ORIENTAL YUHONG(SZ:002271)2025-10-28 03:06Summary 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]