Shenwan Hongyuan: The bottom repair of the building materials industry, the configuration value is gradually emerging

According to the Zhitong Finance APP, Shenwan Hongyuan released a research report stating that five signals confirm that the worst time for the industry has passed: 1. Multiple categories of post-cycle consumer building materials have successively raised prices, indicating a relaxation of competitive pressure in the industry; 2. The scale of capital expenditure in the industry has decreased, and cash flow quality has significantly improved, indicating a gradual alleviation of cash pressure in the industry; 3. Impairment provisions are relatively sufficient, improving cash quality; 4. Infrastructure and municipal demand continue to maintain relative prosperity, and companies with advantages have successively achieved positive growth in orders, revenue, and profits. 5. The peak pressure on real estate entities may have passed. The firm believes that supported by these five signals, the allocation value of the building materials sector has gradually emerged, and the sector may gradually return from underweight to neutral weight, with new inflows of funds supporting the industry's valuation recovery.

Shenwan Hongyuan's main viewpoints are as follows:

Cement: Profit bottoming out in 2024, capacity disposal expected in 2025

The cement industry has seen a rapid decline in profits since 2021, with prices difficult to rise and demand decreasing, while companies' pursuit of market share has also been a significant factor in lowering industry profits. In 2024, North China, Northeast China, and East China will successively raise prices significantly, marking the end of the industry's price war and a return to rational competition. Although cement prices have recently fallen, a phase of price recovery is already evident, and the price difference between coal and cement has not significantly declined, making Q2 profits in the industry still promising. The issue of overproduction in the cement industry is being addressed, with 38.656 million tons/year of clinker capacity already exiting, and capacity clearance is expected to continue accelerating in the second half of the year. The cement industry has reached a consensus to strengthen self-discipline and prevent vicious competition, which will gradually promote regional mergers and restructuring, further reducing ineffective capacity and gradually raising the profit center. It is recommended to pay attention to Conch Cement, CR BLDG MAT TEC (H), Huaxin Cement with high profit elasticity from overseas contributions, Shangfeng Cement with cost and layout advantages in East China, and Taipai Group with a good pattern in East Guangdong and regional improvements.

Consumer Building Materials: Multiple categories have successively raised prices, and the industry may be experiencing an important turning point

In Q1, multiple categories have successively raised prices, indicating an improvement in the intensity of industry competition, with the possibility of price increases spreading. The peak of impairment in the consumer building materials sector has passed, cash quality has improved, and profitability is gradually strengthening, with several companies showing improvement trends in their balance sheets. The internal improvement trend of companies is gradually being confirmed, while external observation should focus on the sustainability of transaction activity in the second-hand housing market in core cities. The firm recommends leading post-cycle companies in consumer building materials such as Beixin Building Materials, Tubao, and Weixing New Materials, and suggests paying attention to Sankeshu and China Liansu (H).

Glass Fiber: Multiple rounds of price increases within a year, industry profits gradually recovering

In Q1, the profitability of glass fiber companies improved significantly, with new production capacity in the industry relatively controllable. In the future, the industry may fall into the high-energy consumption category, and barriers to new capacity will further strengthen. There is still room for improvement in the performance and cost of the glass fiber industry, with new application scenarios such as photovoltaic frames and low dielectric materials continuously emerging. Currently, the market for low dielectric glass fiber yarn is relatively strong, and it is recommended to continue paying attention to the leading low dielectric company, China National Building Material Group. It is recommended to focus on leading companies such as China Jushi and Changhai Co., Ltd.

Glass: The cost line of flat glass continues to decline, and the prosperity of photovoltaic glass after installation remains to be observed The sales of flat glass are highly correlated with real estate completions, while profits are highly correlated with the price difference between glass and soda ash. The soda ash price in 2024 is relatively favorable, and real estate completions will continue to decline in 2025, necessitating attention to the industry's capacity cold repair and clearance progress. The rush for photovoltaic glass installation has basically ended, and future attention should be paid to the natural recovery of demand. It is recommended to focus on leading pharmaceutical glass companies such as Shandong Pharmaceutical Glass, as well as Kaisheng Technology, which is involved in flexible glass and new materials.

Risk Warning: The recovery of the real estate fundamentals may be less than expected, the release of demand for existing homes may be less than expected, cost increases may exceed expectations, and supply may deteriorate marginally