The Zhitong Finance App learned that Guotai Junan released a research report saying that looking ahead to 2024, the expected tone of environmental assumptions is “steady” for the time being. Judging from real estate data, the new construction data may be narrowing and the decline is stabilizing, while the completion data may have declined. However, judging from the actual physical volume, the “three major projects” of affordable housing, urban village renovation, and “dual-use” public infrastructure construction, along with the central financial support, cement production is expected to remain the same as the actual demand indicators for front-end construction. However, the uniform distribution of guaranteed deliveries and completion of guaranteed housing, etc. is expected to promote an environment where back-end demand, represented by glass consumption, continues to increase slightly. Underlying expectations are more conservative in the direction of high probability, and the more positive ones may be hidden in them.

▍ Guotai Junan's main views are as follows:

There will always be a cycle, and expectations are more pessimistic than realistic:

2023 began in anticipation of a recovery in profits and ended with the question “Will there still be a cycle?” There's no doubt that cycles will always exist, and the last gift in Pandora's Box is hope.

The downward cycle is accompanied by the gradual clarification of profit forecasts for 2023. It can be observed that although the profit expectations of listed companies were generally lower than expectations for the 2023 EPS at the beginning of the year, the decline of leading companies was not excessive (5%-20%), outperforming the industry and environment. What is behind this is a clear reflection of the excess competitive advantage (cost, channel, strategy) of leading companies, and the decline in valuation multiples has a greater impact on stock prices. The biggest impact was therefore pessimistic expectations.

With robustness as an environmental assumption, elasticity is hidden in it:

Looking ahead to 2024, the expected tone of environmental assumptions is “steady” for the time being. Judging from real estate data, the new construction data may be narrowing and the decline is stabilizing, while the completion data may have declined. However, judging from the actual physical volume, the “three major projects” of affordable housing, urban village renovation, and “dual-use” public infrastructure construction, along with the central financial support, cement production is expected to remain the same as the actual demand indicators for front-end construction.

However, the uniform distribution of guaranteed deliveries and completion of guaranteed housing, etc. is expected to promote an environment where back-end demand, represented by glass consumption, continues to increase slightly. Underlying expectations are more conservative in the direction of high probability, and the more positive ones may be hidden in them.

Take absolute competitive advantage as a margin of safety:

Under a sound environmental assumption, the excess already highlighted by leading companies in 2023 will perform even more clearly. Under the current pessimistic valuation system, the absolute competitive advantage of leading companies is the margin of safety, while cyclical flexibility is an implicit option.

Leading consumer building materials companies are still the first choice for flexibility:

With long-term sustainable growth, consumer building materials companies are still the first choice in combination with the current historical and cost-effective valuation level. Leading listed companies fully demonstrated channel transformation (consumerization+small B), category expansion, and pattern improvement in 2023, and their competitive advantage may be further highlighted in 2024.

Commodity products “wait for work”, and excessive profits create absolute value:

Major sectors such as cement, glass, and glass fiber are also facing price pressure caused by demand, but the basic performance bottom of 2023 has been found — that is, when the industry makes extensive losses, it is difficult for bulk prices to continue to fall, and the cost advantage of leading companies plus unique profit businesses created an absolute profit bottom, and an absolute margin of safety.

The leading end of this kind of cement is cost advantage+aggregate+overseas; at the glass end, it is cost advantage+photovoltaic electronic medicine glass; at the glass fiber end, it is cost advantage+electronic cloth+product line differentiation. However, after all, the trend of large-scale losses in the industry is difficult to maintain. Options that are naturally liquidated, policy-driven, and demand improved have created the possibility of further improvement in price and profit flexibility.

The new material focuses on the continuous emergence of new scenarios:

Focus on the growing demand for photovoltaics, sea wind requirements where the material technology path is likely to change, and the application of new materials in hydrogen energy and consumer electronics.