According to the Zhitong Finance and Economics APP, China International Corporation released a research report stating that in 2024, the building materials index is in a general pressure phase, and downstream demand weakness has led to a decline in performance for most building materials companies in the first quarter. In the cement sector, the short-term optimization of the competition pattern is expected to promote the upward movement of the price center and increase profit-making potential; from a long-term perspective, attention should be paid to energy conservation and carbon reduction as well as the optimization of the supply-side pattern in the industry. In the consumer building materials enterprise sector, most companies are currently at a low valuation level; Risks at the reporting end are gradually being cleared and real estate policies are expected to boost demand. Demand and supply on both sides have marginal improvement potential, and performance is expected to continue to improve. In the fiberglass sector, after the price increase in 24Q1, the profit-making ability of various manufacturers has been repaired. Referring to the expansion actions of industry leaders and new entrants, the outlook for long-term demand in the fiberglass industry remains optimistic.

The main viewpoints of CICC are as follows:

Since 2024, the building materials index has been in a general pressure phase. Positive policies in the real estate industry in the first half of the year led to an upward trend in the industry chain, but this wave of market trends was not sustained. In 2024Q1, the demand for the building materials industry was relatively weak, and the performance of most companies in the first quarter was down year-on-year.

Cement: Short-term view of competitive optimization, long-term view of supply-side reforms

China International Corporation stated that in 2023 and the first half of 2024, the losses of cement companies were mostly due to the downward trend in the industry's profitability caused by the downward trend in the price center. In the short term, under the background of weak demand, implementing staggered production reduction in the region and promoting the upward movement of the price center are effective measures to increase the profits of cement companies. In the second quarter, the staggered production reduction in the northeast region had the best effect, and the price center continued to rise, exceeding the price level of East China in mid-July. In the long run, energy conservation and carbon reduction have become the direction of the cement industry. Leading enterprises have technical advantages and are expected to further increase their market share. From the perspective of valuation, the current cement sector is at the bottom of the price-to-book ratio, and some companies have higher dividend ratios and dividend yields, with higher investment safety margins.

Consumer building materials: low valuation, risks at the reporting end are gradually being cleared

The performance and valuation trends of consumer building materials companies are in the opposite direction. Risks at the reporting end are gradually being cleared, the cash-to-revenue ratio has increased, and the year-on-year increase in operating cash flow is significant. In 2024H1, the prices of most consumer building materials raw materials fluctuated downward, and the company's cost pressures were not significant. If downstream demand improves, profits are expected to continue to increase. In the first half of the year, positive policies in the real estate industry were frequent, and sales of commodity houses in 30 large and medium-sized cities in May and June showed signs of improvement. The sustainability of policy effects and the effect of transmitting policies to the demand side of consumer building materials still need to be observed. In the background of no obvious improvement in demand in 2024H1, the supply side of consumer building materials is expected to continue to clear, and the industry competition pattern will be further optimized. There is marginal improvement potential on both the supply and demand sides, and the performance of consumer building materials companies is expected to continue to improve.

Fiberglass: The price has stabilized after rising, and the long-term demand outlook is optimistic

The demand-supply of the fiberglass industry continued to be weak when the price of fiberglass rose in the first half of the year. After panic buying lasted for about two months, it ended because industry demand could not support it. However, the performance of various fiberglass manufacturers has been significantly improved since the price increase in 24Q1. At the current price level, industry leaders can achieve profitability, while other small and medium-sized manufacturers are still around the breakeven point. Referring to the expansion actions of industry leaders and new entrants, the outlook for long-term demand in the fiberglass industry remains optimistic; at the same time, as a substitute material, its cost-effectiveness is highlighted when the price is falling, and new application areas are expected to emerge.

Investment recommendations: Cement sector recommends Conch Cement (600585.SH), Huaxin Cement (600801.SH); Cement industry chain recommends Lets Holding Group (002398.SZ), Sobute New Materials (603916.SH), China West Construction Group (002302.SZ). Consumer building materials sector recommends Beijing New Building Materials Public (000786.SZ), Zhejiang Weixing New Building Materials (002372.SZ), Beijing Oriental Yuhong Waterproof Technology (002271.SZ). Fiberglass sector recommends China Jushi Co., Ltd. (600176.SH), Grace Fabric Technology (603256.SH).

The main risks faced by the rating: real estate sales are lower than expected, infrastructure declines and physical workload does not meet expectations, and cost pressures resurface.