Industrials China Industrials Insights (Aug): Latest developments around post-COVID-19

Given the impact of secondary COVID-19 outbreaks in certain regions in China, we expect a slower passenger recovery on railways as most travellers view airlines to be safer with better air ventilation.

24 Aug 2020

Monthly passengers number YoY growth in China: Railways vs. airlines

Source: China Railway, CAAC, Flight Master, UBS estimates

This chart shows monthly passenger number YoY growth in China: Railways vs airlines

Addressing recent market focus on industrials' developments in China

With the arrival of hot weather, flood and COVID-19 concerns are getting further away from us. Among our interesting recent observations, we have seen:

  1. a recovery in domestic passenger travel demand;
  2. resilient freight transportation growth from domestic railways and roads, as well as export-oriented ports; and 
  3. softening construction machinery and HDT demand. In addition, we expect automation, construction machinery, HDT and building materials companies to deliver strong H120 earnings growth.

Domestic travel demand is coming back; resilient freight volume growth

Not only did YoY expressway toll revenue growth turn positive from June, YoY railway/airline/airport passenger growth has had a narrower decline recently. We expect the improvement to continue, with strong leisure travel demand in summer and potentially during the National Holiday. We also noticed strong port throughput growth in early August, along with resilient railway freight volume growth, underpinning a healthy economic recovery on the ground.

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