Tianfeng: The building materials industry may have already reached the bottom, pay attention to the growth potential of new material varieties.

Tianfeng released research reports, stating that policies affecting both ends of the real estate industry's supply and demand are intensively implemented. This may have a positive impact on improving the fundamentals of the real estate chain and building materials, with the resurgence of cement, glass fiber, and other varieties reflecting a possible bottoming out phase. The current point may still be a cyclical low for traditional building materials; downstream demand for new materials shows better growth prospects, with excellent performance in the pharmaceutical glass sector. It is recommended to pay attention actively. Key points from Tianfeng: The construction materials industry may have bottomed out, and new materials varieties are expected to realize growth potential. In the first half of 2024, listed companies in the construction materials industry achieved total revenue of 288 billion yuan, a year-on-year decrease of 13.4%. Net profit attributable to shareholders was 11.5 billion yuan, a year-on-year decrease of 51.6%. Disappointing performance mainly due to weak demand from the real estate sector, causing a decline in both volume and price of building materials overall. The company believes that with intensive policies affecting both supply and demand in the real estate industry, there may be a positive impact on the fundamentals of the real estate chain and building materials. The current point may still be a cyclical low for traditional building materials, while growth prospects are better for downstream demand for new materials, with excellent performance in the pharmaceutical glass sector. It is recommended to pay attention actively. Traditional Building Materials: Gypsum board in the consumer building materials sector stands out, with marginal improvement in profitability for cement and glass fiber in Q2 2024. 1) Cement: In the first half of 2024, revenue/net profit attributable to shareholders were 127.9 billion yuan and 3 billion yuan respectively, with a year-on-year decrease of 24.1% and 96.2% respectively. The ROE was 0.1%, a decrease of 2.3 percentage points year-on-year. The net profit margin decreased by 4.9 percentage points year-on-year to 0.3%, mainly dragged down by price declines. The average price of cement in the first half of 2024 was about 362 yuan per ton, a year-on-year decrease of 64 yuan per ton (15%). Since April, the cement industry has started to rebound, with an increase in the average price of cement to 365 yuan per ton in Q2 2024. The net profit margin in Q2 has already turned positive from negative, leading to relative optimism about future cement prices. The debt-to-asset ratio of the cement industry decreased in the first half of the year. The company believes that with a decrease in capital expenditure, the dividend-paying ability of cement companies will gradually increase. Dividend prospects remain prominent. Recommendations for companies include Anhui Conch Cement, Guangdong Tapai Group, and CR BLDG MAT TEC. 2) Consumer Building Materials: In the first half of 2024, revenue/net profit attributable to shareholders were 69.6 billion yuan and 5 billion yuan respectively, with a year-on-year decrease of 2.5% and 25.2% respectively. The ROE decreased by 1.6 percentage points year-on-year to 4.3%, while the net profit margin decreased by 3.2 percentage points year-on-year to 4.0%, mainly dragged down by falling product prices and inconsistent changes in raw material costs. Within the sector, gypsum board revenue/profit achieved a year-on-year increase of 19% and 17% respectively. Companies such as Beijing New Building Materials Public showed pricing advantages. Other sub-sectors saw declines in performance, with paint revenue/net profit down by 5.8% and 45.4%, mainly due to price declines and increasing raw material costs. The refurbishment of existing housing and second-hand housing drove growth in re-painting businesses. Water-proofing and tile sectors also saw declines in revenue and net profit, while PPR pipes from Zhejiang Weixing New Building Materials remained profitable due to its strong retail nature. The stability in real estate sales would first benefit companies struggling with large accounts receivable balances and high depreciation charge rates. In the long term, leading companies with channel and product advantages will continue to strengthen their competitive edge and growth prospects remain promising. Recommendations include Beijing New Building Materials Public, SKSHU Paint, and Beijing Oriental Yuhong Waterproof Technology. 3) Glass Fiber: In the first half of 2024, revenue/net profit attributable to shareholders showed a year-on-year decrease of 9.9% and 60.0% respectively. The ROE decreased by 4.1 percentage points year-on-year to 2.6%, while the net profit margin also decreased by 8.7 percentage points year-on-year to 6.9%. Since Q2, the industry has actively increased prices, leading to a 2.0 percentage point increase in net profit margin. The second half of the year may see a marginal recovery in demand, although supply-side pressure remains. Companies like Grace Fabric Technology show resilience in the sector. Recommendations include China Jushi Co., Ltd and Grace Fabric Technology. 4) Glass: Photovoltaic glass revenue/net profit attributable to shareholders increased by 9.1% and 16.3% respectively in the first half of 2024, while float glass revenue/net profit increased by 4.0% and 9.1% respectively. In Q2, Photovoltaic glass performed well while float glass faced profitability pressure. The current market value of leading glass companies is at historically low levels. Photovoltaic glass is expected to benefit from an industry-wide recovery, with recommendations for companies like Zhuzhou Kibing Group and XINYI GLA.SS, Flat Glass Group (covered jointly with Electric New) and others. New materials: the demand for medicinal glass remains strong, focusing on long-term growth potential 2Q2/2H1 The profitability of leading companies in medicinal glass has increased year-on-year. The bank believes: a) Medicinal glass is expected to continue benefiting from the increase in penetration of medium boron silicon, with current valuation advantages gradually emerging. Shandong Pharmaceutical Glass is recommended (covered jointly with the pharmaceutical group); b) Downstream demand for consumer electronics is expected to gradually pick up, with electronic glass benefiting in the medium to long term from domestic substitution and the surge in new products such as foldable screens. Triumph Science & Technology is recommended (covered jointly with the electronics group); c) The promotion of "dual carbon" will likely accelerate the growth of high-quality refractory insulation materials. It is recommended to pay attention to Luyang Energy-Saving Materials and Beijing Lirr High-Temperature Materials.Risk Warning: Lower-than-expected downstream demand, higher-than-expected raw material price increases, higher-than-expected production capacity release, etc.