China building materials TAM stabilizing; renovation demand and channel transformation support valuation recovery

Overview

This report covers four companies in China’s building materials sector: Oriental Yuhong, Skshu Paint Co., Beijing New Building Materials, and Vasen. Goldman Sachs’ core view is that the total addressable market (TAM) for the sector has entered a stabilization phase after shrinking by about 20% during 2021-2025, as pent-up renovation demand and increased secondary housing transactions are offsetting continued weakness in new home construction. The report further argues that migration to 2C retail channels, penetration into lower-tier and rural markets, wider product mix, and lower raw material costs will drive synchronized recovery in revenue, gross margin, net margin, CROCI, and valuation multiples.

Core views

Goldman Sachs believes the sector’s growth logic is shifting away from dependence on new home construction toward renovation, retail, and multi-category expansion. The four building materials companies are pursuing three strategies: accelerating 2C retail expansion, deepening coverage in lower-tier and rural markets, and broadening product portfolios. Goldman Sachs expects these initiatives to contribute nearly all revenue growth in 2025-2028E, with Skshu Paint Co. benefiting most; Oriental Yuhong is viewed as having stronger execution in international markets. On profitability, building materials prices have risen due to input cost inflation while raw material costs are beginning to decline; an improved spread between prices and raw material costs is expected to translate into higher gross margins. On valuation, 12-month forward EV/GCI multiples are expected to expand with improving CROCI, with clearer upside for the buy names.

Analysis framework

The report combines a top-down sector TAM assessment with bottom-up company profitability, channel, and valuation workstreams. It first compares the impact of new home contraction, secondary housing transactions, and renovation demand on building materials demand, then decomposes channel and revenue structures for the four companies, followed by an assessment of profitability recovery through price-to-raw-material-cost ratio, GPM, net margin, CROCI, and EPS CAGR, and finally derives target prices and upside through an EV/GCI relative-to-CROCI framework.

Methodology notes

• Industry demandTotal addressable market (TAM) analysis

  Offset relationship between renovation demand and new-home contraction

  Goldman Sachs shifts the building materials demand lens away from reliance on new housing construction toward renovation and secondary housing transactions, concluding that TAM should stabilize in the near term and could return to peak levels over the long term.

• Channels and revenue2C retail and lower-tier market penetration framework

  Channel transformation drives revenue growth

  The report identifies 2C retail expansion, penetration into lower-tier and rural markets, and product mix expansion as the primary sources of revenue growth in 2025-2028E.

• ProfitabilityPrice-to-raw-material-cost ratio analysis

  Higher building material pricing and lower raw material costs jointly lift gross margin

  Waterproofing and paint prices have begun to rise while raw material costs are starting to decline; Goldman Sachs expects this combination to lead to stable or expanding GPM for the covered companies.

• Valuation methodsEV/GCI and CROCI valuation framework

  CROCI improvement drives EV/GCI multiple expansion

  The report expects 12-month forward EV/GCI multiples to expand by 0.1x, with buy-name multiples expanding by about 0.3x due to stronger CROCI improvement.

• Goldman Sachs internal toolGS Factor Profile

  Comparison of growth, cash flow return, valuation multiples, and composite percentile

  The Goldman Sachs factor profile compares stocks versus the market and industry peers across growth, returns on capital, valuation multiples, and a composite indicator.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Oriental Yuhong (002271.SZ)

  Buy candidate; a building materials company with waterproofing materials

  Strengths

  Relatively strong execution in international markets, benefiting from 2C retail expansion, lower-tier market penetration, and sector profitability recovery; Goldman Sachs target price Rmb16.60 versus current price Rmb10.57.

  Weaknesses

  Still exposed to real-estate supply-chain demand, execution risk in channel transformation, and raw material price volatility; the report discloses Goldman Sachs has investment banking and securities-related service relationships with the company.

  Comparison

  Goldman Sachs expects stronger EV/GCI multiple expansion for buy candidates; Oriental Yuhong has implied upside of about 47% and a 2027E CROCI of 15.2%.

  Risks

  Renovation demand underperforms expectations, cost relief is not sustained, retail channel competition intensifies, valuation multiples fail to expand.

• Skshu Paint Co. (603737.SS)

  Buy candidate; a paint-related building materials company

  Strengths

  Expected to benefit the most among the four companies from channel transformation and profit recovery; Goldman Sachs target price Rmb35.90 versus current price Rmb22.01.

  Weaknesses

  Paint demand is tied to renovation and retail channel performance, and profit leverage could be lower than expected if pricing pass-through or channel expansion slows.

  Comparison

  The report states that Skshu Paint Co. has the strongest profit recovery and implied upside of about 53%, with 2027E CROCI of 25.1%.

