Event The company released its 2025 interim report. In the first half of the year, the company achieved revenue of 5.816 billion yuan, up 0.97% year-over-year, with net profit attributable to shareholders of 436 million yuan, up 107.53% year-over-year, and adjusted net profit of 292 million yuan, up 268.48% year-over-year. In Q2, the company realized revenue of 3.686 billion yuan, down 0.24% year-over-year, with net profit attributable to shareholders of 331 million yuan, up 102.97% year-over-year.
Commentary
Wall Paint Structure Improved, Waterproofing Industry Faces Continued Intense Competition: By product segment, in the first half of the year, the company's home decoration wall paint/engineering wall paint/auxiliary materials/waterproof membranes achieved revenues of 1.574/1.795/1.733/0.460 billion yuan respectively, with year-over-year changes of +8.43%/-2.26%/+10.40%/-28.62%. In terms of pricing, the company's home decoration wall paint average price was 5.9 yuan/kg, up 3% year-over-year, while engineering wall paint average price was 3.4 yuan/kg, down 8.5% year-over-year. With the advancement of the company's new retail formats, product prices have stabilized. For waterproofing products, due to continued intense industry competition, revenue declined 28.6% in the first half.
Profitability Improved Significantly, Mainly Due to Product Structure Enhancement: The company's gross margin in the first half was 32.35%, up 3.7 percentage points year-over-year. Home decoration wall paint/engineering wall paint/auxiliary materials/waterproof membranes gross margins were 49.41%/35.42%/20.62%/13.8% respectively, with year-over-year changes of +5.5/+2.9/+5.3/-0.9 percentage points. Wall paint gross margins improved significantly. We believe this is partly due to product structure improvements brought by the increased proportion of new retail formats, with the "Move-in Ready + Beautiful Villages + Art Paint" new retail formats showing remarkable progress. Additionally, industry price competition has moderated, combined with falling raw material prices, with home decoration and engineering wall paint procurement prices declining 13.0% in the first half.
Q2 Net Margin Improved Significantly, Strict Expense Control Shows Results: The company's net margin in the first half was 7.48%, up 3.85 percentage points year-over-year, with Q2 single-quarter net margin at 8.94%, showing significant improvement both year-over-year and quarter-over-quarter. The company's period expense ratio in the first half was 23.67%, down 1.57 percentage points year-over-year, with sales/administrative/R&D/financial expense ratios at 14.97%/5.68%/1.97%/1.04% respectively, down 0.86/0.1/0.22/0.4 percentage points year-over-year, demonstrating clear results from strict expense control. In the first half, the company provided total impairment losses of 101 million yuan, 58 million yuan less than the same period last year. At the end of the half-year period, the company's accounts receivable on the books was 3.577 billion yuan, down 15.2% year-over-year.
Earnings Forecast: We expect the company's revenues in 2025-2026 to be 13.19 billion and 14.89 billion yuan respectively, up 9.0% and 12.9% year-over-year. We forecast net profit attributable to shareholders in 2025-2026 to be 1.03 billion and 1.18 billion yuan respectively, up 210.9% and 14.0% year-over-year, corresponding to 2025-2026 P/E ratios of 32X and 28X respectively.
Risk Warning: Risk of continued weakening real estate demand, risk of deteriorating industry competitive landscape.
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