Gf Securities has released a research report stating that the downstream demand structure for building materials is undergoing a reshaping. Under stress testing, small and medium-sized enterprises have seen significant consolidation, while the brand and channel value of leading companies has been further amplified. Price wars are moderating, a consensus is forming for leading companies to raise prices, and rising raw material costs are providing conditions for price pass-through. The report is optimistic about the stabilization of supply and demand for consumer building materials and the long-term profit recovery following industry optimization.
The main viewpoints from Gf Securities are as follows:
Companies with superior structures and rapid market share gains are expected to see revenue return to positive growth in the short term. In the long run, effective market size and integration capabilities are key. (1) Structure: The downstream markets for paints/waterproofing are diversified, with high proportions of non-real estate and retail segments. Companies like Cnsg and Beijing Oriental Yuhong are noteworthy. The channel structure for consumer building materials is changing, and the revenue of leading companies is now largely decoupled from new housing, a trend most evident in Cnsg and Beijing Oriental Yuhong. Cnsg aims for 20% retail growth by 2025 through three new business models, significantly outpacing Nippon Paint, demonstrating that the existing housing stock can drive steady revenue growth. Beijing Oriental Yuhong is expected to see a recovery in revenue growth as the proportion of non-real estate and retail business increases. (2) Market Share: Concentration in the waterproofing and paints sectors is increasing rapidly, and Decor may exceed expectations in gaining share. The rapid increase in concentration is due to (a) proactive factors: purchasing clients are more concentrated, products are highly standardized, and functional attributes are strong; (b) passive factors: high operational leverage, heavy assets, slow capital turnover, and faster consolidation among companies heavily reliant on large business clients. Subsequently, Beijing Oriental Yuhong and Cnsg are expected to continue leveraging their unique strengths by expanding into lower-tier channels, increasing retail outlet density, and enhancing premium pricing through services to further increase their market share. Decor, leveraging its brand and channel advantages, is aggressively entering the particleboard market, providing sustained growth momentum through furniture factory channels, with its market share expected to enter a period of accelerated growth. (3) Integration: Based on overseas experience, mergers and acquisitions are a long-term logic for revenue growth, with Bbmf and Weixing being pioneers in this area.
Considering factors such as price, cost, and profit margins, the waterproofing sector shows the greatest potential for profit elasticity. (1) Price: The willingness and ability to raise prices are strongest in the waterproofing sector; focus on Beijing Oriental Yuhong, Keshun, and Bbmg. The willingness to raise prices and the ability to pass them through are necessary conditions for price increases. Prices for waterproofing, engineering paints, and PVC pipes have hit lower bottoms, suggesting a stronger willingness to raise prices. Channel structure, competitive landscape, and product attributes determine the feasibility of price pass-through. Typically, companies with a high proportion of consumer business have stronger pricing initiative, but if consolidation in the business segment is significant and leading companies reach a consensus, conditions for price pass-through also exist. Currently, the three leading waterproofing companies share consistent objectives. Prices have been improving sequentially since the end of 2025, and since March 2026, price increase notices have been frequent and are expected to be implemented due to strong bargaining power and rising raw material costs. Year-on-year prices are expected to be the first to turn positive. (2) Cost: Focus on the cost pass-through capabilities of companies like Beijing Oriental Yuhong and Lesso, and the cost reductions from economies of scale at Higold. The cost curve is determined by cost pass-through capability or operational leverage. Current rising raw material prices provide a rationale for price increases across industrial products, as the industry has experienced four years of declining volume and prices, leading to a supply-demand inflection point after the consolidation of small enterprises. The interests of leading companies are aligning, giving them stronger bargaining power. If raw material prices fluctuate upwards and stabilize at high levels, it will benefit leading companies in leveraging their cost advantages. The waterproofing, PVC/PE pipe, and paints sectors are expected to benefit from cost pass-through. Furthermore, Higold's cost reduction stems from increased in-house production scale. The upcoming operation of its Unicorn base is projected to generate over 3 billion CNY in output value, which is expected to further dilute unit costs and expand profit margins.
Risk warnings include continued macroeconomic downturn, risks of significant policy fluctuations, risks of overly rapid fluctuations in raw material costs, and risks related to company operations and market competition.
Comments