Action

China's paint market is currently valued at nearly Rmb100bn, with a roughly equal share between the corporate and consumer sectors. Considering that: 1) China has 60–70bn sqm of existing floor space; and 2) properties built after 2000 account for 65% of this stock, we believe the repainting cycle is approaching as buildings age.

As China's leading paint producer, Skshu has undertaken counter-cyclical transformations amid the property market downturn. It has built a solid foundation with high-quality products while securing clients with good services.

By simultaneously pursuing three strategies—expanding into lower-tier markets amid China's efforts to “build beautiful rural areas”, moving upmarket with “Mashangzhu” (immediate movein) stores, and offering high-value-added products such as “art coating product system”—it precisely targets consumers in an era of limited incremental demand. The consumer business relies heavily on reputation, enjoys high premiums, and requires a long process to build customer loyalty.

Reasoning

The repainting cycle could lead to demand recovery in the near future, with the share of the consumer sector rising year by year. We believe that as the average building age in China gradually rises from its current 20–30 years, demand for repainting will likely increase, and paint demand may start to recover in the near future. We estimate that by 2030, the proportion of repainting could exceed 50%, and the share of the consumer sector could rise to 60%.

With more fragmented consumer demand and increasingly varied needs, distributors are required to deliver higher service quality. We think paint retail will likely face more fragmented demand, a growing number of retail consumers, and increasingly diverse requirements.

Skshu is stepping up efforts to expand its retail business into both lower- and higher-tier markets. We believe that Nippon Paint has a first-mover advantage in the consumer market, but Skshu is working hard to catch up.

1) Expansion into lower-tier markets: Skshu has a strong presence in county- and town-level markets, offering faux stone coating products with high value-for-money. The firm has thus secured a solid leading position in the rural market.

2) Moving upmarket: “Mashangzhu” stores target tier-1 and tier- 2 cities. They form a virtuous cycle by attracting distributors with low initial investment and short payback periods while acquiring consumers with quality products and services. By the end of 2025, the firm had nearly 4,000 such stores.

3) Art coating products: We expect them to rapidly penetrate the market via existing sales channels, lifting revenue per customer. In 1–3Q25, these three new business formats generated cumulative revenue of Rmb1.37bn, accounting for 54% of total revenue from home decoration and providing clear support to the firm's earnings performance.

Rising costs are driving a new round of paint price hikes. Recent increases in crude oil prices have pushed up raw material costs for emulsions and resins, pushing some manufacturers to announce price hikes (text in Chinese) of up to 5–15%.

Considering: 1) Improving supply-demand dynamics and sentiment in the industry, and 2) the rising share of the consumer business at Skshu, we believe the difficulty of implementing price hikes has eased marginally, and the firm’s earnings resilience may be stronger than in the previous cycle.

Financials and valuation

We maintain our 2025 and 2026 EPS forecasts of Rmb1.26 and Rmb1.50, and introduce 2027 EPS forecast of Rmb1.87. The stock is trading at 33x 2026e and 27x 2027e P/E. We maintain an OUTPERFORM rating and TP of Rmb60, implying 40x 2026e and 32x 2027e P/E, offering 20% upside.

Risks

Disappointing growth in demand; sharper-than-expected rise in raw material prices; intensifying competition.