GF Securities: The bottom resilience of the building materials sector still has short-term concerns about the three directions of chemical bonds, storage, and three-quarter reports

The Zhitong Finance App learned that GF Securities released a research report saying that on the one hand, multiple policy combinations should have a positive impact on the real estate market volume and price trends, which is conducive to stabilizing real estate demand. According to Wind, Kray, and real estate agents, second-hand housing transactions have picked up since October, and building materials with strong stock attributes have taken the lead; on the other hand, collection and storage mainly targets houses that have already been built for sale, directly driving the demand for decoration. Building materials are even more beneficial. The building materials industry was affected by continued weak demand in the 3rd quarter. Fundamentals were still under pressure, but the bottom of the sector was still resilient. Focus on three investment leads in the short term: “financial debt,” “storage,” and “three-quarter report,” and be optimistic about opportunities in the overall building materials sector in the medium to long term.

The main views of GF Securities are as follows:

Timely recovery of financial debt favors improved demand and repayment of municipal infrastructure projects, and cement/concrete, waterproofing, and pipeline companies benefited

According to the website of the State Information Office, the State Information Office held a press conference on October 12. One of the highlights of the Ministry of Finance's statement was localization debt, clearly stating that it will launch a package of “large-scale increases in debt to support local resolution of hidden debts”, “a plan to increase large-scale debt limits at once to replace hidden debts in local government stock”, and “this is one of the most powerful measures introduced in recent years to support consolidated debt.” The emphasis is on “large-scale increase,” “one-time use,” and “maximum intensity,” and the corresponding policy space is quite clear. The central government supports localized debt. On the one hand, it will boost demand for municipal infrastructure projects, and on the other hand, it will facilitate repayment of related projects.

The central government continues to stabilize real estate, and the Ministry of Finance supports special debt storage. Recently, second-hand housing transactions have improved, and decoration and building materials have benefited

According to the government's official website, on September 24, the central bank announced a reduction in interest rates and the down payment ratio. On September 26, the Politburo meeting stated “to help the real estate market stop falling and stabilize”. On October 12, the Ministry of Finance clearly could use special bonds for storage and allow special bonds to be used for land reserves. Furthermore, according to Xinhua News Agency, after investigating various guaranteed housing projects in Taiyuan from October 10 to 12, he pointed out a resolute fight to secure housing.

A combination of policies is being promoted. On the one hand, it should have a positive impact on the volume and price trend of the real estate market, which is conducive to stabilizing real estate demand. According to Wind, Clery, and real estate agents, second-hand housing transactions have picked up since October, and building materials with strong stock properties have taken the lead; on the other hand, collection and storage mainly targets housing already built for sale (according to the National Bureau of Statistics, 740 million square meters of commercial housing, including 380 million square meters of residential housing), which directly drives the demand for decoration, and is more beneficial for decoration materials.

The building materials three-quarter report is under overall pressure, but the bottom of the sector is resilient, and expectations have continued to improve, so we continue to be optimistic about sector opportunities

The building materials industry continued to be affected by weak demand in the 3rd quarter. Fundamentals were still under pressure, but resilience at the bottom of the sector was still strong. First, cement companies collaborated at the bottom, making profits bottoming out, and production cuts and price increases can also bring some upward elasticity (for example, according to Digital Cement Network, Yangtze River Delta cement and clinker strongly increased by 100 yuan/ton in October). Second, although the consumer building materials boom declined quarterly in 2024, leading retail operations were resilient. Third, glass fiberglass supply-side production capacity was self-regulating. Currently, the “weak reality” of the industry still exists, but “weak expectations” have continued to improve. As the central government continues to stabilize real estate, sector fundamentals and valuations are expected to continue to be repaired, and opportunities in the building materials sector will continue to be optimistic.

Investment recommendations:

Focus on three investment leads in the short term: “financial debt,” “storage,” and “three-quarter report,” and be optimistic about opportunities in the overall building materials sector in the medium to long term. The first is “chemical debt” beneficiary stocks, focusing on cement/waterproofing/pipeline faucets, such as Huaxin Cement (600801.SH), Shangfeng Cement (000672.SZ), Conch Cement (600585.SH), China Resources Building Materials Technology (01313), Tapai Group (002233.SZ), Dongfang Yuhong (002271.SZ), Keshun Co., Ltd. (300737.SZ), engineering pipeline faucets, etc.; the second is “storage” beneficiary stocks, focusing on leading decoration and building materials, such as Sankeshu (603737.SH), Baby Rabbit (002043.SZ), Beixing New Materials (000786.SZ), Weixing New Materials (002372.SZ), Jianlang Hardware (002791.SZ), etc.; third, companies that are expected to report relatively good results in the 3rd quarter and have weak short-term fundamentals, focus on Rabbit Baby, Beixin Building, Shandong Pharmaceutical (600529.SH), etc.

Risk warning: the risk that the macroeconomy will continue to decline, the risk of large fluctuations in policies such as currency and real estate, the risk that the new production capacity of the industry will exceed expectations, the risk that the cost of raw materials will rise too fast, etc.