China Merchants Securities Co.,Ltd. has released a research report suggesting the building materials industry is poised for a dual-track development path. One track involves the incremental blue ocean created by AI computing power and semiconductors, while the other involves new markets opened through overseas expansion. The AI new materials sector is currently in an upward industrial cycle, making trend investment the preferred strategy. Priority should be given to leading companies deeply entrenched in these emerging sectors. For the medium to long term, continuous attention should be paid to the evolution of new technologies/materials, certification progress, the pace of capacity deployment, and the realization of profitability.

Regarding traditional building material sub-sectors, they are currently at the cyclical bottom, with a focus on subsequent value recovery. The main views from China Merchants Securities Co.,Ltd. are as follows:

Fiberglass: High-End Demand Surge, Anticipating a Davis Double Play

The usage and value of PCBs in high-end AI servers have significantly increased, driving a surge in demand for specialty electronic fabrics like Low-DK and Low-CTE, which are now in short supply. Core barriers in the high-end fiberglass sector are concentrated in substantial capital expenditure and long-term R&D accumulation, coupled with lengthy customer certification cycles and extremely high industry entry barriers, which restrict the pace of capacity expansion. Leading companies, leveraging their advanced capacity, technology, and certification advantages, are precisely positioned in the high-growth computing power sector, demonstrating a prominent competitive edge. Currently, the industry's high-end specialty electronic fabrics have not yet entered a phase of large-scale volume expansion. Short-term profit recovery in the sector primarily relies on leading companies flexibly converting production lines, driving continuous price increases for standard electronic fabrics like 7628 and G75 electronic yarn. The outlook is positive for simultaneous volume and price increases in mid-to-high-end categories, with the fiberglass sector initiating a Davis double play of rising profit and valuation centers.

Glass: Float Glass at the Bottom, Glass Substrates Embrace New Optoelectronic Opportunities

Traditional float glass is currently deeply mired at the cyclical bottom, plagued by persistently weak end-demand from real estate and high industry inventory levels, leading to widespread losses across all product lines. A significant short-term improvement in the supply-demand dynamic is difficult. In contrast, the optoelectronic display and semiconductor advanced packaging sectors are in an upward industrial cycle. New product categories such as glass interposers, glass core substrates, glass bridges, and glass carriers are expected to become core supporting materials for the optoelectronics industry, offering vast long-term incremental potential.

Consumer Building Materials: Stock Restructuring, Overseas Gold Rush, Leaders Break Through

The consumer building materials industry has officially entered a cycle of stock competition in the real estate sector. The reshaping of channel structures opens up long-term profit improvement space for leading companies. Small and medium-sized enterprises in the waterproofing and coatings sectors are accelerating their exit, rapidly increasing industry concentration, with leading companies continuously expanding their market share. Leaders in the tiles, pipes, and panels sectors are simultaneously advancing the penetration of terminal dealerships and deeply cultivating the stock market for old house renovations. Relying on channel barriers and scale cost advantages, they are widening the gap with smaller manufacturers, demonstrating significantly stronger profit resilience. It is anticipated that the total volume of new real estate housing will continue to contract during the "15th Five-Year Plan" period, making stock renovation and home improvement demand the core growth engine for the industry. The focus should be on the main theme of optimizing channel structure, preferably selecting sub-sector leaders with a continuously increasing proportion of dealer retail sales, full benefit from stock renovation demand, and rising industry concentration. Additionally, it is recommended to pay attention to high-quality leading companies actively exploring overseas markets.

Cement: Domestic Cycle Weakens, Overseas + High Dividends Underpin Value

The domestic cement industry is clearly in a cyclical bottom range, with persistently weak end-demand from real estate and infrastructure, leading to insufficient overall market demand recovery. On the supply side, although the industry strictly controls new capacity, the pace of cold repairs for existing production lines and the exit of inefficient capacity is slow. The weak supply-demand balance is difficult to reverse in the short term, putting pressure on the sector's overall profits and prices. In this bottom environment, the report suggests the cement sector's core focus should be on two types of targets: first, defensive targets with high dividends, preferably leading companies with solid cash flow and stable dividend policies; second, targets where overseas increments and transformation businesses open up long-term earnings growth space, possessing potential for valuation recovery and earnings elasticity.

Risk Factors

Risks include a decline in the growth rate of real estate and infrastructure investment, sales volume and prices falling short of expectations, significant increases in raw material and fuel prices, untimely recovery of accounts receivable, slower-than-expected demand growth in downstream emerging sectors, delays in cutting-edge technology R&D progress, and slower-than-expected expansion in overseas markets.