High-end retail plastic pipe leaders operate steadily and maintain development resilience under industry fluctuations. Weixing New Materials is the leading private plastic pipeline company in China. Its pipe products mainly include PPR pipes, PVC pipes, and PE pipes. It enjoys a high brand reputation in the domestic field of plastic pipes for home decoration. It accounts for a high proportion of C-side businesses, and has remarkable product quality and service advantages. It is a model for high-end pipes and has a brand premium. At the same time, relying on the advantages of the home improvement pipe retail channel, the “concentric circle” strategy was implemented to actively expand new home improvement waterproofing and water purification businesses, and the scale of operation grew rapidly. The company's overall business strategy is steady, and its management resilience is superior to that of its peers. The development of the real estate industry has fluctuated greatly over the past ten years, but the company's return to mother and non-return performance in 2014 to 2023 all achieved positive year-on-year growth. Weixing New Materials revenue/net profit CAGR for 2016-2023 was 9.77% and 11.45% respectively. In 2021-2023, the real estate industry declined as a whole, and the overall revenue scale of the company was stable. Net profit to mother and net profit CAGR after deducting non-return to mother were 8.21% and 3.73% respectively. The management resilience brought about by the prudent strategy was outstanding.

Brand+service+channel built a retail moat, and the “concentric circle” business grew rapidly. C-end home improvement pipes have strong consumer properties. Due to their strong concealment, low replacement frequency, high renewal costs, and low fault tolerance, brand, quality, and installation and after-sales service are the main factors that owners consider when choosing pipes, and price sensitivity is relatively weak. Weixing New Materials products are positioned as high-end and have excellent quality. In 2012, they pioneered the “Star Manager” service model to provide consumers with value-added services, enhance customer stickiness, and be more smoothly transmitted in terms of price increases. The company implements a flat dealer management model, improves the speed of response to market demand, and implements multi-level incentives for dealers. Currently, the company continues to set up distribution outlets and channel decline, and the business area is expanding nationwide. In 2016, the company proposed a “concentric diversification” strategy to actively expand new categories of home improvement pipes, lay out the two major fields of waterproofing and water purification, and form a collaboration with the original retail channel and star butler service model. The waterproof business penetration rate continues to increase, the water purification business positioning Weixing Water Purification has been optimized and adjusted, and the organizational structure, sales channels, product lines, etc. are expected to continue to contribute to the company's performance. The revenue of the company's other products increased by 64.82% and 35.33% year-on-year respectively in 2022 and 2023, and the new “concentric circle” business grew rapidly.

The C-side “product+service” model guarantees a profit level. The ROE is superior to the industry average, and the performance of high dividend+operating cash flow is excellent. In 2016-2023, most of the company's gross margin was above 40%. Among them, the gross margin of PPR pipes remained at a high gross margin level of 54% or more. PPR mainly sold products on the retail side. The company's retail side business adopted a profit model of products plus services. The price transmission advantage was obvious, and the brand premium was high. The company's ROE index performed well. In 2016 to 2023, it maintained a high ROE level of 25% or more each year, which is significantly higher than the average of the consumer building materials sector (17.40%). The company's C-side business has significant cash flow advantages. The repayment cycle for the engineering side business is short. The operating cash flow in each year is a net year-on-year net inflow, and the monetary capital is sufficient. Since its listing in 2010, the company has implemented cash dividends 14 times, with a cumulative cash dividend of about 8 billion yuan. The dividend rate is as high as 75.56%, and the long-term investment value is remarkable.

Investment advice and profit forecast: As the leader of high-end retail PPR pipes in China, the company has built a retail moat with brand+service+channel. The brand reputation is high. The overall gross margin remained above 40% in all years from 2016 to 2023, the ROE remained at a high level of 25% + for many years, excellent operating cash flow performance, and long-term implementation of high dividends. At the same time, the company accelerated the expansion of the “concentric circle” industrial chain, accelerated marketing and brand upgrading in the waterproof business, based on whole-house water purification, actively explored and improved sales models, and achieved rapid growth in revenue from other products. We are optimistic that the multiple advantages of the company's main pipe business and industry demand will continue to be released. At the same time, Tongxinyuan's new products will help the company grow in the long term. It is estimated that the company's revenue in 2024-2026 will be 7.334 billion yuan, 8.060 billion yuan, and 8.783 billion yuan, compared to 14.99%, 9.90% and 8.96%; the corresponding EPS is 0.91, 1.00, and 1.09 billion yuan, respectively. PE was 17.6x, 16.1x, and 14.8x, respectively. The company was given a “buy-A” rating, and the target price for 6 months was 20.02 yuan, which corresponds to 22 times PE in 2024.

Risk warning: macroeconomic fluctuations; policy implementation falls short of expectations; new business development falls short of expectations; market development falls short of expectations; industry competition intensifies; raw material prices have risen sharply; profit forecasts fall short of expectations, etc.