CHINA LESSO(02128) 海通国际·2025-02-25 00:58Investment Rating - The report assigns an "Outperform" investment rating for China LESSO Group Holdings, with a target price of HKD 4.25 based on an 8.5x PE valuation for 2025 [80]. Core Insights - China LESSO Group Holdings is a leading domestic enterprise in the plastic pipe industry, benefiting from the downward trend of raw material prices, which enhances its profitability [39][42]. - The company is expected to see stabilized downstream demand, particularly in the construction and municipal sectors, which are crucial for its plastic pipe business [53]. - The company is actively optimizing its product mix and expanding into overseas markets, including plans for local production in countries like Vietnam and Tanzania [73][76]. Company Overview - China LESSO Group Holdings is a major player in the plastic pipe industry, with over 30 advanced production bases across 19 provinces in China and overseas [4]. - The company has a wide distribution network with 2,891 independent exclusive distributors, offering over 10,000 high-quality products used in various applications [4]. Financial Performance - In the first half of 2024, the company's revenue was RMB 13.564 billion, a year-on-year decrease of 11.3%, with the plastic pipe system contributing over 80% of total revenue [6]. - The gross margin and net margin for the first half of 2024 were 27.48% and 7.47%, respectively, indicating strong profitability compared to industry peers [42]. Market Dynamics - The plastic pipe industry in China has a stable production output, with the total production in 2023 reaching 16.19 million tons, accounting for about 20% of the total plastic products industry [46]. - The demand for plastic pipes is primarily driven by agricultural, municipal, and construction applications, which together account for over 60% of the market [49]. Raw Material Trends - The company benefits from a significant reduction in raw material costs, with prices for key materials like PVC and PE down by approximately 40% compared to 2021 [39]. - The cost of raw materials constitutes over 80% of the main business costs in the plastic pipe industry, making price fluctuations critical for profitability [39]. Future Outlook - The company is diversifying its product offerings beyond traditional markets, including the development of hydrogen and oil transportation pipes [64]. - There is a projected investment of approximately RMB 4 trillion for urban infrastructure upgrades, which will likely benefit the plastic pipe sector [55]. Dividend Policy - The company has maintained a stable dividend payout ratio of around 30%, with a dividend of HKD 0.20 per share in 2023 [21].