2025 results miss our expectations

Weixing New Building Materials announced its 2025 results: Revenue fell 14.12% YoY to Rmb5,382mn; net profit attributable to shareholders fell 22.24% to Rmb741mn; and recurring attributable net profit fell 25.37% YoY to Rmb684mn. In 4Q25, revenue fell 19.2% YoY to Rmb2,015mn, and net profit attributable to shareholders fell 38.79% YoY to Rmb201mn. The firm's 2025 results missed our expectations due to intensifying competition in the pipeline business and rising expense ratio which was attributable to fixed expenses.

Trends to watch

The firm's operating results came under pressure; sales volume and ASP of its pipeline business fell YoY. In 2025, the firm's pipeline sales volume fell 11.3% YoY to 266,434t; revenue from PPR, PE, and PVC pipelines fell 15%, 18%, and 9% YoY to Rmb2.49bn, Rmb1.17bn, and Rmb750mn; and the ASP of PPR and PE products fell 8% and 7% YoY to Rmb24,215/t and Rmb15,860/t. We believe that demand for pipelines remained relatively weak in 2025, the external operating environment was challenging, and the firm's earnings were under pressure due to fiercer competition.

Blended gross margin weakened marginally; prices relatively stable; gross margin of PVC rose. In 2025, the firm's blended gross margin (before taxes and surcharges) dropped 0.74ppt YoY to 40.98%, and the gross margin of pipes dropped 0.45ppt YoY to 43.6%. Gross margin of the firm's PPR products fell 1.6ppt YoY to 54.9%; gross margin of PE products fell 1.2ppt YoY to 30.2%; and gross margin of PVC products rose 5.1ppt YoY to 26.8%. We believe prices of PPR and PE products were relatively stable, and gross margin of PVC products increased due to lower raw material prices and improved product mix.

Expenses rigid; cash flow solid; cash dividend payout ratio high. In 2025, the company's selling expenses fell 13.55% YoY to Rmb819mn, G&A expenses fell 3.26% YoY to Rmb284mn, and R&D expenses fell 9.43% YoY to Rmb174mn, with full-year expense ratio rising 1.39ppt YoY to 23.56%. We believe some expenses are rigid, and the impact of the short-term decline in revenue on the expense ratio has weakened marginally. In addition, the firm's net cash flow from operating activities rose 2.7% YoY to Rmb1.18bn in 2025, remaining relatively stable. The firm's cash dividend payout ratio remained high at 95.5%.

Financials and valuation

Given the pressure on supply and demand of the pipeline business, we cut our 2026 and 2027 EPS forecasts 15% and 12% to Rmb0.51 and Rmb0.57. The stock is trading at 21x 2026e and 18x 2027e P/E. We maintain an OUTPERFORM rating. We cut our target price 14% to Rmb12. Our TP implies 24x 2026e and 21x 2027e P/E, offering 15% upside.

Risks

Sharper-than-expected decline in demand from completed property projects; fiercer competition in prices of main products.