Event: The company released its 2025 interim report, achieving operating revenue of RMB 5.816 billion, up 0.97% year-over-year; net profit attributable to shareholders of RMB 436 million, up 107.53% year-over-year; non-GAAP net profit of RMB 292 million, up 268.48% year-over-year. The following commentary is provided:
Home decoration wall paint achieves growth in both volume and price, with strategic transformation showing significant results. The company's revenue and profit both increased in the first half, mainly benefiting from strategic transformation in recent years. On one hand, retail business continues to gain momentum. On the other hand, in the engineering business segment, through improving per capita efficiency and actively developing strategic new tracks, related businesses have maintained stable development while strengthening cost control. In Q2 2025, the company achieved operating revenue of RMB 3.686 billion, down 0.24% year-over-year; net profit attributable to shareholders of RMB 331 million, up 102.97% year-over-year.
1) By product category, in the first half, the company's home decoration wall paint/engineering wall paint/base materials and auxiliary materials/waterproof membrane revenues were RMB 1.574/1.795/1.733/0.460 billion respectively, with year-over-year changes of +8.43%/-2.26%/+10.40%/-28.62% (excluding the drag from waterproof coatings, home decoration wall paint revenue increased 13.45% year-over-year).
2) By channel, in the first half, the company's distributor/direct sales channel revenues were RMB 5.088 billion and RMB 728 million respectively, with year-over-year changes of -0.49%/+12.52%.
3) By region, the company's domestic/overseas revenues were RMB 5.681/0.135 billion respectively, with year-over-year changes of +0.41%/+31.07%.
Under comprehensive factors including cost reduction, expense control, and reduced impairment provisions, the company's profitability improved significantly. In terms of pricing, in the first half, the company's average unit prices for home decoration wall paint/engineering wall paint/base materials and auxiliary materials/waterproof membrane were RMB 5.92/3.35/1.18/14.06 per kg respectively, with year-over-year changes of +2.78%/-8.47%/-16.31%/-5.13%. In terms of costs, average procurement prices for home decoration and engineering wall paint/base materials and auxiliary materials/waterproof membrane were RMB 2.42/0.93/3.43 per kg respectively, with year-over-year changes of -12.95%/-17.70%/+6.19%.
In the first half, the company's gross margin/net margin were 32.35%/7.48% respectively, up 3.70/3.87 percentage points year-over-year. Overall expense ratio improved, down 1.57 percentage points year-over-year to 23.67%, with sales/administrative/financial/R&D expense ratios changing by -0.87/-0.10/-0.39/-0.23 percentage points to 14.97%/5.68%/1.04%/1.97% respectively. In the first half, the company's various asset impairment amounts totaled RMB 101 million, down RMB 58 million year-over-year. Operating cash flow was RMB 351 million, turning positive from negative year-over-year, mainly due to increased cash collection from sales.
Investment Recommendation: Performance shows significant year-over-year improvement with product portfolio upgrade. Maintain overweight rating. The company's net profit attributable to shareholders is expected to reach RMB 8.7, 10.4, and 12.6 billion in 2025-2027 respectively, with year-over-year changes of 162%, 19%, and 22%, corresponding to PE valuations of 37x, 31x, and 26x. The company has actively pursued strategic transformation in recent years, with retail business continuing to gain strength and service models being rapidly replicated. The engineering business actively explores new tracks and improves per capita efficiency while strengthening cost management, resulting in significant recovery in profitability.
Risk Warnings: Intensified industry competition; raw material price volatility risk; real estate regulation risk; accounts receivable collection risk; downstream demand weakness risk; market demand below expectations risk, etc.
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