Summary of Oriental Yuhong's NDR Call and 3Q25 Results Company Overview - **Company**: Oriental Yuhong (002271.SZ) - **Industry**: Construction Chemicals, specifically waterproofing materials Key Points from the Call 1. 3Q25 Performance Highlights - **Topline Growth**: - 3Q25 saw a positive growth of +9% year-over-year (yoy) for the first time since 3Q23, improving from a decline of high-teens% in 1Q25 and narrowing to -SD% in 2Q25 [3][5] - Project distributor sales reached Rmb3.4 billion, up +3% yoy, attributed to market share expansion and demand from mega infrastructure projects [5] - Retail sales increased to Rmb2.3 billion, up +6% yoy, supported by channel and product expansion [5] - Direct sales surged to Rmb1.1 billion in 3Q25 from Rmb341 million in 3Q24, driven by overseas and specialty domestic business growth [5][6] 2. Product Performance - **Waterproof Membrane Sales**: Grew +5% yoy, with volume growth of +12% offset by soft average selling price (ASP) [9] - **Waterproof Coatings**: Achieved +15% yoy growth, primarily driven by ASP increases [9] - **Special Mortar Business**: Recorded Rmb3.3 billion in sales revenue and 8 million tons in sales volume for 9M25, exceeding last year's full-year level [9] 3. Profitability and Impairment - **Gross Profit Margin (GPM)**: Declined by -4.1 percentage points yoy in 3Q25 due to ASP pressure, incentive rebates, and unfavorable product mix [9] - **Impairment**: High impairment in 3Q25 was due to increased discounts on property collateral disposals, with an expected impairment ratio of 40% by year-end [9][10] 4. Cash Flow and Capital Allocation - **Operating Cash Flow**: Turned positive for the first time in ten years for 9M25, with accounts receivable declining -19% yoy by end-3Q25 [12] - **Capital Expenditure (Capex)**: Focused on overseas factories and selective acquisitions, with limited domestic capex primarily for upstream mine acquisitions [12] 5. Industry Outlook - **2026E Expectations**: Management is optimistic about industry demand bottoming out, with expectations for project sales to stabilize and continued market share expansion [12][13] - **Overseas Business Growth**: Anticipates organic overseas sales to double yoy in 2026E, with contributions from newly acquired companies in Chile and Hong Kong [12][13] 6. Risks - **Key Risks Identified**: - Weaker-than-expected construction activities - Unexpected increases in raw material prices - Impairment losses related to receivables from risky developers [15][17] 7. Investment Thesis - **Market Position**: Oriental Yuhong is the largest producer of waterproofing materials in China, with strong leadership and competitive advantages in a fragmented market [16] - **Long-term Potential**: As the property market stabilizes, Yuhong is positioned to become a one-stop solution provider for construction chemicals [17] 8. Financial Projections - **Price Target**: Rmb15.50, with an upside of 18.5% from the current price of Rmb13.08 [18] - **Market Cap**: Rmb29.7 billion / $4.2 billion [18] This summary encapsulates the critical insights from Oriental Yuhong's recent NDR call and 3Q25 results, highlighting the company's performance, outlook, and strategic direction in the construction chemicals industry.

