According to the report from Guolian Securities obtained by Zhitong Finance APP, looking ahead to the second half of the year, the loose signal in the real estate sector continues to be released, and there may be positive changes in demand for building materials for decoration; meanwhile, with the continuous strengthening of risk management in the industry's overall accounts receivable, there is an improvement prospect for the company's balance sheet; some companies are strengthening the quality transformation through product/customer structure adjustments, and companies with continuously enhanced competitiveness have the opportunity to continuously increase market share.

Considering the improvement in company fundamentals and valuation, the recommendation is to focus on two types of companies: building materials for decoration companies with higher proportions of channel layout towards C-end or small B-end, more 'consumer' oriented, focusing on Zhejiang Weixing New Building Materials (002372.SZ), Beijing New Building Materials Public (000786.SZ), Dehua TB New Decoration Material (002043.SZ), and SKSHU Paint (603737.SH); for companies with relatively high proportion of large B clients in the previous period, with gradually showing positive adjustment effects in recent years, the spotlight is on Beijing Oriental Yuhong Waterproof Technology (002271.SZ) and others.

Overall: significant pressure from declining scale, weak collection.

Guolian Securities selected 25 listed representative companies in the building materials for decoration sector as observation samples. In H1 2024, the operating income of the sample companies in the building materials for decoration sector was 73.1 billion yuan, yoy-4%, with a median growth rate of -11%; net income attributable to the parent company was 4.7 billion yuan, yoy-24%, with a median growth rate of -38%. Overall, the sample companies in the building materials for decoration sector in H1 2024 faced significant downward pressure on revenue and profits, and profitability was under pressure. The accounts receivable turnover days for sample companies in H1 2024 was 121 days, yoy-3 days, with a median of 82 days, yoy +5 days. Consumer building materials companies continued to have strict and cautious accounts receivable management characteristics, but overall turnover efficiency decreased year-on-year, with significant pressure on operating activity collections.

Operating scale: growth under pressure, 'consumer' oriented companies display more resilience.

In H1 2024, most sample companies experienced certain pressure on revenue and net income growth, reflecting continued demand stabilization. Among them, Beijing New Building Materials, Guangdong Tianan New Material, and WANG LIANFANG showed good revenue and net income growth, with yoy +19%/+17%, 2%/43%, 15%/12% respectively. Overall, with a sluggish real estate sales background, there is pressure on the growth of demand for building materials for decoration, intense competition, and better resilience in revenue and profit growth for consumer-oriented companies with few clients skewed towards the C-end or small B-end. The profit levels of most sample companies in H1 2024 are under pressure, with some companies (such as Keshun Waterproof Technologies, Guangdong Tianan New Material) seeing improvements in profitability due to optimized product structures and cost reductions.

Operating quality: Strict control of accounts receivable scale, turnover continues to be under pressure year on year.

In terms of asset turnover, most related enterprise dealers' credit and customer credit sales policy requirements continued to improve in the first half of 2024. The overall control of accounts receivable scale was good, but due to the simultaneous decrease in revenue scale, the accounts receivable turnover days of sample enterprises in the first half of 2024 increased. The top 5 companies with the most shortened turnover days are Xiamen Wanli Stone Stock, Dehua TB New Decoration Material, Zhejiang Youpon Integrated Ceiling, SKSHU Paint, and Goody Science & Technology. In terms of receipts, the operating cash flow of most sample enterprises in the first half of 2024 was weak, and the overall net cash ratio of sample enterprises decreased. There are 18 enterprises with effective net cash ratio data, of which 9 improved year on year, and 5 decreased year on year; the overall net cash ratio of sample enterprises is -17%, down 24% year on year.

Risk warning: The policy effect is less than expected, real estate demand improvement is weaker than expected, and raw material prices fluctuate significantly.