Dongfang Securities: Operating conditions have already hit bottom first, pay attention to the allocation opportunities of domestic paint leaders

According to the Zhitong Finance APP, Dongfang Securities released a research report stating that some market views still worry about the downward pressure of real estate on the valuation of the building materials sector, while believing that the sector's allocation value is low in the context of overall demand for building materials not recovering. The firm believes that after several years of a real estate downturn cycle, the risks of enterprise development and operation have been fully released, and leading companies in the coatings sector have shown operational improvement and performance recovery, with future development expected to reach new heights, anticipating growth to be realized, and currently at a good allocation point. It is recommended to pay attention to SKSHU (603737.SH) and BNBMPLC (000786.SZ).

The main points of Dongfang Securities are as follows:

First-tier city real estate policies continue to relax, boosting expectations for consumer building materials demand

Recently, Beijing and Shanghai have successively introduced measures to optimize real estate policies, further relaxing purchase restrictions. On August 8, 2025, Beijing's new policy clarified that eligible Beijing households and non-Beijing households who have continuously paid social security/income tax for more than two years can purchase an unlimited number of commercial housing units outside the Fifth Ring Road. On August 25, Shanghai's new policy: eligible Shanghai households and non-Shanghai households who have continuously paid social security/income tax for more than one year can purchase an unlimited number of housing units outside the Outer Ring Road. Against the backdrop of a still weak real estate market, the relaxation of real estate policies in first-tier cities once again releases positive signals, promoting the stabilization of the real estate market. In this process, the demand release brought about by urban renewal will have a positive boosting effect on the stabilization of consumer building materials demand expectations.

Domestic coatings leaders have already reached a bottom in operational conditions

According to the China Coatings Industry Association's forecast, the overall downstream demand in the coatings industry is expected to see slight growth in 2025, with the downward trend in the real estate industry continuing, but at the same time, there is strong growth in repainting and renovation demand from urban renewal projects, elderly transformation, and rural improvement-type housing. In this context, the firm has found that the operational conditions of industry leader SKSHU have also improved, achieving operating revenue of 5.82 billion yuan in the first half of 2025, a year-on-year increase of 1.0%; achieving a net profit attributable to shareholders of 440 million yuan, a year-on-year increase of 107.5%. The net profit attributable to shareholders has significantly improved compared to the first half of 2024, reaching a historical high.

In the context of stabilizing fundamentals, pay attention to allocation opportunities for domestic coatings leaders

Coatings have always been a relatively high-quality track within consumer building materials, with renovation and repainting demand combined with strong brand attributes, and leading companies have great growth potential. Previously, China's coatings market was led by foreign brands such as Nippon Paint and Dulux, while domestic companies like SKSHU have achieved steady growth in performance by honing their core competitiveness, continuously upgrading product services, and exploring new growth channels. Nippon Paint's architectural coatings revenue in the first half of 2025 was 10.06 billion yuan, a year-on-year decrease of 14.3%, and the gap between SKSHU and it is gradually narrowing. In the future, as domestic brands become more deeply rooted in consumers' minds and channel development matures, the market share of Chinese-funded enterprises in the domestic coatings market is expected to further increase.

Risk Warning

Further significant decline in coatings demand, market share growth of leading companies not meeting expectations, and rising prices of raw materials