The Zhitong Finance App learned that Dongwu Securities released a research report saying that looking back at 2023, both demand-side real estate and infrastructure performance were weak, the revenue side of decoration and building materials companies were generally under pressure, and the profit side was gradually being repaired. Currently, the valuation level of decoration and building materials companies has basically returned to a historically low level. Looking ahead to 2024, there is still pressure on demand-side recovery, but construction of the three major projects and active fiscal policies are expected to become policy variables to promote demand-side recovery. The bank expects the real estate investment side and the main credit side to stabilize in 2024. As far as the real estate chain is concerned, the concentration of most industry segments still has room to increase, and the pattern improvements in some racetracks have already begun to respond and exceed expectations.

Recommended: Dongfang Yuhong (002271.SZ), Jianlang Hardware (002791.SZ), Beixing New Materials (000786.SZ), Weixing New Materials (002372.SZ), etc. At the same time, some traditional building materials and home furnishing companies are speeding up their layout in terms of intelligent transformation and are expected to take the lead in the rapid increase in smart home penetration rates. It is recommended to focus on Wrigley Home (001322.SZ), Ryert (002790.SZ), and Good Wife (603848.SH).

The views of Soochow Securities are as follows:

Demand side: New construction is expected to bottom out in '24, the growth rate of completion is slowing down, but there is no need to be overly pessimistic. The three major projects are being built at an accelerated pace.

1) The decline in new construction area has narrowed, and new construction is expected to bottom out first in '24. The growth rate of completed area has slowed down, but due to the continued progress of the building guarantee policy and the lengthening of the completion cycle, it is expected that completion in 24 years will not be too pessimistic. For consumer building materials in the later cycle, there is still some decoration demand that contributed to completion being delayed until 24. 2) The central level has repeatedly proposed speeding up the construction of “three major projects” such as affordable housing, urban village renovation, and emergency dual-use projects. Among them, urban village renovation focuses on megacities, which is expected to increase demand for building materials.

Expanding categories, restructuring, and seeking increases are still sources of continuous improvement in the operation of consumer building materials companies.

1) Consumer building materials companies launch new products on the C-side and small-B-side, and use rapid layout such as capital and channel advantages to accelerate business structure transformation. The rapid development of the C-side and small-B-side has made up for the gap caused by the decline in the Big B business, making the company's operating quality higher, gross margin higher, and better cash flow. 2) In terms of overseas business development, consumer building materials companies set up subsidiaries, build new production bases, and lay out sales channels in overseas Belt and Road countries, etc., to find business growth in overseas markets and promote the internationalization of the company's business. 3) The 2023 Central Economic Work Conference proposed vigorously developing digital consumption and actively cultivating consumption growth points such as smart homes, which will help increase the penetration rate of smart home products and accelerate the development of the industry. Building materials and home furnishing companies such as traditional bathroom companies and hardware companies are speeding up the smart home business development layout, which is expected to open up space for long-term development.

Investment advice: The bank expects new construction to gradually weaken in 2024. Although completion is gradually under pressure, it is still supported by some secured buildings. At the same time, construction of the three major projects continues to advance. It is expected that with the combined effects of various policies, the downward spiral in domestic real estate will inevitably be stopped. The bank expects the real estate investment side and the entity's credit side to stabilize in 2024. As far as the real estate chain is concerned, there is still room for improvement in the concentration of most industry segments. Some racetrack pattern improvements have already begun to respond and exceed expectations, such as tiles, doors and windows. At the moment, excellent companies that are willing to increase leverage deserve even more attention.

Risk warning: the risk of downstream demand fluctuations, the risk of increased industry competition, the risk of large fluctuations in raw material prices, accounts receivable risk, etc.