SKSHU(SH:603737)2025-06-11 15:49Summary of Conference Call on the Coating Industry Industry Overview - The conference focused on the building coatings industry, specifically the competitive dynamics between Nippon Paint and Sankeshu in 2024 and projections for 2025 [1][2][3]. Key Points and Arguments Price Competition and Market Dynamics - In 2024, a price war erupted between Nippon Paint and Sankeshu, particularly over products like "Moon White High Coverage Coating," leading to significant price reductions [1][2]. - Nippon Paint's sales volume increased by approximately 30%, but revenue did not grow, indicating that profit sacrifices did not translate into market share gains [1][2]. - Sankeshu ceased the price war and adjusted its retail structure, increasing retail business share to over 40%, which improved overall operating profit [1][3]. - Both companies are expected to engage in price recovery in 2025 due to the adverse effects of the price war on profitability [1][3]. Pricing Strategies - In 2024, Sankeshu maintained its factory price around 85 RMB while Nippon Paint reduced prices for mid-to-low-end products to increase market share, with prices dropping to 65 RMB for its Pro product [4]. - By 2025, Nippon Paint raised prices multiple times due to higher profits from deliveries to Singapore and increased market share for Sankeshu in rural areas [5]. Market Conditions and Challenges - The ToC (Consumer-to-Business) segment is shifting towards ToB (Business-to-Business) partnerships with large real estate companies, which are pressuring coating companies to lower costs, negatively impacting profit margins [10][14]. - The retail market is gradually recovering, particularly with improvements in second-hand housing sales and increased demand for high-quality residences [11]. Competitive Landscape - In the C-end market, Sankeshu focuses on lower-tier cities while Nippon Paint dominates first and second-tier cities, leading to a differentiated competition strategy [12][13]. - Both companies are exploring community store formats to reach consumers more effectively, although success rates remain uncertain [13]. Future Market Trends - The water-based sand market is expected to grow significantly, with rural housing renovation needs presenting substantial opportunities for coating companies [24][25]. - The overall market for rural self-built housing is projected to expand, with only Nippon Paint and Sankeshu currently possessing comprehensive competitive capabilities across all product categories [26]. Pricing Logic and Profitability - Nippon Paint's pricing is more transparent, typically at 2 to 2.5 times the factory price, while Sankeshu's retail prices can reach 2.5 to 3 times the factory price, indicating different pricing strategies [20][22]. - Both companies face challenges from the full-package service model, which requires maintaining high service quality to avoid negative customer feedback [22]. Long-term Outlook - Despite short-term challenges, the long-term outlook for the industry remains positive due to increasing demand for high-quality housing and supportive government policies [15]. - The combined market share of Nippon Paint and Sankeshu is expected to exceed 30% in the next three years, driven by their scale advantages and cost control capabilities [32]. Additional Important Insights - The current market for latex paint is in a recovery phase, with demand still present across various price segments [8]. - The price reduction trend is primarily driven by Nippon Paint and Sankeshu's ability to lower costs through economies of scale [31]. - Future price increases are unlikely due to reduced raw material costs and already optimized profit margins [33].