3Q26 results miss our expectations

Weixing New Building Materials announced its 1–3Q26 results: Revenue fell 7.38% YoY to Rmb3,118mn, attributable net profit rose 0.01% YoY to around Rmb540mn, and recurring attributable net profit fell 16.15% YoY to about Rmb411mn. In 3Q26, revenue fell 5.24% YoY to Rmb1,222mn, attributable net profit fell 44.30% YoY to Rmb150mn, and recurring net profit dropped 11.92% to Rmb195mn.

Trends to watch

Main business comes under pressure, but operating earnings remain resilient. The decline in revenue was mainly attributable to shrinking retail and construction demand amid falling housing completion by GFA and weakening demand from households for home decoration. However, the decline in revenue narrowed 3.10ppt in 3Q26, indicating easing of pressure on the revenue side. Gross margin rose 0.35ppt YoY to 41.83% in 1–3Q26; it fell 1.02ppt YoY and rose 0.11ppt QoQ to 42.02% in 3Q26. Gross margin remained relatively stable despite weak demand and rising raw material prices. We expect the firm's earnings quality to remain resilient thanks to its efforts to adjust the structure of the engineering business and optimize its services.

Industry chain integration accelerates; capacity expansion could lay a solid foundation for long-term growth. According to the firm's announcement, it acquired the remaining 40% stake in Co-real for Rmb16mn in August 2026, which became its wholly owned subsidiary, in a bid to strengthen synergies and control over the building technology business. The end-of-period balance of construction-in-progress increased 31.65% from the beginning of the reporting period, mainly due to increased investment in the construction of the new Linhai Industrial Park. With the integration of acquired companies (Beijing Songtian Cheng and Zhejiang Co-real) and the gradual ramp-up of new production capacity, we expect the “concentric circle” strategy to support the firm’s long-term competitiveness.

Optimized expense ratio partially offset operating leverage pressure. Expense ratio rose 0.91ppt YoY to 24.93% in 1– 3Q26. Expense ratio fell 0.46ppt YoY and 4.17ppt QoQ to 22.02% in 3Q26, and operating expense ratio fell sharply by 2ppt to 12.6%, thanks to effective cost control. We expect the improving efficiency of expense control for the main business to help ease the downward pressure on operating leverage in 2026.

Financials and valuation

We keep our earnings forecasts unchanged. The stock is trading at 16.30x 2026e and 15.40x 2027e P/E. We maintain an OUTPERFORM rating and TP of Rmb12.00, corresponding to 23.60x 2026e and 22.40x 2027e P/E and implying 44.93% upside.

Risks

Intensifying competition in product prices; sharper-thanexpected decline in demand from completed real estate projects.