their estimates of demand for EVs. That has already happened 3x in the last 12 months and is continuing. Unusual in tech, where you quite often get initial expectations that are too high and it takes longer for reality to catch up. Many ways to look at the idea of structural growth of EVs in Asia. A lot of the suppliers across the various components that are required to support this demand for EVs exist in Asia (from lithium, to the electric motors that drive the vehicle to the brands themselves).

Brands – one thing about EVs is that they have far less moving parts and the companies that control the major technologies (unlike in the old days, where OEMs existed only as third party suppliers to the industry) are supporting the emergence of exciting new brands, with really innovative products that are capturing market share (e.g. Li Auto). Meanwhile, you also have some of the traditional car companies that are embracing this technology and have emphasized it in their expansion plans – they are capturing higher market share in the EV market than they are in the internal combustion engine market (e.g. companies like Hyundai). 

On the lithium side – this is an area Australian investors know reasonably well. One of the things with the EV space is that technology risk exists and needs to be assessed. But whether it is battery technology that continues to shift or other aspects of the vehicle, the one thing that is always required and is in short supply today is lithium. When you look at the longer term, Australia is strong in supplying hard rock lithium sources. But if you speak to the dominant companies in Asia (e.g. Ganfeng) who have partnered with Australian manufacturers in hard rock sources of lithium (brine, clay), they say the highest cost sources of lithium mines will be hard rock. Over the medium term, therefore, investors need to be selective about what you are exposed to. Key to getting it right is making sure the companies that are producing lithium are vertically integrated up to their hydroxide plants, which will ensure a better market position and opportunity set over a 5-year period.

Rotation to value – Asia is commonly known as a market to invest in for growth but that is really a dynamic about GDP and the fact that the economies in the region themselves are growing. Often hides the fact that it is a market rich in value as well. Very large universe, a lot of attractive value exposure. If you roll back to Aug/Sep 2020, they identified the likelihood of the next 6-12 months of inflation, higher rates that would support a more value tilt to a portfolio; started looking for the late-cycle rebound companies that would benefit through 2021 as economies rebounded from the pandemic. Large number of industries that are attractive from that perspective right now in Asia.

One is the telecom industry – lot of investors have avoided this space because of performance over the prior 3 years. But there are signals that there are fundamental changes in their operating environment. Speaking to telecom companies across Asia, they are all saying the same thing – 5G handset adoption has risen to a critical threshold and 5G network rollout has moved alongside that, to the extent that you are now seeing sustainable ARPU growth coming through most of the regional telecom companies. This is also coming at a point where the telecom companies have been able to cut their costs and so that additional revenue is flowing through the bottom line. They like SK Telecom, Telstra which are experiencing accelerating earnings growth, driven by this aspect of 5G demand. 

Other industries – shipbuilding. Not an industry that investors have talked about for virtually a decade. Pre-2008 we moved into oversupply, with little need for new containership growth. Last year, everyone got themselves exposed to e-commerce plays because you had multiple years of e-commerce penetration growth in a single year. One of the important aspects coming out of that is that all the products that have been bought online need to be moved from manufacturer to end-consumer, a lot of it on water. Shortage of containerships in the world. Freight rates have increased materially, container ship build prices have increased materially. This is the first large scale up-cycle we have seen in shipbuilding for many years. Resonates to value because, as a result of the preceding 10 years, some of the companies (e.g. listed in Singapore, Korea) are trading at very low PEs and have now been able to book orders already equal to the best years ever in their history. Looks like 2-3 years of earning growth coming through and the likelihood of rerates in those companies.

Final area they are thinking about is the rebound in travel that is going to occur later this year as the vaccine roll-out starts to take effect. Some countries (e.g. Australia) have been slower than originally anticipated, but catching up very quickly. Starting to see a rebound in travel demand and that will likely only strengthen through the remainder of this year. Looking at companies with exposure to this e.g. within Singapore, 2 aviation jet fuel companies that control the distribution of jet fuel should grow very strongly as domestic and international travel rebounds. One of them is trading at low single digit ex-cash PEs, as we are waiting for this rebound to occur.