CMSC construction materials industry's 2025 investment strategy: the end of the winter implies the arrival of spring, from expected reversal to value reevaluation.

The CMSC released a research report stating that building material companies in the real estate chain will face the dilemma of "strong expectations, weak reality" by 2024 under the backdrop of policy changes. Currently, in a broad fiscal and monetary environment, the policy effects of infrastructure chain securitization and stabilization of the real estate chain are worth looking forward to. While it will take time for expectations to lead the way to fundamental repairs, the value of high-quality building material leaders remains prominent, and they are expected to undergo a value re-evaluation under the current reversal of expectations. The main points of the CMSC are as follows: Expectations turn from policy changes From the de-leveraging and tightening controls of the real estate chain in 2021, emphasizing "housing is for living, not for speculation," to city-specific policies in 2022, and stabilizing policies in 2023 with continuous bottoming adjustment of the real estate market, the policies continue to be relaxed in 2024 and for the first time propose to promote a stabilization in the real estate market. Under the changing policy direction, building material companies in the real estate chain will face the dilemma of "strong expectations, weak reality" in 2024. In the current broad fiscal and monetary environment, the policy effects of infrastructure chain securitization and the stabilization of the real estate chain are worth looking forward to. While it will take time for expectations to lead the way to fundamental repairs, the industry sees positive aspects within the weak overall demand background: 1) the decline in sales of new real estate is narrowing, and there are still structural opportunities in the stock market; 2) the shortcomings of the trend of "price for quantity" are emerging, with significantly increased self-discipline in industries such as fiberglass and cement, which are expected to emerge from the profit downturn; 3) the risk of devaluation in the consumer building materials industry has been basically cleared, leading brands have gradually improved through brand expansion, product category expansion, and optimization of channels; 4) new markets (such as overseas) and new application areas (such as downstream photovoltaics/industrial use of fiberglass) still have room for growth. The value of quality building material leaders remains prominent, and they are expected to undergo a value re-evaluation under the current reversal of expectations. Consumer building materials: Risk-clearing leaders' still exist, valuation is expected to be reshaped. The attractiveness of the existing market is gradually increasing, and higher quality requirements are being placed on consumer building material categories, with the competitive advantage of brand leaders being prominent. From a fundamental perspective, the risks provisioned by consumer building material companies are gradually decreasing, leading brands are entering the retail market and increasing support for distribution channels to ensure cash flow quality, and developing multiple product categories to ensure growth. Most consumer building material companies will rid themselves of risk burdens by 2025, and after channel adjustments and gradual market structure transformations stabilize (matching the channel structure adjustments of consumer building material companies themselves with the restructuring of domestic real estate transactions), leading companies are expected to return to a growth trajectory. Currently, the valuation levels of top quality consumer building material leaders are in the historical lower range, with policy improvements indicating the importance of stock-specific values, and there is still room for valuation restoration for leading companies. Cement: Optimizing supply in the domestic market, seeking opportunities in the overseas market. With the strategic transformation of industry leaders and enhanced industry synergy, cement prices have bottomed out in the second half of the year, and industry profitability is expected to significantly improve after cement price increases. Further production restrictions will be implemented in the winter of 2024, reflecting the proactive optimization of cement supply. On the policy side, on one hand, there is an emphasis on regulating cement production capacity replacement, and excess production is expected to converge; on the other hand, cement is about to be included in the carbon trading market, creating an economic incentive mechanism for cement companies where "emissions have costs, and reductions have benefits," causing further differentiation in internal costs within the industry. In the short term, the value of high dividend-paying targets under a low-interest rate environment is further highlighted; in the medium to long term, with diversified product categories (such as developing construction mixed businesses, aggregates, etc.), actively expanding overseas, and focusing on energy-saving and emissions reduction construction, leading companies are safe with higher margins, and investment value remains. Fiberglass: Industry self-discipline strengthens, optimistic about profitability bottoming and recovery. In 2024, two rounds of price increases led the industry leaders, signaling the industry bottom. In 2025, there is a high probability that fiberglass prices will rise, and the current long-term agreements are expected to take effect in early 2025, boosting industry profitability. On the supply side, new production capacity is expected in the domestic fiberglass market in 2025, and attention should be paid to existing manufacturers' tacit agreements and determination to maintain healthy competition within the industry. On the demand side, there is a recovery in the wind power and electronics sectors in the second half of the year; new application scenarios such as composite materials for photovoltaics and industrial textile products for security will bring new opportunities for fiberglass. Investment recommendations: In consumer building materials, continue to recommend leading players in various segments with strong brand power in the consumer/DIY market and a solid distribution network (small B) Key focuses: Stable growth high-dividend quality pipe material leaders Zhejiang Weixing New Building Materials (002372.SZ), valuation repair resilient target assets Monalisa Group (002918.SZ), SKSHU Paint (603737.SH), Keshun Waterproof Technologies (300737.SZ), and Dehua TB New Decoration Material (002043.SZ) with channel model success and focus on shareholder returns, leading companies such as Guangdong Dongpeng Holdings (003012.SZ), Beijing Oriental Yuhong Waterproof Technology (002271.SZ) with continuous channel optimizations, Beijing New Building Materials Public (000786.SZ) actively acquiring quality assets to strengthen competitiveness, and Keda Industrial Group (600499.SH) with a strong momentum in overseas market development. In cement, focus on industry leaders with outstanding cost advantages and leading economies of scale, such as Anhui Conch Cement (00914,600585.SH), Huaxin Cement (06655,600801.SH), Tianshan Material (000877.SZ), as well as regional leaders benefiting from improved supply-demand patterns such as Gansu Shangfeng CemeChina Jushi Co., Ltd (600176.SH), a leading fiberglass company with outstanding cost advantages and a continuous increase in the proportion of high-end products, has a good performance in overseas market development.Risk warning: The investment growth rate in real estate and infrastructure is declining, sales volume and prices are lower than expected, raw material and fuel prices have increased significantly, and accounts receivable recovery is delayed.