CITIC SEC: Cement industry actively pushing price increases in the second quarter, profitability has partially recovered.

CITIC SEC released a research report stating that in the first half of 2024, consumer building materials companies actively expanded their retail channels and diversified businesses. Profit levels and cash flow quality continue to improve, supporting increased dividend payouts to investors. The cement industry actively pushed for price increases in the second quarter, leading to a recovery in profitability. The fiberglass industry has bottomed out, with significant price increases in the second quarter. Leading companies have comprehensive advantages in terms of scale, cost, channels, and brand, demonstrating strong resilience in the industry's cyclical fluctuations. Key points from CITIC SEC: In the first half of 2024, the overall industry profitability faces significant pressure. In the Building Materials sector, operating income decreased by 13.20% year-on-year to 332.709 billion yuan, and net profit decreased by 59.51% to 8.861 billion yuan. Looking at the quarterly performance, in 2024Q1/Q2, operating income decreased by 17.11%/7.42% to 135.885/196.824 billion yuan, and net profit attributable to shareholders decreased by 87.12%/51.06% to 5.97/82.64 billion yuan. Apart from a decrease in sales volume of building materials products due to reduced demand, excess supply within the industry has led to price competition and a decline in product profitability, resulting in a significant decrease in net profits for companies. Cement: Further cooperation enhances, prices improve in the second quarter. From January to April 2024, fewer downstream construction projects and slower progress led to intense competition in the cement industry, with cement prices continuously declining. In May and June, cement companies actively participated in cooperation to restore profitability, leading to a national increase in cement prices of 3.3/28.10 yuan per ton. The profitability of companies improved as a result. Aggregate business remains the support of cement companies' performance, with most companies maintaining a gross profit margin of over 45%, providing favorable supplements to their core cement business. Glass: Profitability compared well year-on-year due to a low base, but prices continue to decline. In the first half of 2024, the industry's major companies saw a year-on-year increase of 4.69% in operating income and 0.50% in net profit, mainly due to a low base in the first half of 2023. Looking at the quarters, in 2024Q1/Q2, the average price of float glass was 104.15/88.02 yuan per weight box, decreasing by 1.31%/15.49% quarter-on-quarter. Demand pressures increased in the second quarter, accelerating price declines, leading to an average 24.38% year-on-year decrease in net profits for major companies. Fiberglass: Price increases show gradual effects, significant improvement year-on-year in the second quarter. In the first half of the year, the supply and demand dynamics in the fiberglass industry improved. Starting from March, leading companies successively raised prices, with good acceptance downstream. Specifically, the average price of non-alkali fiberglass in the first half of the year was 4283.3 yuan per ton, a 14.2% decrease year-on-year. In Q2, the average price per quarter dropped by 7.5%, but increased by 18.1% quarter-on-quarter. Industry inventories have now returned to a reasonable level, and market sentiment is gradually recovering. Overall, the industry's worst period is behind us, and if demand continues to improve, the profit recovery expectations for leading companies are positive. Consumer Building Materials: Decline in revenue and profit, but improvement in operating quality. The continued weakness in real estate demand has led to fierce competition in the industry, resulting in a decrease in revenue and profit for consumer building materials companies. However, leading companies have accelerated the expansion of retail channels, controlled risks at the project end, improved cash flow year-on-year, and enhanced profitability. Leading companies have seen growth in retail business revenue, an increase in gross profit margin, and improved cash flow, supporting their increased dividend payouts to shareholders in the interim report. Risk factors: Weakness in residential and infrastructure construction demand; significant increase in raw material costs; consumer building materials companies' market share increase lower than expected; diversification of business development for consumer building materials companies lower than expected; unexpected risk control for accounts receivable.