HuaFu Securities: The fundamentals and valuations of the building materials sector are expected to further recover. Focus on 3 main lines

According to the Zhitong Finance APP, Huafu Securities released a research report stating that the decline in interest rates is conducive to the restoration of home buying willingness. The storage and monetization of urban renewal will help restore home buying capacity. The marginal recovery of home buying willingness and capacity expectations is expected to increase the probability of stabilizing the fundamentals of the real estate market, and is also expected to promote the recovery of post-cycle demand in real estate and alleviate credit risks for companies in the industrial chain. Compared to the end of 2022, the space for further deterioration of the fundamentals in the building materials sector in this round is limited (real estate sales volume and price are at lower levels, and leading companies are less dependent on large B channels), and the valuation percentile is also lower than the previous low point, indicating that both the fundamentals and valuations of the sector are expected to further recover.

In terms of investment targets, it is recommended to focus on three main lines: 1) High-quality blue-chip targets that benefit from stock transformation with excellent industry patterns, such as WEIXING NBM (002372.SZ); 2) Oversold targets that benefit from alleviating credit risks on the B side while still having significant long-term alpha attributes, such as ORIENTAL YUHONG (002271.SZ); 3) Leading cyclical building materials companies with bottoming fundamentals, such as HUAXIN CEMENT (600801.SH).

The main points of Huafu Securities are as follows:

The National Bureau of Statistics released national real estate market data for January-February 2025, showing that real estate development investment in January-February was 1.07 trillion yuan, a year-on-year decrease of 9.8%; the area of new housing started was 66.14 million square meters, a decrease of 29.6%; the area of completed housing was 87.64 million square meters, a decrease of 15.6%. The sales area of newly built commercial housing in January-February was 107 million square meters, a year-on-year decrease of 5.1%; the sales amount was 1.03 trillion yuan, a year-on-year decrease of 2.6%; in February, the decline in sales prices of commercial residential properties in various cities continued to narrow year-on-year; the National Bureau of Statistics' press conference stated that in the next phase, policies should be adjusted according to the city to reduce restrictive measures and strengthen the implementation of urban village and dilapidated housing renovations; the Ministry of Housing and Urban-Rural Development stated that it will firmly stabilize the real estate market and promote the stabilization of the real estate market.

In Beijing, the sales area of newly built commercial housing in January-February decreased by 17.8% year-on-year, while the sales of pure commercial residential properties increased by 13.9% year-on-year; in Shanghai, the cumulative transaction volume of new and second-hand houses in January-February increased by 28% and 51% year-on-year, respectively; in Shenzhen, the transaction volume of second-hand houses in week 11 (March 10-16) continued to maintain a high level; in Zhejiang, depositors can directly use the balance of the provincial provident fund account to repay provident fund loans in advance; Kunming adjusted the upper age limit for borrowers of personal housing loans from the housing provident fund; in Guilin, the down payment ratio for applying for housing provident fund loans for purchasing affordable housing has been reduced to 15%.

In the short term: 1) Under the pressure of stabilizing growth, the period before the April Politburo meeting remains a window for real estate policy; 2) The recovery of real estate credit at the bottom is favorable for the building materials sector.

In the medium to long term: 1) The interest rate reduction channel in Europe and the United States has been opened, and the monetary and fiscal policy space in our country is expected to open simultaneously; 2) The Politburo meeting in September 2024 clearly proposed to promote the stabilization of the real estate market, followed by demand-side policies such as the reduction of existing mortgage rates and deed tax, and it is expected that policies such as urban renewal monetization and storage will be ready to launch, fully demonstrating the upper-level determination to stabilize real estate transactions and housing prices; 3) After three consecutive years of decline from the peak in 2021, the sales area of commercial housing has gradually entered the bottom range, and the market's sensitivity to policy easing has further increased. Given that on one hand, the decline in interest rates is conducive to the restoration of home buying willingness, and on the other hand, storage and urban renewal monetization help restore home buying capacity, thereby increasing the probability of stabilizing the fundamentals of the real estate market, It is also expected to promote the repair of post-cycle demand in real estate and alleviate the credit risk of industry chain companies.

Risk Warning

The effects of real estate policies may be less than expected, upstream real estate companies' credit risks may further transmit, and raw material prices may rise, among others