2024 results in line with our expectations

Weixing New Building Materials announced its 2024 results: Revenue fell 1.75% YoY to Rmb6.27bn, and net profit attributable to shareholders fell 33.5% YoY to Rmb953mn, in line with our expectations.

1) Retail sales remained solid despite market pressure, but engineering projects contracted. In 2024, the firm’s total sales volume of pipes rose 2.3% YoY to 0.3mnt, with revenue from PPR, PE and PVC pipes falling 2%, 7% and 8% YoY to Rmb2.94bn, Rmb1.42bn and Rmb827mn. The revenue pressure was mainly due to mounting pressure in the engineering market. Enterprises acquired by the firm supported retail sales.

2) By region: Revenue from eastern China was relatively stable, falling 3% YoY to Rmb3.2bn, while revenue from southern China and overseas regions bucked the trend and increased 4% and 27% YoY. Revenue from northern China increased 0.7% YoY, but that from northeastern China, central China, and western China declined 11%, 5.6% and 3.2% YoY.

3) Emerging segments maintained rapid growth: In 2024, revenue from other products (waterproofing, water purification, etc.) rose 13% YoY to Rmb914mn, mainly due to rapid growth of waterproof products and the acquisition of new enterprises.

4) Intensifying competition weighed on gross margin: In 2024, the firm’s gross margin fell 1.6ppt YoY to 42%, and gross margin of PPR, PE and PVC products fell 1.6ppt, 2.9ppt, and 5.95ppt YoY to 56.5%, 31.4% and 21.75%; gross margin of other products fell 2.67ppt YoY to 31.5%.

5) Expenses rose due to financial consolidation and increased marketing spending: The firm’s selling expenses rose 14% YoY to Rmb948mn, with selling expense ratio up 2.1ppt YoY to 15.1%, while its G&A and R&D expenses fell 2.9% and 5.1% YoY.

6) Impairment disrupted profit: The firm made Rmb73mn of provisions for goodwill impairment in 2024 (mainly due to Zhejiang Kerui and Guangzhou Hexin).

7) Strong cash flow: The firm’s cash flow-to-revenue ratio stayed high at 109% in 2024, and its operating cash flow fell 16% YoY to Rmb1.1bn.

8) Dividend payout beat; dividend yield attractive: In 2024, the firm distributed a dividend of Rmb0.6/sh, implying payout ratio of 99%, up　11ppt YoY, and a dividend yield of about 5%.

Trends to watch

Strong competitive advantages and new product categories may support stable profit. We believe the firm’s high dividend payout underscores its investment value in the long term. Looking further into 2025, we think demand for pipes for home decoration may be weak amid persistent pressure, and price competition may disrupt the firm’s high- gross-margin model. However, we expect the firm to maintain solid profit in 2025 despite pressure from the operating environment by increasing expenses, strengthening service empowerment and accelerating the implementation of waterproof business.

In the near term, we think the firm may face headwinds from expenses and impairments. However, in the long term, we expect the firm to better adapt to changing market conditions, which would be dominated by demand from existing construction projects, and to seize opportunities in fragmented demand and higher-end markets, thereby maintaining solid core profit. Meanwhile, as a high-dividend company, the company can continue to deliver quality returns to the market, in our view.

Financials and valuation

We keep our earnings forecasts largely unchanged. The stock is trading at 19.4x 2025e and 17.5x 2026e P/E. We maintain an OUTPERFORM rating and our target price of Rmb14, implying 23x 2025e and 21x 2026e P/E, offering 20% upside.

Risks

Sharper-than-expected decline in demand from completed property projects; disappointing new business expansion.