Beijing New Materials Q1 26 Net Profit Slightly Beat Expectations; Target Price Raised to RMB 34

Overview

This research report is an earnings commentary by Goldman Sachs on Beijing New Materials (000786.SS) for the first quarter of 2026. The report notes that despite declining sales due to weak end-market demand, the company's determined implementation of a price hike strategy and product mix upgrades led to Q1 26 net profits slightly exceeding market expectations. Based on this, Goldman Sachs has raised its earnings forecasts for the next three years and increased the 12-month target price from RMB 29.0 to RMB 34.0, maintaining a 'Buy' rating.

Core views

Core Business Performance and Pricing Strategy: Q1 26 revenue was RMB 6.16 billion, down 1% YoY, broadly in line with expectations. Core product Plasterboard sales volume declined approximately 10% YoY, but Average Selling Price (ASP) rose approximately 4% YoY and 9% QoQ, primarily driven by two proactive price increases in December 2025 and January 2026 (a price increase of 30-40 cents per square meter for Longpai and Taishan brands). Management emphasized adherence to pricing discipline, establishing a dedicated price control working group, maintaining pricing rigidity in the high-end market, while selectively reducing prices in the low-end market to squeeze out smaller competitors. Profitability Exceeded Expectations: Q1 26 gross margin reached 29.6%, an increase of 0.6 percentage points YoY, exceeding Goldman Sachs expectations by 1.6 percentage points, mainly benefiting from the recovery in Plasterboard ASP. Profitability for Waterproofing and Coatings businesses also improved, attributed to supply chain advantages and strict cost control. Although operating expenses increased by 5% YoY, slightly above expectations, Earnings Before Interest and Taxes (EBIT) still reached RMB 860 million, beating expectations by 3%. Final net profit was RMB 804 million, down 5% YoY (due to a higher base), but 2% above Goldman Sachs expectations. Cash Flow and Balance Sheet: Q1 26 net cash outflow from operations was RMB 606 million, widening compared to the same period last year, primarily as the company relaxed credit terms to support sales, while Plasterboard revenue fell short of expectations leading to a mismatch between credit issuance and revenue recognition. Management expects operating cash flow to normalize from the second quarter onwards. Ending net cash position increased to RMB 1.82 billion, while capital expenditure decreased 19% YoY to RMB 224 million. Segment Outlook: For Plasterboard, raw material cost pressure is moderate, paper supply is sufficient, gypsum prices are falling, and coal prices are stable. For Waterproofing, asphalt is the key variable; the company leverages its supply chain scale advantages to lock in low-price forward volumes, and profitability is expected to continue expanding. For Coatings, due to low market concentration and intense competition, it is difficult to fully pass on cost inflation, and profitability may face slight pressure, but overall profitability is expected to remain stable.

Analysis framework

Goldman Sachs' analytical logic focuses primarily on 'volume-price disaggregation' and 'cost pass-through capability'. First, by breaking down revenue drivers, it identified that although sales volume declined due to slower real estate completions, the increase in unit price (ASP) effectively offset the volume loss, verifying the company's pricing power during industry downturns. Second, by comparing actual gross margins against expectations, it assessed the effectiveness of the company's cost control and supply chain advantages in an environment of raw material volatility. Finally, based on management guidance regarding ASP recovery to 2024 levels and growth potential for new businesses (waterproofing, coatings, metal frames), the analysts adjusted EPS forecasts for the next three years and performed a valuation re-assessment using EV/GCI (Enterprise Value/Total Capital Investment) multiples.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-Price Disaggregation

  Volume-Price Disaggregation

  Decomposes revenue changes into sales volume changes and price changes. In this report, used to analyze how Beijing New Materials maintained revenue and profitability amidst declining sales by raising Average Selling Price (ASP), thereby assessing its underlying operational resilience.

• Valuation MethodologyEV/EBITDA valuation

  EV/GCI Valuation Multiple

  Goldman Sachs uses the ratio of Enterprise Value to Total Capital Investment (GCI) as a valuation anchor. This method focuses on measuring return efficiency on invested capital (CROCI), making it suitable for heavy-asset or capital-intensive industries, providing a more accurate reflection of the impact of capital allocation efficiency on valuation.

• Corporate Fundamentals & Financial FrameworkFree cash flow analysis

  Working Capital Cycle & Cash Flow Matching

  Focuses on the matching relationship between operating cash flow, sales revenue, and credit policies. The report notes that the widening cash outflow in Q1 26 was due to relaxed credit terms supporting sales; analyzing this short-term mismatch helps assess the likelihood of operating cash flow normalizing in the future.

Asset mapping & comparison

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

• Beijing New Materials (000786.SS)

  Beneficiary: Successfully offset sales declines via pricing strategy, exceeded gross margin expansion expectations, and achieved smooth new business expansion.

  Strengths

  Largest plasterboard producer globally, possessing strong pricing power and supply chain advantages; Waterproofing business has become China's third-largest player; Coatings business became the fourth-largest building coatings producer after acquiring Carpoly.

  Weaknesses

  Low market concentration in coatings business with intense competition and weaker cost pass-through ability; Short-term operating cash flow pressured by relaxed credit policies.

  Comparison

  Compared to peers, its absolute leadership in the plasterboard sector and cross-category synergies (plasterboard + metal frames + waterproofing + coatings) constitute unique advantages.

  Risks

  Real estate completions decline exceeds expectations; Unexpected rise in raw material prices (paper, energy); Slower-than-expected expansion of new businesses.

Key data

• Q1 26 Net ProfitRMB 8.04 billionDown 5% YoY, but 2% above Goldman Sachs expectations
• Q1 26 Gross Margin29.6%Up 0.6pp YoY, beating expectations by 1.6pp
• Plasterboard ASP ChangeUp 4% YoY, Up 9% QoQPrimarily driven by two proactive price hikes
• EPS Forecast AdjustmentRaised 9-13% for 2026-28EReflects stronger-than-expected pricing execution
• Target PriceRMB 34.0Previously RMB 29.0

Impact & implications

The report concludes that despite weak industry demand, Beijing New Materials demonstrated strong pricing power and market share retention capabilities through a successful pricing strategy. This not only alleviated market concerns regarding sales volume but also enhanced the visibility of profit quality. As Plasterboard ASP continues to recover to 2024 levels, and new businesses like waterproofing and coatings become growth engines, the company's earnings growth over the coming years is expected to be supported. The upward revision in valuation multiples reflects market recognition of the improvement in the company's Return on Invested Capital (CROCI).

Risks

• Decline in China real estate completion area exceeds expectations
• Slower-than-expected expansion of new businesses (waterproofing, coatings, metal frames)
• Unexpected rise in raw material prices, particularly paper (~40% of Plasterboard COGS) and energy costs (~20%)
• M&A execution failure

What to watch

• Whether Plasterboard ASP will recover to management guidance levels (blended average RMB 5.7-5.8/sqm) to 2024 levels
• Whether operating cash flow will normalize in Q2 as expected
• Trend in asphalt prices and its impact on waterproofing business profitability
• Progress on potential plasterboard M&A targets