3Q25 results largely in line with market expectations

Skshu Paint announced its 3Q25 results: In 1–3Q25, revenue rose 2.69% YoY to Rmb9.39bn and net profit attributable to shareholders grew 81% YoY to Rmb744mn. In 3Q25, revenue rose 5.62% YoY to around Rmb3.58bn, net profit grew 54% YoY to about Rmb308mn, and recurring net profit grew 60% YoY to approximately Rmb272mn. The firm’s results were largely in line with our and market expectations.

Trends to watch

Revenue from home decoration coatings maintained strong growth in 3Q25, possibly mainly driven by rising sales volume. In 3Q25, revenue from home decoration coatings rose 18% YoY to Rmb0.92bn, with sales volume up 28.5% YoY to 0.16mnt and ASP down 2.1% YoY and 5.2% QoQ, possibly due to product price adjustment along with raw material price cuts. But we think profit margin likely remained stable.

In 3Q25, revenue from engineering coatings fell 2.9% YoY to Rmb1.11bn, with sales volume largely flat YoY but down 9% QoQ to 0.33mnt, prices down 3% YoY but up 1% QoQ. We think demand from small business clients came under pressure.

In addition, the firm’s revenue from PV materials rose 13% YoY to Rmb1.12bn, and revenue from waterproof membranes fell 28.6% YoY to Rmb0.25bn, possibly due to its initiative to scale down the waterproof business.

Gross margin improved. In 3Q25, the firm’s procurement prices fell 1.7%, 5.5%, and 2.6% QoQ for coatings, materials, and waterproof materials. This, coupled with a rising proportion of retail customers, drove gross margin up 0.5ppt QoQ to 33.6% (+4.9ppt YoY).

Expense ratio edged up QoQ; impairment expanded. In 3Q25, expense ratio rose 1.9ppt QoQ to 21%, as selling and G&A expense ratios rose 1ppt and 0.6ppt QoQ. In addition, impairment expanded slightly in 3Q25 (Rmb0.08bn in 3Q25 vs. Rmb0.18bn in 1–3Q25), and the firm’s net margin fell 0.4ppt QoQ to 8.6%.

Cash flow continued to improve. Net cash flow from operating activities rose Rmb0.5bn QoQ to Rmb0.74bn in 3Q25. Cash-toreceivables ratio remained healthy at 116% in 3Q25 (vs. 110% in 1–3Q25). Accounts receivable turnover rate improved, with turnover days down 30 days YoY. In addition, the firm announced a dividend of Rmb0.5/sh, implying a dividend payout ratio of 49.61%.

Financials and valuation

Given the rapid growth of the home decoration coatings business, we raise our 2025 net profit forecast by 10% to Rmb933mn and keep our 2026 net profit forecast largely unchanged. The stock is trading at 37x 2025e and 31x 2026e P/E. Given the sector’s current valuation, we maintain an OUTPERFORM rating and our target price, implying 47x 2025e and 40x 2026e P/E, offering 30% upside.

Risks

Competition intensifies; demand declines more than expected.