  Risks

  Execution of retail expansion falls short of expectations, raw material costs rebound, and lower-tier competition drives higher expense ratio pressure.

• Beijing New Building Materials (000786.SZ)

  Covered company; building materials sector peer

  Strengths

  Target price Rmb22.40 versus current price Rmb17.47; benefits from stabilized sector TAM and recovery of margin floor.

  Weaknesses

  The valuation table shows it still trades at a discount versus the sector average, and CROCI improvement is weaker than buy names.

  Comparison

  2027E CROCI is 11.7%, and EV/GCI relative-CROCI applied multiple is 6.8x, below Oriental Yuhong and Skshu Paint Co.

  Risks

  Valuation discount persists, CROCI improvement is insufficient, and the sector stabilization process is slower than expected.

• Vasen (002372.SZ)

  Covered company; building materials sector peer

  Strengths

  Target price Rmb9.30 versus current price Rmb7.51; could benefit from improvements in sector price-to-cost dynamics and channel structure.

  Weaknesses

  The report describes Vasen as having the mildest profit recovery and limited CROCI improvement.

  Comparison

  2027E CROCI is 15.3%, and EV/GCI relative-CROCI applied multiple is 12.3x, but recovery strength is weaker than Skshu Paint Co.

  Risks

  Demand recovery is weaker, channel transformation contribution is limited, and profit recovery is below sector average.

Key data

• Sector TAM changeContracted about 20% during 2021-2025The market value of the four Goldman Sachs-covered building materials companies declined by about 70% over the same period.
• Covered companiesOriental Yuhong, Skshu Paint Co., Beijing New Building Materials, VasenThe report focuses on four companies in China’s building materials sector.
• Gross margin outlookImprovement of 1-3 percentage points, 2025-2028ESupported by a higher share of 2C channels and falling raw material costs.
• Net margin and CROCIAverage net margin expansion of 4 percentage points and CROCI expansion of 3 percentage points, 2025A-2028ESkshu Paint Co. shows the strongest recovery, while Vasen shows the softest recovery.
• EPS growth2026E-2028E EPS CAGR of 9%-29%Compared with a 2025 midpoint of about -8%.
• Sector target-price implied upside13%-53%Goldman Sachs implied upside for the sector based on 12-month target prices.
• Buy-name upsideOriental Yuhong about 47%; Skshu Paint Co. about 53%Goldman Sachs sees stronger CROCI improvement and more pronounced multiple expansion for the two names.
• Target pricesOriental Yuhong Rmb16.60; Skshu Paint Co. Rmb35.90; Beijing New Building Materials Rmb22.40; Vasen Rmb9.30Price targets listed; targets are not adjusted for company actions.
• Pricing basisClosing price as of July 8, 2026The report states that pricing is based on July 8, 2026 market close.

Impact & implications

If Goldman Sachs’ thesis proves out, the primary investment narrative for China’s building materials sector would shift from downside pressure from new construction starts in real estate to renovation demand, retail channels, and profitability repair. The larger equity decline than TAM contraction suggests valuation may have already reflected pessimistic scenarios excessively; if CROCI and net margin improvement persists, EV/GCI multiple expansion could follow. For investors, Oriental Yuhong and Skshu Paint Co. are the clearest constructive picks because of stronger optionality and execution quality.

Risks

• New home construction contraction exceeds renovation demand and secondary housing transaction growth in its offsetting effect.
• Renovation demand materializes more slowly than expected, so sector TAM fails to stabilize or return to peak levels.
• Execution of 2C retail expansion, lower-tier and rural penetration, and product portfolio expansion falls short of expectations.
• Raw material costs rise again or transmission of higher building material prices is blocked, compressing GPM improvement.
• SG&A optimization underperforms, and net margin and CROCI bottoming recover more slowly than Goldman Sachs forecasts.
• EV/GCI multiples do not expand with CROCI improvement, so the target-price upside is not realized.
• Changes in real estate policy, macro consumption capacity, and competitive landscape could affect building materials demand and channel profitability.

What to watch

• Relative changes in renovation demand, secondary housing transactions, and new home construction data in 2026-2028E.
• Progress in 2C retail revenue share and lower-tier and rural channel coverage for Oriental Yuhong and Skshu Paint Co.
• Price trends for waterproofing materials and coatings, and raw material cost moves for asphalt, resin, and other inputs.
• Quarterly trends in GPM, net margin, SG&A ratio, and CROCI for the four companies.
• Whether EPS CAGR approaches Goldman Sachs’ expected 2026E-2028E range of 9%-29%.
• Whether EV/GCI valuation multiples expand in line with CROCI improvement.
• Subsequent adjustments to company target prices and ratings, and any changes in company-specific disclosures from Goldman Sachs.