SKSHU(SH:603737) HTSC·2025-06-06 01:44Investment Rating - The investment rating for the company is maintained as "Buy" with a target price of RMB 42.96 [8][9]. Core Views - The company is expected to benefit from the resilience of the retail market due to the expansion of home decoration subsidies and the improving channel structure, leading to a potential recovery in profit margins and operational flexibility [1]. - The "Immediate Residence" and "Beautiful Countryside" initiatives are anticipated to accelerate the company's presence in the renovation market, particularly in lower-tier cities, with a projected demand for 11 to 12 million units per year from 2024 to 2026, reflecting a CAGR of 5% [2]. - The company has shifted its focus towards engineering distribution channels, maintaining a leading market share despite a decline in direct sales revenue, with a gradual improvement in accounts receivable turnover [3]. - Price competition is expected to ease, and the company is likely to continue demonstrating profit elasticity due to effective cost control measures implemented since late 2024 [4]. Summary by Sections Financial Forecasts and Valuation - The company’s net profit forecasts for 2025 to 2027 are RMB 651.4 million, RMB 847.05 million, and RMB 1.09 billion respectively, with a CAGR of 48.7% [5]. - The company is valued at a PEG of 0.75x for 2025, and the target price reflects a PEG of 1.0x, indicating strong growth potential [5]. - Revenue projections for 2025 are set at RMB 13.203 billion, with a growth rate of 9.07% compared to 2024 [7]. Market Position and Competitive Landscape - The company is positioned to capture a significant share of the renovation market, with its brand strength gradually being validated against competitors like Nippon Paint [2]. - The engineering business is expected to stabilize its market share at the top level, with reduced impairment risks on accounts receivable [3]. Operational Insights - The retail sales of construction and decoration materials reached RMB 53 billion in the first four months of 2025, showing a year-on-year increase of 2.3% [4]. - The average price of titanium dioxide, a key raw material, decreased by 9.6% year-on-year as of May 2025, which may limit further price declines in products [4].