Core Viewpoint - Audi anticipates a recovery in its profit margin in 2026, following a significant impact from tariffs in 2025, which resulted in a loss of 1.2 billion euros [1]. Financial Performance - Audi expects an operating margin of 6% to 8% in 2026, an increase from 5.1% in 2025 and 6.0% in 2024 [2]. - The company reported a 14% decline in operating profit for 2025, totaling 3.4 billion euros [2]. Market Challenges - The automotive industry continues to face geopolitical uncertainties and competitive pressures, particularly in key markets like China [2][3]. - Audi's deliveries in China fell by 5% in 2025, prompting the brand to launch the all-electric E5 Sportback in collaboration with state-owned SAIC to regain market share [4]. Strategic Responses - Audi is considering establishing its first U.S. plant to mitigate tariff impacts, while also adapting strategies to address regional challenges [3].

Core Viewpoint - Volkswagen anticipates a recovery in profit margins by 2026, projecting an operating margin between 4% and 5.5%, following a significant decline to 2.8% in 2025 due to tariffs, competition, and the transition to electric vehicles [1] Financial Performance - The company's operating profit fell to 8.9 billion euros in 2025, below the analysts' forecast of 9.4 billion euros, and down from 18.1 billion euros in 2024 [1] - Revenue remained stagnant at 322 billion euros in 2025, with expectations for 2026 revenue growth projected between 0% and 3% [1] Challenges and Strategic Responses - Volkswagen faces challenges from U.S. tariffs costing billions and increased competition in China, impacting market share [1] - The company is implementing product launches and restructuring measures to enhance resilience, although the adjusted operating margin of 4.6% is deemed insufficient for long-term sustainability [1] Porsche's Performance - Porsche's operating profit plummeted by 98% to 90 million euros in 2025, with its operating margin dropping to 0.3% from 14.5% in 2024, largely due to a stalled electric vehicle strategy [1]

Investment Rating - The industry view for China Materials is rated as Attractive [6] Core Insights - Cement is preferred due to supply discipline, price coordination, lower costs, and no impact from trade wars. The building materials sector is recovering from improved secondary property sales [1][2] - The cement industry is experiencing margin expansion and has formed new alliances to focus on profit rather than volume. A 5-10% year-over-year decline in demand is expected, but margin recovery is anticipated due to lower coal prices and effective supply control measures [2][3] - Late-cycle building materials are recovering, supported by better secondary home sales and government initiatives. However, demand remains soft due to declining property starts and completions [3] - The float glass segment is facing weak fundamentals, with low demand from property developers and high supply levels continuing to pressure earnings [4] Summary by Sections Cement - Major cement players have agreed to prioritize profit over market share, leading to a healthier price recovery despite weak property demand. The industry is expected to see a margin recovery due to lower coal prices and effective supply control policies [2] - Top producers like Conch, CNBM, and CR Cement are likely to benefit from new supply control measures aimed at reducing overproduction [2] Building Materials - The late-cycle building materials sector is expected to see mild growth in new infrastructure and industrial investments, with demand improving from better secondary home sales and government programs [3] - Companies such as Yuhong, Weixing, and Lesso are identified as potential beneficiaries of this recovery [3] Float Glass - The float glass market is currently weak, with low order days at processing plants and high supply levels continuing to exert pressure on earnings [4] Price Targets and Ratings - Price targets for key companies include Anhui Conch (A) at RMB 37.40 with a 47% upside, Anhui Conch (H) at HKD 29.80 with a 35% upside, and China Resources Building Materials at HKD 2.30 with a 39% upside [7][11] - Ratings for companies in the cement sector are predominantly Overweight (OW), while Xinyi Glass and Zhuzhou Kibing Glass are rated Underweight (UW) due to weak fundamentals [11][12]