Business performance improved markedly in the fourth quarter. In 2012, it achieved operating income of 6.773 billion yuan, a year-on-year decrease of 17.46%, and net profit attributable to shareholders of listed companies was 148 million yuan, a year-on-year decrease of 10.10%, corresponding to EPS of 0.22 yuan; net cash flow from operating activities was 412 million yuan, an increase of 83.89% over the previous year. Among them, the fourth quarter achieved revenue of 1,678 billion yuan, an increase of 6.33% over the previous three quarters, reversing a continuous decline of more than 20% in the first three quarters, achieving net profit of 55.11 million yuan, and net profit attributable to listed companies of 40.94 million yuan, a significant improvement over the fourth quarter of last year and the third quarter of 2012.
The adjustment of the air conditioning industry in 2012 directly affected the company's air conditioning compressor sales. Affected by multiple factors such as the slump in the peripheral economy and the withdrawal of domestic appliance related stimulus policies, the domestic air conditioning industry declined for the first time after three consecutive years of growth. According to industry online statistics, annual shipments fell 3.89%, of which domestic sales fell 4.67%, exports fell 2.91%, and production fell 8.65%. At the same time, the self-supporting rates of Gree and Midea air conditioning compressors are also gradually increasing. The company produced 14.93 million air conditioning compressors for the year, down 14.8% year on year, sales volume 15.5 million units, down 11.7% year on year, and inventories of 1,383,700 units, down 29.3% year on year; among them, domestic revenue fell 14.33% and foreign revenue fell 28.43%.
Seek a breakthrough in adversity. The company's national market share of air conditioning compressors reached 15.2% in 2012, increasing 0.1 percentage points to maintain its leading position in the industry; through technological innovation and cost control measures, the main gross margin reached 13.81%, an increase of 1.89 percentage points; new ferrite inverter series products are expected to grow significantly in 2013; plans to increase investment in small energy-saving fluorine-free inverter compressors and L series ultra-high efficiency compressor projects to seize the trend of AC inverter upgrades; actively expand into refrigeration related fields such as heat pumps and water heaters; set up overseas factories in India to seize the rising opportunities of emerging markets. 2013 is expected to usher in a period of industry recovery. There is still plenty of room for demand growth in the domestic third- and fourth-tier markets and rural areas. The effect of the energy-efficient subsidy policy in stimulating demand is gradually showing. The global air conditioning market, particularly in Asia, Africa, and Latin America, has entered a stage of rapid development. According to industry online data, the growth rate of domestic air conditioning production and sales has been corrected since the fourth quarter of 2012 and has continued to improve. The overall growth rate is expected to reach 10% in 2013. Prices of major raw materials are hovering low, which helps to increase gross profit margins.
Maintaining the “increase in ownership” rating: The company's main business of air conditioning compressors is outstanding, and it has industry-leading technology, quality and scale advantages. It is the preferred supplier for many air conditioning companies, and will continue to benefit from industry recovery and overseas market business expansion. The 2013-2015 EPS is expected to be 0.26/0.32/0.38 yuan respectively, and the 2013 PE is 27 times higher. At the same time, the company's performance is flexible and maintains the “increase in holdings” rating.
Risk warning: Air conditioning sales are lower than expected; copper and steel prices have risen markedly.
