Zixin Securities released a research report saying that the cement industry has reached the bottom of cyclical profitability. With the clearance of small and medium production capacity, the improvement of supply pattern is expected to drive the recovery of profitability. The bank recommends industry leaders with overseas expansion capabilities and industry consolidation potential. The proportion of high-aged production lines in the glass industry is relatively large, with a large potential for cold repairs and production reduction, and the supply side is expected to improve.

The opinion of Citic Securities is as follows:

Cement industry: prices rose sharply in the second quarter, and corporate profits gradually recovered.

According to Wind data, the average price of 42.5 bulk cement in the first half of 2024 was 318.32 yuan/ton, a year-on-year decrease of 16.49%. However, since May, cement prices have begun to rise, with prices at the end of June up 31.4 yuan/ton from the end of April, and the Northeast region up 150 yuan/ton from May to June. Coal prices have declined year-on-year, and the pressure on the cost side of cement has decreased. Cement companies have generally experienced a long period of profit decline, and combined with some companies already in a loss, the industry's profitability has bottomed out. At present, the cement industry's synergy has increased, and the bank expects prices in the second half of the year to gradually stabilize at a reasonable level, and corporate profits will recover.

Glass industry: supply and demand are better than expected, and gross profit has recovered year-on-year.

According to Zhuochuang Information data, the cumulative sales volume of float glass from January to June 2024 was 0.516 billion TEUs, a year-on-year decrease of 1.01%, which is significantly better than the decline in completion. The average price of float glass in the first half of 2024 was down 2.58% year-on-year. The average price of heavy-duty soda ash in the first half of 2024 was 2,247 yuan/ton, a year-on-year decrease of 14.68%, mainly due to the increase in soda ash production capacity leading to a decline in prices. According to Zhuochuang information, the gross profit of float glass in the first half of 2024 was 279.8 yuan/ton, a year-on-year increase of 93.4%, but most manufacturers are already in a loss stage. Weak demand on the demand side coupled with high inventory and high production capacity on the supply side have put pressure on the profits of glass companies.

Fiberglass industry: supply and demand are improving, prices rebounded, and the industry's prosperity has improved.

On the supply side, the bottom price of fiberglass has been running for a period of time, and the elimination of lagging production capacity is obvious. This year's new effective production capacity is still relatively limited; On the demand side, overseas demand remains strong, and domestic downstream demand is gradually recovering. With improvement in supply and demand, major fiberglass companies have raised their prices since March. According to Zhuochuang Information, the average price of alkali-free glass fiber in the first half of 2024 was 4,283.3 yuan/ton, a decrease of 14.2% year-on-year. Taking a quarterly view, the average price of alkali-free glass fiber in the second quarter of 2024 fell by 7.5% year-on-year but rose by 18.1% sequentially. At present, the inventory of fiberglass has fallen to a reasonable level, and the industry's worst point has passed. The bank expects that if demand continues to recover, fiberglass prices may still have room for upward movement, which will promote the recovery of corporate profits.

Consumer building materials industry: leading companies operate under a stable strategy.

Consumer building materials demand is closely related to the real estate industry. According to Wind data, the area of new housing starts and completions in the first half of 2024 decreased by 23.70%/21.80% year-on-year respectively. The supply and demand of the overall B-side business in the industry is still in an oversupply situation, with fierce competition, sliding profit margins, tight cash flow in the industry, and leading companies actively shrinking B-side business scale, taking risk control as the priority. Under the background of a 20% decline in completion and a decline in residents' income expectations, the price of C-end products has also been under pressure. In addition, the overall raw material end was relatively stable in the first half of 2024.

Mid-term outlook: cyclical decline is obvious, consumer building materials are relatively stable.

Overall, major listed building materials companies' revenue and net income in the first half of the year were mainly on the decline, with net income down by about 50% overall. Cyclical cement, glass, and fiberglass industries have suffered more from the decline in product prices, but with the increase in cement supply synergy and fiberglass price increases, the bank expects the industry's profits to improve in the second half of the year; Consumer building materials companies have improved their market share and diversified businesses, and after removing the impact of impairment and investment income fluctuations, their overall performance is expected to remain relatively stable or slightly decline.

Risk factors: weak demand for real estate and infrastructure, substantial increase in raw material costs, consumer building materials companies' market share improvement below expectations, consumer building materials companies' diversified business development below expectations, accounts receivable risk control below expectations.