Core views

Changhong Meiling released the 2023 semi-annual results forecast. The operating performance exceeded our previous expectations. Driven by lower prices of raw materials and shipping costs combined with product structure upgrades, the performance side maintained a high growth rate in the second quarter. In the early stages of the market, more attention was paid to the company's performance flexibility in the context of a low profit base. We believe that in recent years, the company has focused on “one goal” and closely adheres to the “three main lines”. Overall management capacity and product competitiveness have improved markedly, which is expected to drive the company to achieve long-term performance growth.

occurrences

On July 15, 2023, Changhong Meiling released the 2023 semi-annual results forecast.

2023H1 expects to achieve net profit of 32-380 million yuan, an increase of 430.02%-529.40% over the previous year; of these, Q2 is expected to be 197-209 million yuan, an increase of 258.18%-367.27% over the previous year.

2023H1 is expected to deduct non-net profit of 34-400 million yuan, up 8177.54%-9638.28% year on year; of these, Q2 is expected to be 236-296 million yuan, up 774.07%-996.30% year on year.

Brief review

Revenue side: Driven by the entire domestic and foreign sales industry, Q2 revenue grew steadily in recent years. The company focused on “one goal”, clung to the “three main lines”, actively adjusted categories and channel strategies, promoted differentiated explosives and diversified channel construction, and made good breakthroughs on the revenue side.

In terms of export sales, the refrigerator and washing machine industries are actively seizing orders and vigorously promoting product expansion, with orders and deliveries increasing dramatically in an environment where shipping costs are falling and the market is gradually recovering. At the same time, under the synergy of ice washing, the washing machine industry has achieved rapid expansion simultaneously.

In terms of domestic sales, the air conditioning industry has further promoted “marketing transformation”, closely followed the market and local climatic characteristics, laid out the market ahead of schedule, optimized the product structure, and continued to maintain strategic cooperation with key customers. Against the backdrop of the rise in the air conditioning boom in the hot summer, domestic sales of air conditioners achieved good growth.

Profit side: Increased product structure combined with raw material dividends, and profits exceeded expectations by 23Q2. The profit side of the company achieved three-digit growth, mainly due to:

① The company continues to fully implement the “one goal, three main lines” management policy, adheres to value orientation, comprehensively improves efficiency, and creates high-quality explosives to enhance profitability; ② the average market price has risen overall, leaving enough room for improving the company structure; ③ the cost of bulk raw materials and exchange rates have been optimized over the same period, contributing flexibility on the profit side.

3. Product innovation, efficiency, and positive changes have helped long-term growth. In recent years, Changhong Meiling has been deeply involved in operations around the three main lines of “efficiency is king,” “product leadership,” and “benchmarking and competition.” In terms of channel strategy, strengthen e-commerce channels, expand incremental channels, consolidate basic channels, improve chain channels, and continuously improve the quality of operations. The product side carries out classification management, optimizes the value chain of inefficient products and diverts products, continuously improves the product structure, and increases gross profit margin by creating explosives and promoting quality products. The manufacturing side improves production efficiency through benchmarking, increases Nissan, reduces employment, and removes process barriers; focuses on reducing fees and improving efficiency, promoting cost pressure control, increasing gross profit, and achieving outstanding results through comprehensive efforts. It is recommended to pay attention to the share increase and profit recovery opportunities brought about by the company's changes.

Investment suggestion: Changhong Meiling's product matrix covers a full range, and various industries have shown impressive growth during the implementation of reforms. We expect the company to achieve operating income of 234,26.2 billion yuan in 2023-24, up 15.8% and 12.1% year on year; net profit from the return mother is 515 million and 656 million yuan, up 110.53% and 27.41% year on year. Corresponding PE is 10.9X and 8.5X, respectively, maintaining the “increase in holdings” rating.

Risk warning: 1. The macroeconomic growth rate falls short of expectations. Home appliances are durable consumer goods and are closely related to residents' income expectations. If macroeconomic growth slows down, or has a large impact on the company's product sales; 2. The decline in raw material prices falls short of expectations: the company's raw material costs account for a large share of operating costs; if bulk prices rise again, the company's profitability will weaken;

3. Overseas market risk: The uncertainty of the overseas environment has increased in recent years, and the company's export sales account for a relatively high proportion. If external demand falls, the performance will be impacted accordingly;

4. Increased market competition: In a weak market environment, industry competition is more intense, and companies are at risk of losing shares and low price competition dragging down profits.