Boral, James Hardie and CSR get ready for the next housing boom

Scaling back unnecessary costs is the theme for Boral (ASX: BLD) while it is patiently waiting for the Australian housing and construction industry to revive. 80% of its revenue comes from domestic markets, and only around 10% from Asia and the US both.

Boral has a strong market share for gypsum plasterboard in Korea, Indonesia, Thailand and Vietnam, but its largest production area is in China where it only has about 5% market share. Expanding end-market business would greatly increase Asian revenue, yet competition may be quite fierce. India, Thailand, and Indonesia are seeing the best growth.  Ideally, Boral wants to have Asia and the US make up 50% of its revenues — up from its current 20% — to take advantage of stronger growth markets.

As the US housing market is improving, competitors like James Hardie Industries (ASX: JHX), which has 70% of its business in the US, are seeing a revival in sales. In a quarterly results report, it announced a 19% increase in net operating profit after excluding such items related to asbestos liabilities. The report also gives guidance for FY2014 annual net operating profit to be up at least 17%-20% over the year. Still, their asbestos liabilities are projected to severely weigh down profits by about $90 million.

CSR (ASX: CSR) has seen a drop in revenue, and with about 97% of its sales in Australia, its share price is mostly driven by the domestic housing market. Interestingly, CSR’s price has risen by 93% since July 2012, roughly around the time that residential housing approvals began to turn up.

As for PE ratios, CSR is in the 30s. Similarly, Boral is around 30, whereas James Hardie is around 70, so even though there is good growth expectations for the Australian housing market to pick up, the cheap bargains here are gone.

Foolish takeaway

The international markets are improving, and since that is what drives the Australian market mostly, if everyone is beginning to get back to work, investors can look towards the next business cycle up. Look at those industries that have been beaten up over the last couple of years, and see which companies have the most to gain from normalising business trends.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.

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