As the policy aims to promote the stabilization of the real estate market as its core goal, achieving this objective is significant for the valuation recovery of the consumer building materials sector.
According to Zhitong Finance APP, citic sec released a research report stating that as the policy aims to promote the stabilization of the real estate market as its core goal, achieving this objective is significant for the valuation recovery of the consumer building materials sector, and the profit level of the industry chain is also expected to see mean reversion. Excellent leading companies have the capability and space to maintain stable performance growth while significantly increasing the dividend payout to shareholders. The low point of the sector has passed, and the subsequent trend is clearly upward.
The main points of the Citic Securities research report are as follows:
The improvement in fundamentals driven by the mean reversion of profit margins.
As policies promote the recovery of real estate prosperity, real estate demand is expected to gradually stabilize after being "oversold". The increase in the proportion of second-hand housing is beneficial for stabilizing overall demand, while municipal infrastructure, with the implementation of debt relief funds, will gradually release shelved or incremental projects. Overall, as B/C-end demand improves, leading enterprises have the space and capability to increase market share and stabilize sales. In terms of profit margins, due to industry price wars, declining capacity utilization rates, and impairment factors, leading companies' profit margins are at low levels compared to the past decade. However, in the future, with the alleviation of industry competition, an increase in the proportion of high-end products, and cost control, leading companies' profit margins are expected to gradually revert to the mean.
It is essential not to overlook that leading companies are committed to enhancing their alpha capability.
Under the new model of real estate development promoted by policies, leading companies are turning towards C-end businesses, continuously improving various aspects of their operations in recent years. With sufficient capacity at all levels, leading companies can fully utilize resources to provide consumers with high-cost performance products and services. Although it seems challenging in the short term to significantly assist the fundamentals, it lays a gradual foundation for the long-term development advantages of leading companies. In the future, operational quality will be more important than operational speed. Calculating the net present value data of each leading company after restoring impairments shows that cash flow quality has significantly improved for all companies in the past two years, enhancing operational quality.
The stabilization and recovery of the csi china mainland real estate has driven the valuation of the sector to rebound.
Referring to the experience during the usa financial crisis, usa housing prices ended the largest decline around March 2009, followed by a slight downward trend until March 2012, while usa housing sales stabilized around the third quarter of 2010. Corresponding to usa consumer building materials companies, share prices rebounded around March 2009 after the decline, with a low PE valuation of about 10x, and overall showed an upward volatility trend subsequently, while the fundamental stabilization occurred around the fourth quarter of 2009, lagging by 2-3 quarters. Later, the compound growth rate of performance for these consumer building materials companies was around 5%, but supported by dividends and repurchases, the PE valuation continuously increased to 25-30x. Looking back at the A-share consumer building materials sector, leading companies' PE valuations are all at historically low levels, and with improvements in the company's fundamentals and increased shareholder returns, the sector's valuation will also welcome mean reversion. Under the trend of high-quality economic development in our country, high profit growth may no longer be a necessary condition for granting companies high valuations, but the stability of company profits and high certainty of shareholder returns should be.
Investment strategy:
Demand for housing construction and infrastructure is relatively weak; raw material costs have increased significantly; the market share increase of consumer building materials companies is below expectations; the diversified business development of consumer building materials companies is below expectations; risks in accounts receivable control are below expectations.
