Investment Rating - The report maintains an "Overweight" rating for the building materials sector [6]. Core Insights - The building materials sector experienced a convergence of non-operational disturbances in 2024, with signs of operational turning points emerging in Q1 2025. The sector faced a challenging environment characterized by strong expectations but weak realities, leading to a decline in revenue and profit margins due to intense price competition and a sluggish recovery in downstream real estate [1][2][5]. - The report highlights that the issuance of special bonds has accelerated, stabilizing infrastructure demand and improving retail demand for building materials, which has led to a narrowing of revenue declines in various sub-sectors [1][5]. - Key companies recommended for investment include Beixin Building Materials, Sankeshu, Weixing New Materials, Tubao, and China Liansu, which are expected to benefit from the recovery in building materials retail [1][5][8]. Summary by Sections Revenue and Profitability - In 2024, the tracked 31 companies in the consumer building materials sector reported revenues and net profits of 170.7 billion and 5.6 billion respectively, reflecting year-on-year declines of 6.9% and 47.8%. In Q1 2025, revenues and net profits were 32.7 billion and 1.3 billion, down 5.5% and 18.6% year-on-year [2][27][28]. - The overall gross margin for 2024 was 25.5%, down 1.4 percentage points year-on-year, while the net margin was 3.3%, down 2.6 percentage points, indicating that declining revenue and increased competition have significantly impacted profitability [2][30]. Price and Cost Dynamics - The report notes that in 2024, price competition intensified across various materials, with average prices for key raw materials such as asphalt and PVC showing declines. This has led to a lack of cost support for product pricing, further pressuring margins [3][30]. - The average price changes for major raw materials in 2024 included declines of 4.4% for asphalt and 5.6% for PVC, while some materials like epoxy showed a price increase of 5.2% [3][30]. Sub-sector Performance - Among the sub-sectors, only the gypsum board segment maintained stable growth, primarily driven by Beixin Building Materials' strong market position. Other segments like coatings, pipes, and tiles faced significant margin pressures due to intense competition [4][30]. - The report indicates that the waterproofing and board segments experienced substantial impairment losses in 2024, but the pressure is expected to ease as the market stabilizes [4][30]. Future Outlook - The report anticipates that demand for building materials may stabilize at low levels, with revenue and profit declines expected to narrow in 2025. However, ongoing price competition is likely to continue, potentially leading to further industry consolidation [5][19]. - The expected recovery in the second-hand housing market and ongoing renovation demand are projected to support retail demand for building materials, with a focus on companies that have shown signs of recovery in their Q1 2025 reports [5][19].