Talk every Monday: Dulux China Q1 performance indicates the prosperity of the home decoration market. Dulux retail Architectural coatings shows strong toughness: Dulux parent company AkzoNobel recently announced the results of the first quarter, realizing a revenue of 2.525 billion euros, a year-on-year increase of 12%, of which the revenue of architectural coatings is 1.006 billion euros, a year-on-year increase of 8%. The revenue of architectural coatings in the North Asian market covering China, Japan, South Korea and Mongolia was 132 million euros, with a year-on-year increase of 27%. Although the shipment rhythm of the Chinese market was affected by the epidemic, it mainly affected the engineering end. The company achieved a steady growth in revenue with the double improvement of shipment volume and shipment price.
Dulux emphasizes high-end retail and neglects the engineering business with slow turnover. The layout idea coincides with Zhejiang Weixing New Building Materials Co.Ltd(002372) . Dulux has made great efforts to build a high-end retail brand in China since 2018, firmly occupying the first place in China’s high-priced market share. The growth rate of high-end products is far ahead of that of middle-end and low-end products. The scale of engineering coating business has been reduced year by year. At present, the revenue of engineering business accounts for less than 20% of the revenue of architectural coating. The retail market has established a stronger market influence by virtue of channel sinking. In the past two years, the number of stores in Tier 3 ~ 5 cities has been greatly increased. At the end of the first quarter, the company had 36700 offline sales outlets in China, covering about 620 cities and towns in China.
We expect that the coating industry is expected to follow up, and the impact of extreme industry environment on performance in 2021 may come to an end. In order to cope with the rising price of raw materials, Dulux has launched a continuous price increase and implemented it. Q1 in 22 years has achieved a cumulative price increase of 17% compared with Q4 in 20 years. It is expected that the price will be increased by 14% – 16% in the next quarter on the basis of the 4.5% price increase last year. The local coating enterprises competing with it may be expected to implement the price increase plan at the same time, and the overall profitability may be improved.
The excellent performance of Dulux Q1 reflects the strong demand of China’s retail home decoration market to a certain extent. The impact of the high increase in the completion and delivery of real estate in 2021 is still transmitted to the retail home decoration market. In 2022, the real estate chain enterprises with a large share of home decoration retail market may be more optimistic. In addition, the paint industry is expected to achieve a certain degree of performance restoration under the guidance of leading price increases.
Tracking of key sub industries:
Glass: profitability bottomed out and the demand side gradually entered the peak season. As of April 22, the average price of the latest glass in China was 2047.7 yuan / ton, which was basically the same as that of the previous week. The recovery of demand was relatively slow compared with previous years, there was no significant improvement in the new orders of downstream processing plants, and the lifting of local restrictions increased the operating rate. The overall inventory growth slowed slightly, but the inventory rise is difficult to change under the limited demand release. The total inventory of production enterprises in key monitoring provinces was 61.82 million weight boxes, an increase of 2.24 million weight boxes or 3.76% over the previous week. The expected resumption of price rise requires the logical catalysis of two main lines: the real demand of the downstream exceeds the expectation or the contraction of the supply side, and the market may be dominated in the short term. The completion demand exists objectively, but it needs the improvement of the real estate capital chain. Last week, the average industry net profit hit the bottom and rebounded. The prices of manufacturers in some regions have been close to the cost line, and the willingness to further reduce prices under cost pressure is not strong. The short-term shock will not change the long business cycle of the glass industry, and continue to focus on recommending Zhuzhou Kibing Group Co.Ltd(601636) .
Cement: the marginal opportunity of improving the allocation of fundamentals is emotional. As of April 22, 2022, the national average price of cement was 471.33 yuan / ton, down 0.11% month on month. The cement price has no upward elasticity, and the demand is still weak. The clinker inventory continued to grow this week, with the national average clinker storage capacity ratio of 64.39%, an increase of 0.38 PCTs compared with last week The mill operating load was 53.41%, up 2.79 PCTs from last week The average price difference between cement and coal in this period was 316.66 yuan / ton, down 5.29% from last Thursday. Compared with the same period last year, the average price difference between cement and coal fell 5.28%.
Consumer building materials: it is expected to usher in the second stage of the real estate market and stand on the opposite side of the price of bulk materials. The performance of the industry in the first quarter is still under great pressure, the performance is still in the bottom period, and the differentiation situation in the industry is still continuing. We suggest to select waterproof and pipe leaders with more deterministic performance. After the industry impairment crisis, the emphasis on business quality will slightly loosen the accelerator of growth. However, we believe that the logic of category expansion and concentration improvement has not changed. High quality enterprises with alpha attributes such as Yuhong and Weixing are still scarce varieties, and the rise of cost side is only a short-term disturbance. Continue to recommend Beijing Oriental Yuhong Waterproof Technology Co.Ltd(002271) , Zhejiang Weixing New Building Materials Co.Ltd(002372) .
Market review: as of the closing on April 22, the building materials sector fell 6.82% and the CSI 300 index fell 4.19%. From the perspective of sector ranking, the building materials sector ranked 25th among Shenwan 31 sectors last week, with an increase of – 18.59% year to date, and ranked 17th among Shenwan 31 sectors.
Top five gainers of individual stocks: Hainan Development Holdings Nanhai Co.Ltd(002163) , Zhejiang Youpon Integrated Ceiling Co.Ltd(002718) , Guangdong Golden Glass Technologies Limited(300093) , Luyang Energy-Saving Materials Co.Ltd(002088) , Grace Fabric Technology Co.Ltd(603256) .
The top five stocks with declines: Hainan Ruize New Building Material Co.Ltd(002596) , Beijing Hanjian Heshan Pipeline Co.Ltd(603616) , Ningxia Qinglong Pipes Industry Group Co.Ltd(002457) , Guangdong Sanhe Pile Co.Ltd(003037) , Ningbo Fuda Company Limited(600724) .
Investment strategy: in the chain of steady growth, focus on recommending the strong and constant Beijing Oriental Yuhong Waterproof Technology Co.Ltd(002271) , and the steel structure leader Anhui Honglu Steel Construction(Group) Co.Ltd(002541) ; Zhejiang Weixing New Building Materials Co.Ltd(002372) , the leading consumer in building materials, and Dehua Tb New Decoration Material Co.Ltd(002043) , the leader in sector industry with steady performance growth, are the first to be promoted in real estate recovery; New materials recommends that traditional businesses maintain high prosperity and enter a new growth period Zhuzhou Kibing Group Co.Ltd(601636) .
Risk tip: the demand of real estate chain declines, infrastructure investment slows down, and the price of raw materials fluctuates.