Summary of Oriental Yuhong's 3Q25 Earnings Call Company Overview - **Company**: Oriental Yuhong (002271.SZ) - **Industry**: Construction Chemicals, specifically waterproofing materials Key Financial Results - **Net Profit (NP)**: Rmb245 million, down 27% year-over-year (yoy), and 30% below Goldman Sachs estimates (GSe) [1][7] - **Recurring Net Profit**: Excluding one-offs, recurring NP was Rmb262 million, flattish yoy [7] - **Top-line Revenue**: Rmb7.03 billion, up 9% yoy and 7% above GSe, marking the first positive growth since 3Q23 [1][3] - **Free Cash Flow (FCF)**: Increased by 14% yoy, reaching 2.5 times net profit [1] Profitability Metrics - **Gross Profit Margin (GPM)**: 24.8%, down 4.1 percentage points yoy and 2.2 percentage points below GSe [7] - **Operating Expenses**: Increased by 5% higher than expected, primarily due to a 23% rise in administrative expenses [7] - **Earnings Before Interest and Taxes Margin (EBITM)**: 4.6%, down 2.0 percentage points yoy and 1.7 percentage points below GSe [7] - **Net Profit Margin (NPM)**: 3.5%, down 1.7 percentage points yoy and 1.9 percentage points below GSe [7] Market Dynamics - **ASP Restoration**: The company noted an industry-wide average selling price (ASP) restoration in July, contributing to improved revenue growth [2][3] - **Volume Growth**: Better-than-expected volume growth was a key driver for the revenue beat [3] Management Insights - **Future Outlook**: Management is expected to discuss ASP and volume dynamics, reasons for soft GPM realization, and early comments on the 2026 outlook during the post-results conference call [9] Investment Thesis - **Market Position**: Oriental Yuhong is the largest producer of waterproofing materials in China, with a significant market share compared to competitors [13] - **Growth Potential**: The company is positioned to expand its market share due to cost competitiveness and robust channel capabilities [13][16] - **Long-term Strategy**: As the property market stabilizes, Yuhong aims to become a one-stop solution provider for construction chemicals [16] Risks - **Key Risks Identified**: 1. Weaker-than-expected construction activities 2. Unexpected increases in raw material prices 3. Risks associated with receivables from developer customers 4. Slower development of non-waterproofing businesses 5. Larger-than-expected impairment losses related to receivables [12][16] Valuation - **Price Target**: Rmb15.50, with a current price of Rmb13.27, indicating a potential upside of 16.8% [17] - **Valuation Metrics**: Target 2026E EV/GCI multiple of 1.3x, lower than the long-term average of 3.0x due to projected lower CROCI [11] Conclusion - **Recommendation**: Maintain a Buy rating on Oriental Yuhong, supported by its market leadership and potential for growth despite current challenges in the construction sector [2][16]

Investment Rating - The report highlights a "Buy" rating for seven selected stocks within the property value chain, indicating a positive outlook for these companies as they are well-positioned to benefit from recovering housing upgrade needs and building renovation demand [3][34]. Core Insights - The property value chain is expected to see a significant shift towards domestic demand, driven by potential policy support aimed at mitigating external uncertainties. This shift is projected to create a total addressable market (TAM) of Rmb5.7 trillion by 2035, representing a 70% increase compared to 2024 [3][34]. - The report anticipates an average 5% compound annual growth rate (CAGR) in topline revenue for the property value chain companies through 2035, with a notable improvement in profitability and dividend yields due to operational efficiencies and disciplined capital expenditures [5][34]. Summary by Sections Property Value Chain Stocks - The report identifies seven stocks (CRL, Yuhong, BNBM, Kinlong, Robam, KE, and Greentown Service) as beneficiaries of domestic stimulus, all rated as "Buy" [3][34][18]. Executive Summary - The property construction value chain, which constitutes approximately 30% of China's GDP, has faced challenges due to the downturn. However, potential policy support for domestic demand is expected to accelerate housing upgrades and boost secondary market transactions [29][34]. Implications for the Value Chain - The report outlines three main implications for the value chain: a decline in demand for building products, a consolidation of the developer industry, and a significant shift towards secondary market transactions, which are projected to account for 66% of total housing transactions by 2035 [31][32][51]. Housing Market Outlook - By 2035, housing demand is expected to be 40% below peak levels, with a significant portion coming from Tier-1 and Tier-2 cities. The secondary market is projected to overtake the primary market in terms of transaction volume and value [42][51]. Renovation Demand - Renovation demand is anticipated to nearly double by 2035, contributing approximately 60% of total construction gross floor area (GFA), which will help offset the decline in new builds [54][36].