1H24 results slightly miss our expectations　　Weixing New Building Materials (Weixing NBM) announced its 1H24 results: Revenue rose 5% YoY to Rmb2.34bn, net profit attributable to shareholders fell 31% YoY to Rmb340mn, and recurring net profit dropped by 0.4% YoY to Rmb340mn. In 2Q24, revenue rose 0.4% YoY to Rmb1.35bn, attributable net profit fell 42% YoY to Rmb186mn, and recurring net profit dropped by 17% to Rmb198mn. The company's results in 1H24 missed our expectations and market expectations due to the impacts of lower GM and higher expense ratios in 2Q24.　　Revenue rose steadily; expenses increased.　　Pipe business remained solid: In 1H24, revenue from PPR, PE, and PVC pipes came in at Rmb1.07bn (+3% YoY), Rmb474mn (-3% YoY), and Rmb303mn (-12% YoY). We think revenue from these three categories of pipes declined in 2Q24. By region, revenue from east China, north China, central China, west China, and other regions came in at Rmb1.2bn (+5.7% YoY), Rmb279mn (-1% YoY), Rmb243mn (+0.4% YoY), Rmb287mn (+3% YoY), and Rmb168mn (+27% YoY) in 1H24. Revenue from other products increased by 45% YoY to Rmb463mn in 1H24, thanks to the financial consolidation of Zhejiang Kerui.　　GM improved; QoQ changes in GMs were not notable in 2Q24: In 1H24, GMs of PPR pipes, PE pipes, PVC pipes, and other products were 59% (+2.0ppt YoY), 30% (+0.7ppt YoY), 21% (-0.94ppt YoY), and 31% (-2ppt YoY). The blended GM rose 1ppt YoY to 42% in 1H24. In 2Q24, the blended GM fell 1.2ppt YoY but rose 1.1ppt QoQ to 42.6%.　　Expenses increased despite industry-wide headwinds: In 2Q24, selling expenses rose 34% YoY, with selling expense ratio rising 3.9ppt YoY to 15.3%. G&A and R&D expenses dropped by 4% and 5% YoY in 2Q24. In 2Q24, the period expense ratio rose 3.4ppt YoY to 24%.　　Factoring out the impact of investment income, we think the company's profit declined in 2Q24. The company's investment income reached Rmb74.56mn in 2Q23. Factoring out the impact of investment income, we estimate that the company's adjusted operating profit fell 22% YoY to about Rmb240mn and the operating　profit margin dropped by 5.2ppt YoY to 18% in 2Q24.　　Operating quality sound; paying interim dividend: In 1H24, the cash- to-revenue ratio dropped by 6ppt YoY to 114% due to tight funding conditions. In 2Q24, operating cash inflow was Rmb468mn (down Rmb81mn YoY). Its cash exceeded liability. The company announced that it would pay an interim dividend of Rmb0.1/sh, implying an interim dividend yield of 46%.　　Trends to watch　　Demand weakened; the company increased expenses to gain market share. Demand for pipes declined, as GFA completions dropped notably and residential customers delayed renovating homes (consumer demand for home renovation fell 2% YoY in 7M24). The company increased selling expenses to promote waterproof materials and water purification systems. Looking ahead into 2H24, we think GFA completions may remain under pressure, and the company will likely maintain solid revenue and GM through increasing distribution channel-based marketing and improving service quality.　　Financials and valuation　　We cut our net profit forecasts 12% to Rmb1.28bn for 2024 and 16% to Rmb1.3bn for 2025, given weak demand and the company's increased expenses in the long term. The stock is trading at 16x 2024e and 16x 2025e P/E. We maintain an OUTPERFORM rating, but cut our target price 21% to Rmb16.5 to reflect weakening risk appetite. Our TP implies 21x 2024e and 20x 2025e P/E, offering 26% upside.　　Risks　　Demand from the real estate industry weakens more sharply than expected; expansion of new businesses disappoints; price competition intensifies. 【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

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