For 1H26,China Lesso reported revenue/EBITDA/attributable net profit(NP)of RMB11,910/2,050/730mn(-4.5/-17.0/-30.5%YoY).Attributable NP missed our estimate of RMB950mn,which we attribute to higher-than-expected other expenses.Supported by the price recovery of upstream raw materials in 1H26 and the company's economies of scale in procurement,GPM improved YoY.In the medium to long term,we expect the company to consolidate its leading position in the plastic pipe sector.Maintain BUY.
1H26 plastic pipe sales volume fell by 3%YoY
For 1H26,sales volume of PVC/non-PVC products fell by 3.2/3.0%YoY to 860k/720k tonnes.Total pipe sales volume fell by 3.2%YoY to 1.21mn tonnes.Under lackluster demand,the company's low single-digit sales volume decline reflects its solid leading position.For 1H26,average selling prices(ASPs)of PVC/non-PVC products dropped by 3.8/0.2%YoY but rose by 7.7/6.7%HoH,as it raised pricing amid raw material cost hikes.For 1H26,plastic pipe revenue fell by 5.3%YoY to RMB10,280mn.By end-market,residential construction/municipal engineering/agriculture/commercial and industrial sectors accounted for 46/13/20/18%of revenue.Specifically,agricultural sales revenue grew by 9%YoY,providing solid support for plastic pipe sales.At end-1H26,total capacity reached 3.44mn tonnes,with the capacity utilization rate staying above 70%.
Financial expenses fell
For 1H26,overall GPM rose by 0.59pp YoY to 28.76%,with plastic pipe GPM rising to 30.0%(vs 29.4%in 1H25).Despite YoY ASP drops,plastic pipe GPM ticked up,mainly as the company's economies of scale in procurement and enhanced production automation reduced manufacturing costs,in our view.For 1H26,financial expenses fell by 19.9%YoY to RMB300mn,as the company optimized its debt structure.At end-1H26,its debt(borrowings and lease liabilities)amounted to RMB18bn(67%denominated in RMB),and interest-bearing debt as apercentage of assets dropped to 41.4%.However,other expenses grew by RMB220mn YoY in 1H26,driven by non-operating factors such as debt structure adjustments,lower interest rates,and forex rate movements.
1H26 capex mainly allocated to overseas plant construction
For 1H26,impairment provisions were RMB51mn(+RMB16mn YoY).At end-1H26,accounts receivable fell by 11.2%YoY to RMB4,150mn amid effective control.Properties acquired through receivable settlements/properties included in inventories stood at RMB610/RMB1,190mn,totaling RMB1,800mn(mortgaged under-construction properties,per our estimate).For 1H26,capex grew by 15%YoY to RMB1,117mn,mainly allocated to overseas production base construction,equipment purchases,and invested property development.As overseas production bases commenced operations,1H26 overseas plastic pipe sales grew by 18.3%YoY to RMB1,390mn,accounting for 6.7%of total revenue.In the domestic market,the number of independent exclusive tier-1 distributors rose to 3,186.
Earnings forecasts and valuation
Given the QoQ price recovery but YoY price decline for plastic pipes,as well as weak plastic pipe demand in 1H26,we lower our assumptions for plastic pipe sales volume and ASPs.We thus cut our 2026/2027/2028 attributable NP forecasts by 17/28/28%to RMB1,330/1,590/2,000mn,and project EPS of RMB0.43/0.51/0.64.As H-shares are constrained by weaker liquidity compared with A-shares,we value the stock at 11x 2026E PE,below its peers'average of 16x on Wind consensus.Our target price is HKD5.49(previous:HKD6.45,based on 11x 2026E PE).
Risks:sharp increases in raw material prices,intensified competition,heavy PV segment losses.