20181218-广发证券-2019_Building_Materials_Sector_Outlook_ary__Stay_patient_and_wait_for_the_next_upcycle_3页_549kb

2019 Building Materials Sector Outlook Summary

Sector Performance Overview

The Building Materials Sector outlook for 2019 is Neutral, indicating that the sector is expected to outperform the benchmark (Shanghai and Shenzhen 300 index) by between -10% and 10%. The report suggests that the current industry boom cycle, which began in 1Q16, is reaching its peak, and a downward turning point may occur in 2019 due to moderate declines in both supply and demand.

Core Content and Key Points

Cement and Glass

• The cement and glass sectors are currently at the peak of their industry cycle.
• Price hikes over the past three years have exceeded expectations due to strong demand from the property market and supply control.
• In 2019, we expect both supply and demand to decline moderately.
• The report maintains an Accumulate rating for the sector, suggesting that it will outperform the benchmark by more than 5% but not more than 15%.

Decoration Materials

• The decoration materials sector is in a downturn, primarily due to the property market cycle.
• High-quality decoration material companies are expected to face challenges in 2018.
• The report suggests waiting for medium-term investment opportunities, with the key indicator being the bottoming time of property area sold growth, likely in 2Q19.
• Infrastructure investment is also at a historical low, which may provide a supportive factor for the sector in the long run.

Other Sub-sectors

• Medical glass: The industry may benefit from policy-driven product mix upgrades, which could favor market leaders.
• Glass fiber: The sector has a clearly differentiated industry structure, and new entrants or production capacity may have limited impact on top-tier companies.
• High-end quartz glass: Leading companies are focusing on import substitution, indicating optimism for this sub-sector.
• Recommended companies: Shanghai Composite Materials (300196 CH), Shandong Pharmaceutical Glass (600529 CH), and China Jushi (600176 CH) are highlighted as potential outperformers in 1H19.
• Companies like BNBM (000786 CH) and Conch Cement (600585 CH) are noted for their long-term core competitiveness and valuation adjustments.

Investment Highlights

• The report recommends waiting for medium-term opportunities in the decoration materials sector.
• It suggests monitoring the improvement in infrastructure investment as a key factor for the sector's recovery.
• The cement and glass sectors are expected to decline in 2019, with the Accumulate rating maintained.
• Some high-quality companies in the building materials sector are expected to show resilience and growth potential.

Risks

• A bigger-than-expected downturn in the macro economy and property market.
• Unexpected changes in housing and fiscal policies.
• Upstream cost volatility.
• Stronger-than-expected increase in new production capacity.

Legal Disclaimer

• This report is prepared by GF Securities Co. Ltd and its affiliates.
• It is distributed only to authorized clients or institutions and is not public.
• The report is for reference only and does not constitute an offer or inquiry.
• Investors should not make decisions solely based on this report and should consider their own financial situation and risk tolerance.

Rating Definitions

Company Ratings

• Buy: Not explicitly mentioned in the summary.
• Accumulate: Cement and glass sectors.
• Hold: Not explicitly mentioned in the summary.
• Underperform: Not explicitly mentioned in the summary.

Disclosure of Interests

• GF Securities (Hong Kong) has no investment banking relationship with the companies mentioned in the report within the past 12 months.

Conclusion

The 2019 Building Materials Sector Outlook emphasizes a Neutral rating, with a focus on waiting for the next upcycle and monitoring key indicators such as property sales growth and infrastructure investment. While the cement and glass sectors are expected to decline, some sub-sectors like medical glass and high-end quartz glass show potential for growth. The report also highlights the importance of long-term competitiveness and valuation adjustments for high-quality companies.