Results Review

2025 results miss our expectations; 1Q26 results beat Oriental Yuhong Waterproof announced its 2025 and 1Q26 results. In 2025, revenue fell 1.7% YoY to Rmb27.6bn, attributable net profit rose 4.7% YoY to Rmb113mn, and recurring net profit grew 91% YoY to Rmb236mn. The firm's 2025 results missed our expectations, mainly due to asset impairment losses of about Rmb0.41bn, credit impairment losses of Rmb1.16bn, and non-recurring disposal losses of Rmb0.12bn (total losses were Rmb1.69bn, exceeding our previous expectations). Adding back impairment losses, the firm’s operating profit was largely in line with our expectations.

In 1Q26, revenue rose 21% YoY to Rmb7.2bn and attributable net profit grew 109% YoY to Rmb0.4bn, slightly beating our expectations. We attribute this to:1) Downstream companies stocked up in advance in 1Q26 due to expectations for price hikes; 2) retail business continued to grow; and 3) the firm’s gross margin increased in 1Q26 due to structural changes and low prices of raw materials stocked up in winter.

Trends to watch

Revenue from waterproof business came under pressure in 2025; gross margin stabilized. In 2025, the firm's revenue from waterproof membranes, coatings, sand powders, and engineering projects changed -3.6%, -11.4%, +1.8%, and +17.8% YoY. Its revenue from the waterproof business came under pressure, possibly because product prices across the industry started to recover from the trough but full-year ASP came under YoY growth pressure. Overseas revenue rose 62% YoY to Rmb1.42bn in 2025, as the firm accelerated its overseas business expansion and built factories in Southeast Asia and North America. Gross margins of waterproof membranes, coatings, and sand powders fell 0.64ppt, 0.98ppt, and 0.57ppt YoY to 22.15%, 33.74%, and 26.88% in 2025. Revenue from retail channels, engineering channels, and direct sales accounted for 36%, 48%, and 15% of the firm's total revenue, with revenue contribution from direct sales falling.

Accounts receivable declined slightly, but the proportion of long-aged accounts increased; impairments grew. The firm's accounts receivable totaled Rmb8.7bn in 2025, down Rmb1.1bn YoY, with the proportion of accounts aged more than three years rising YoY to 32%. Asset impairment, credit impairment, and disposal losses totaled Rmb1.69bn (vs. Rmb1.27bn in 2024), mainly due to the increased proportion of long-aged accounts receivable, individual provisions, and impairment provisions for property purchases among other non-current assets. This weighed on the firm’s full-year profit.

Financials and valuation

We keep our 2026 net profit forecast largely unchanged at Rmb1.8bn and introduce our 2027 net profit forecast of Rmb2.1bn. The stock is trading at 22x 2026e and 19x 2027e P/E. We maintain an OUTPERFORM rating. Given that prices of waterproof products will likely recover and sector valuation is increasing, we raise our TP 31% to Rmb21, implying 28x 2026e and 24x 2027e P/E and offering 29% upside.

Risks

Sharper-than-expected rise in raw material prices; disappointing downstream demand; higher-than-expected impairment losses.