Golden Finance: Policy statements exceed expectations, the confidence of the construction and building materials sector is expected to rebound.

CICC released a research report stating that on September 24th, the State Council Information Office held a press conference on financial support for high-quality economic development. The policy content mentioned slightly exceeded our and the market's expectations. From an emotional standpoint, as a pro-cyclical sector driven by policies, building materials are expected to benefit from the liquidity release brought by reserve requirement reductions and interest rate cuts. Leading companies in the cement and fiberglass industries may gradually shift towards prioritizing profits over market share. Additionally, the accelerated issuance of special bonds in the second half of the year, with central enterprises having higher priority in repayment sequences, indicates a stronger ability to acquire orders and collect payments compared to local construction companies and municipal investment platforms. The fundamentals remain relatively healthy, and opportunities from the sector's pullback appear to outweigh the risks, providing opportunities for low-level allocation. CICC's main views are as follows: Event: On September 24th, the State Council Information Office held a press conference on financial support for high-quality economic development, announcing reserve requirement reductions, policy rate cuts, lowering existing housing loan rates and unifying the minimum down payment ratios for housing loans. They also introduced new monetary policy tools to support the stock market. In addition, policies were released to promote the entry of long-term funds into the capital market and encourage mergers and acquisitions of listed companies. CICC stated that the policy content mentioned in this press conference slightly exceeded their and the market's expectations. Emotionally, focusing on pro-cyclical sectors benefiting from policy-driven liquidity release CICC believes that from an emotional perspective, building materials as a policy-driven pro-cyclical sector are expected to benefit from the liquidity release brought by reserve requirement reductions and interest rate cuts. The institutional holdings of building materials are still at historically low levels, with high market pessimism. After overselling, there is hope for a phase of valuation recovery. Recommendations for holdings are still focused on defensive and profitable items. Led by industry leaders, cement and fiberglass companies are gradually shifting towards prioritizing profits over market share, making certain companies with cost advantages and margin of safety in some positions have value for allocation. CICC believes that undervalued stocks with attractive dividend yields and expectations of price increases can be considered for short-term allocation as absolute return instruments. A-shares to consider are Anhui Conch Cement (600585.SH), Huaxin Cement (600801.SH), Gansu Shangfeng Cement (000672.SZ), China Jushi Co., Ltd (600176.SH); H-shares are Anhui Conch Cement (00914), CR BLDG MAT TEC (01313). Consumer building materials and new materials continue to have good prospects for companies with pricing power and strong cash flow. Recommendations include Shandong Pharmaceutical Glass (600529.SH), Zhejiang Weixing New Building Materials (002372.SZ), Beijing New Building Materials Public (000786.SZ). Fundamentally, focus on potential recovery of industry chain confidence and business sentiment The market has been concerned about continuously low real estate sales, and the downward cycle of completions may be extended. The new policies of lowering existing housing loan rates and unifying down payment ratios may boost confidence for enterprises and channels to some extent, alleviate residents' wait-and-see attitudes towards home purchases, and push for demand release for products in the glass, hardware, coatings, and cement industries with a focus on completed real estate. This could marginally ease competitive pricing pressures. The fundamentals of construction central enterprises remain robust, and the sector's sentiment is expected to improve CICC believes that previously, due to a year-on-year decline in overall orders and an increase in receivables in 2Q24, pressure on receipts became evident, resulting in a certain sectoral pullback. However, with the accelerated issuance of special bonds in the second half of the year, central enterprises having higher priority in the repayment sequence, and superior abilities in acquiring orders and collecting payments compared to local construction companies and municipal investment platforms, the fundamentals remain relatively healthy. Opportunities from the sector's pullback appear to outweigh the risks, providing opportunities for low-level allocations. This round of incremental policies is expected to improve sector sentiment to some extent and help with sector valuation recovery. Recommendations include China State Construction Engineering Corporation (601668.SH) and other construction central enterprises. Risk: Demand recovery falling short of expectations, lagging pace of policy implementation.