BEIJING NEW BUILDING MATERIALS(000786)SERIES REPORT(5)：GYPSUM BOARDS’ CONSUMER ATTRIBUTES：THROUGH THE LENS OF BNBM’S PRODUCT LINES AND PRICE BANDS

　　This report focuses on the consumer attributes of the gypsum board business of Beijing New Building Materials (BNBM). Relying on the characteristics of gypsum boards, BNBM is dedicated to transforming its products from industrial goods to consumer goods. On the one hand, BNBM has achieved the expansion of gypsum board stock keeping units (SKUs) through technological empowerment; on the other hand, it has further enhanced the stickiness of channels through the expansion of channels and the development of the “gypsum board+” business while also reaching the retail end through the empowerment of engineering, thus allowing the Company to enhance its brand building and the consumer attributes of gypsum boards. We see BNBM's earnings beat in 2Q23 as a further manifestation of the consumer attributes of gypsum boards and BNBM's pricing power. We reiterate "BUY" with a target price of Rmb37.
　　Gypsum boards are decorative materials with consumer attributes.Different from most functional building materials, gypsum boards are a kind of indoor decoration materials, and its basic function is to shape a high-class spatial atmosphere, form temporary partition, etc. Therefore, it has the attributes of consumer goods, which is mainly reflected in three aspects: 1) Gypsum boards are not a completely hidden project as their quality can be observed via appearance. 2) Gypsum boards account for a low proportion in decoration costs, and consumers seem not quite sensitive to the prices on the retail end and even less sensitive to the ex-factory prices after taking channel markups into account. 3) Various functions such as fireproof, moisture proof and deodorization can be achieved through category expansion, leading to higher prices compared with the basic gypsum board.
　　BNBM’s brand history, product series and price bands.
　　BNBM's main Dragon brand started in 1980 in the Xisanqi area in Haidian District. The Company introduced the first domestic production line of gypsum boards from Germany. Gypsum boards in the 1990s were sold for Rmb12 per sqm (source: Reform Journey (改革心路) by Song Zhiping), which was positioned as a high-end product. Taishan Gypsum was founded in 1971 and has built production bases across China. Its products have become quite prevalent in the building materials market. Similar to the brand establishment of Bull, a leading socket manufacturer in China, both companies have more than 40 years of development and have been building brand barriers step by step. The brand value of BNBM in 2023 has reached Rmb100.5bn (source: World Brand Lab). At present, BNBM has established a high-end product system represented by the Dragon brand and the Taishan brand, a mid-range product system represented by the Tiantan brand, the Taifu brand, the Taihe brand, etc, and a low-end product system represented by the Meihuan brand, the Longyi brand, etc. Different product systems have a clear distinction of price bands to meet the needs of different consumers, and the divergence of price bands is also conducive to maintaining the positioning of the Company's various brands to avoid chaotic pricing and counterfeit goods. By relying on the characteristics of gypsum boards, BNBM is dedicated to transforming its products from industrial goods to consumer goods. Firstly, technological empowerment can achieve the expansion of gypsum board SKU, so as to increase the R&D of functional gypsum boards and high-end decorative gypsum boards from the perspective of consumers. Secondly, channel expansion can vigorously develop the gypsum board+ business to further enhance channel stickiness by relying on carpentry and decoration company channels. In addition, it can also reach the retail end through the empowerment of engineering to further shape BNBM brands and enhance the consumer attributes of gypsum boards.
　　BNBM's 2Q23 earnings are a further manifestation of the consumer attributes of gypsum boards and the Company's pricing power.
　　BNBM achieved an increase in the average price and profit margins of gypsum boards in 1H23 against the backdrop of falling raw fuel costs, which is attributable to the rise in the proportion of high-end products and the Company's control over product pricing in the context of boasting a market share of more than 60%. Horizontally, the profit margins of most consumer building materials companies tend to decrease as the costs of raw materials increase. BNBM’s profit margins declined sharply in 2022 due to high raw fuel prices. However, the unit profit margin of its gypsum boards did not fall but rise in 2022, reflecting the unique characteristics of the gypsum board industry.
　　Given the high base last year, we anticipate a further enhancement in the profitability of the Company’s gypsum board business in 1H23, showing the consumer attributes of gypsum boards and the Company's pricing power.
　　Potential risks: A sharp decline in the demand for gypsum boards; the high-end development of BNBM's gypsum board product structure hitting bumps; the Company's multi-category business expansion not up to expectations; the implementation of the Company's medium- and long-term incentives failing expectations.
　　Investment recommendation: Against the backdrop of weak industry demand, BNBM's higher-than-expected profit not only validates the strong pricing advantage of the main gypsum board business, but also reflects the underlying logic of the high-end trend of the long-term growth potential of multi-category development for the gypsum board business. Moreover, the Company has maintained high operating quality. We are optimistic about the future optimization of its business structure and high-quality growth. We maintain our 2023E-25E attributable net profit (ANP) forecasts of Rmb3.693bn/4.403bn/5.169bn. With the Company's average ex-one-off PE of 17x over the past ten years as a reference, we assign 17x 2023E PE, corresponding to a target price of Rmb37, and reiterate the "BUY" rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。