Summary of Conference Call on Waterproof Industry Price Increase Industry Overview - The waterproof industry is experiencing a significant price increase due to a challenging market environment in 2024, primarily influenced by a downturn in the real estate sector and a subsequent decline in demand for renovation and construction materials [1][2][4]. Key Points and Arguments - **Price War Impact**: In 2024, the industry faced a price war that led to three rounds of price reductions (15%-20%), which did not improve sales or market share but diluted profits [1][2]. - **Price Increase Implementation**: Starting mid-June 2025, companies began to implement price increases across various product categories: waterproof materials (3%-8%), mortar products (5%-7%), and sealants (8%-10%), with an overall increase of approximately 6%-7% [1][2]. - **Sales and Profit Goals**: The price increase aims to improve unsatisfactory sales progress and profit margins from the first half of 2025. Companies hope to encourage distributors to increase inventory and meet sales targets [1][2][7]. - **Market Stability and Volatility**: Current market prices are relatively stable, but fluctuations may occur during late July to early August when distributors purchase in bulk, making this a critical period for assessing the effectiveness of the price increase [1][8]. - **Profit Margin Expectations**: If the price increase is successful, company-level profits are expected to rise by 4-5 percentage points. Some companies are also reducing costs through layoffs and cutting unnecessary expenses [1][10]. - **Distributor Contract Adjustments**: Major companies are adjusting distributor contracts to lower sales targets, helping distributors maintain profit margins amid market challenges [1][11]. Additional Important Insights - **Regional Demand Decline**: The Southwest region has seen a more than 30% reduction in demand for construction materials since 2023, with new projects decreasing significantly [2][16]. - **Market Share Variability**: Companies like Dekor and Rain Rainbow have varying market shares in the Southwest, with Dekor holding about 12%-13% and Rain Rainbow around 10% [22]. - **Future Trends**: The trend of rural self-built housing is expected to continue, particularly in regions like Yunnan and Guizhou, driven by local cultural factors and government policies [20][21]. - **Profitability Focus Shift**: There is a potential shift in performance evaluation from sales volume to profit margins, which may lead to changes in operational strategies, including cost-cutting measures [29][30]. This summary encapsulates the key discussions and insights from the conference call regarding the waterproof industry's current state and future outlook.

Core Viewpoint - The company, Oriental Yuhong, has been actively addressing the leakage issues in the construction sector through its public welfare initiative "Serving the Public, Rejecting Leakage," which has evolved over nearly two decades to provide comprehensive solutions and services [1][3][4] Group 1: Company Initiatives - Oriental Yuhong has organized the "Serving the Public, Rejecting Leakage" initiative since 2006, focusing on public education and providing professional waterproofing services [1][3] - The initiative has expanded from single-point repair services to nationwide coverage, integrating digital services and diverse solutions [1][4] - The company offers free leakage inspection services and emphasizes the importance of waterproofing repairs to residents [3] Group 2: Community Impact - The initiative has reached over a thousand communities across the country, providing free leakage consultations to nearly 140,000 individuals and free repair services to around 600 special households [3] - The company pays special attention to vulnerable groups, including economically disadvantaged families, disabled individuals, and elderly residents living alone [3] - The initiative has received significant media attention, highlighting Oriental Yuhong's commitment to social responsibility [3] Group 3: Future Plans - The 2025 "Serving the Public, Rejecting Leakage" initiative has been launched in multiple provinces and cities, including Beijing, Shanghai, Sichuan, Guizhou, Jiangxi, and Fujian [4] - Oriental Yuhong aims to continue leveraging product technology and professional services to further address leakage issues and enhance living environments for families [4] - The company is committed to its mission of creating a lasting and safe environment for society [4]

Investment Rating - The investment rating for the company is "Recommended" [1][10] Core Views - The company has shown continuous improvement in gross margin and is actively engaging in dividend distribution and share buybacks to reward the market [1][10] - The company reported a revenue of 6.83 billion yuan in 2024, a year-on-year decrease of 14.0%, but managed to turn a profit with a net profit of 0.4 billion yuan [5][10] - The gross margin improved by 0.6 percentage points to 21.8% in 2024, attributed to stable sales prices and reduced operating costs through technological innovation [8][10] Summary by Sections Financial Performance - In 2024, the company achieved a revenue of 68.3 billion yuan, down 14.0% year-on-year, while the net profit was 0.4 billion yuan, marking a turnaround from losses [5][10] - The fourth quarter of 2024 saw a revenue decline of 0.6% to 16.9 billion yuan, with a net profit of -0.8 billion yuan [5] - For Q1 2025, revenue decreased by 6.1% to 14.0 billion yuan, and net profit fell by 23.2% to 0.4 billion yuan [5] Margin and Cost Management - The gross margin for 2024 was 21.8%, an increase of 0.6 percentage points, due to stable sales prices and reduced costs [8][10] - The company has focused on transforming retail channels and expanding engineering channels amidst a declining demand in the waterproofing industry [8][10] Cash Flow and Shareholder Returns - The company generated a net cash flow from operating activities of 3.2 billion yuan in 2024, an increase from 1.9 billion yuan in the previous year [9] - A total of 7.8 billion yuan is planned for dividends and share buybacks in 2024, with a cash dividend of 3 yuan per 10 shares [9][10] Future Outlook - The company is expected to see a recovery in net profit, with projections of 2.0 billion yuan in 2025 and 3.3 billion yuan in 2026 [10] - The gross margin is anticipated to improve further, supported by a decline in raw material costs due to falling oil prices [8][10]

Investment Rating - The investment rating for the company is "Buy" and is maintained [7]. Core Views - The company is expected to achieve a revenue of 6.8 billion yuan in 2024, a year-on-year decline of 14%, while the net profit attributable to shareholders is projected to be approximately 44 million yuan, a year-on-year increase of 113%. However, the non-recurring net profit is expected to be around -250 million yuan [2][4]. - In the first quarter, the company achieved a revenue of 1.4 billion yuan, a year-on-year decline of 6%, with a net profit of 40 million yuan, down 23% year-on-year, and a non-recurring net profit of approximately 20 million yuan, a decline of 4% year-on-year [2][4]. - The waterproof materials industry is under significant pressure in 2024, with a total production of waterproof materials in China expected to decline by 17% year-on-year [11]. Summary by Sections Revenue and Profitability - The company's revenue is expected to decline by 14% in 2024, with the main business revenue decreasing by 12%. Specifically, the revenue from waterproof membranes is expected to drop by 15%, waterproof coatings by 6%, and engineering construction by 17% [11]. - The gross profit margin for 2024 is projected to be around 21.8%, an increase of 0.6 percentage points year-on-year, primarily due to stable sales prices and reduced unit costs [11]. - The first quarter gross profit margin improved to approximately 24.4%, reflecting a significant improvement compared to the previous year [11]. Cash Flow and Financial Health - The company's operating cash flow has shown gradual improvement, with a cash collection ratio of 1.08 in the past three years. The net cash flow from operating activities for 2024 is expected to be 320 million yuan [11]. - The company has delayed some fundraising projects, with 8 billion yuan of the raised funds already utilized as of 2024 [11]. Future Outlook - The company is expected to achieve net profits of approximately 330 million yuan and 500 million yuan in 2025 and 2026, respectively, corresponding to valuation multiples of 16 and 11 times [11].