Refrigerator and freezer exports have increased rapidly, and Omar is expected to continue to benefit: with the decline in shipping charges and the recovery of European terminal retail sales, China's refrigerator and freezer export boom has continued to recover since 2023H2. According to industry online data, the export volume of the refrigerator 2024M1-2 is +38% YoY. As a leading refrigerator exporter (see the in-depth report “Omar Electric: The Return of the Invisible Champion in Refrigerator Exports”), Omar Electric is expected to continue to benefit from the boom in refrigerator and freezer exports.
Dimension 1: China's export volume of refrigerators and freezers to Europe is expected to grow in the long term. According to data from the European Home Appliance Association, European countries have continued to increase the share of refrigerators and freezers imported from Asia in the past ten years, while the share of imports from local European countries has declined. Among them, Europe's share of imports to China increased from 18% in 2015 to 29% in 2021. European demand for Chinese refrigerators and freezers continues to rise, mainly due to the transfer of production capacity by European home appliance companies. According to Euromonitor data, the local production/sales ratio of European companies such as Bosch Home Appliances and Electrolux has continued to decline since 2015. Furthermore, the penetration rate of energy-efficient home appliances in Europe has increased, and Chinese companies still have room for development. We believe that Omar has been working in the European export market for many years and is expected to benefit from the increase in import demand for European refrigerators and freezers in the long term.
Dimension 2: The TCL ice washing business was officially merged, and the synergy effect was shown over a long period of time. On December 20, 2023, Omar completed the acquisition of TCL Household Appliances (Hefei). TCL Household Appliances (Hefei) is the main entity operating refrigerators and washing machines under TCL Industrial. In 2022, sales of TCL refrigerators and washing machines were 2.05 million units and 2.24 million units respectively. The annual sales volume of refrigerators was about 24% of the same period of Omar Electric, mainly domestic sales. TCL Home Appliances (Hefei) can complement Omar refrigerators well in domestic and foreign sales markets, and is expected to benefit from each other in raw material procurement and R&D design. According to the company announcement, TCL Household Appliances (Hefei)'s gross margin in 2023 is approximately 11.0%. As TCL brand marketing investment increases and black and white channels are integrated and opened up, profitability is expected to continue to improve. The recent introduction of a trade-in policy can also boost domestic sales of TCL ice washing products.
Dimension 3: Minority share repurchases of major subsidiaries have entered a critical period. In 2020, Omar Electric transferred 49% of its shares in the main subsidiary Omar Refrigerators to ease liquidity pressure. According to the relevant repurchase agreement at the time of transfer, the company is required to complete the repurchase by March 2025 at the latest. If all minority shareholders' equity interests in Omar Refrigerators are purchased several times, the net profit for the current period will increase by 95%, based on Omar Electric's net profit to the mother in 2023.
Investment advice: The cold overseas market is large, and the export sales growth rate of Chinese refrigerators has long been higher than that of domestic sales. As a leading refrigerator exporter, Omar Electric has advantages in terms of large customer relationships and scale, and the company's gross margin of refrigerator export sales is high. Judging from the above three dimensions, Omar Electric has a lot of room for growth in the long term. We expect the company's EPS for 2024-2025 to be 0.80/0.94 yuan, respectively, with a 6-month target price of 9.6 yuan/share, corresponding to a dynamic price-earnings ratio of 12x in 2024, maintaining a buy-A investment rating.
Risk warning: raw material price fluctuations, merger and acquisition risk, exchange rate fluctuations, increased industry competition, assumptions and predictions fall short of expectations