Results Review

1Q26 results slightly beat our expectation

Beijing New Building Materials announced its 1Q26 results: Revenue fell 1.32% YoY to Rmb6,164mn, attributable net profit fell 4.56% YoY to Rmb804mn, and recurring net profit fell 5.26% YoY to Rmb776mn. The firm’s earnings slightly beat our expectations, possibly because overall ASP of the firm’s gypsum boards rose more than we expected amid inter-quarter structural changes in gypsum board sales volume.

Trends to watch

Gypsum board prices rose QoQ; sales volume possibly under pressure. We estimate that the ASP of the firm’s main gypsum board business rose by Rmb0.4–0.5/sqm QoQ, thanks to the firm's high market share for the gypsum board business and its adjustment to strategy for operations. However, the firm’s sales volume of gypsum boards remained under considerable pressure YoY, as GFA of new homes completed is still on a downward trend and the business climate of the service sector has not improved substantially. The firm announced that it plans to invest in and build a 40mn sqm gypsum board production line project in South Korea, continuing to grow its main business in overseas markets.

Revenues from waterproofing and coating businesses continued to grow. The firm's revenues from waterproofing and coating businesses grew more than 10% YoY and nearly 10% YoY in 1Q26.

Gross margin and expense ratio remained largely flat YoY; operating cash flow under short-term pressure. In 1Q26, the firm's overall gross margin rose 0.6ppt YoY to 29.6% (factoring in taxes and surcharges), and its overall expense ratio rose 0.82ppt YoY to 14.5%. Its net operating cash flow fell YoY to -Rmb0.61bn in 1Q26, mainly due to falling sales proceeds and increased payments for procurement. We attribute this to factors such as operational efficiency of gypsum board business, rising raw material prices for waterproofing materials and coatings, and the firm's procurement of raw materials.

Asset turnover days increased slightly. In 1Q26, the firm's asset turnover days edged up, which we attribute to factors such as the firm’s ahead-of-schedule procurement of raw materials and a slight increase in payment period. The firm's accounts receivable turnover days increased by 2.6 days YoY to 56 days, its accounts payable turnover days increased by 7 days YoY to 55 days, and its inventory turnover days increased by 2 days YoY to 52 days.

Financials and valuation

We keep our 2026 and 2027 earnings forecasts unchanged. The stock is trading at 12.9x 2026e and 10.8x 2027e P/E. As we think earnings of the firm's gypsum board business have bottomed out and its waterproofing, coating and overseas businesses may boost growth going forward, we maintain an OUTPERFORM rating and raise our target price by 14% to Rmb32, implying 16x 2026e and 14x 2027e P/E, offering 27% upside.

Risks

Disappointing recovery or sharper-than-expected declines in demand for gypsum boards; disappointing progress in integration or growth of coating business; disappointing growth of waterproofing business.