Incident: Changhong Huayi announced its 2024 quarterly report. The company achieved revenue of 3.34 billion yuan in Q1, YoY -21.2%; realized net profit attributable to mother of 80 million yuan, YoY +27.0%; realized net profit without deduction of 80 million yuan, YoY +34.2%. We believe that due to the decline in revenue from raw materials and accessories, Changhong Huayi's revenue declined in a single quarter, but revenue from the main ice pressure business continued to grow, and profitability improved.
Q1 revenue in a single quarter was under pressure: Q1 Changhong Huayi's revenue declined year-on-year, mainly due to a decrease in revenue from raw materials and accessories, and the company withdrew from the sweeper business, and related business revenue for the same period last year. In terms of main business, the company continues to optimize its product structure and accelerate the expansion of domestic and foreign customers. We infer that Q1 ice pressure revenue grew rapidly year-on-year. According to industry online data, in January-January, Changhong Huayi compressor domestic/export sales volume YoY was +34.4%/+8.0%.
Looking ahead, the “trade-in” policy for home appliances is expected to be introduced, and may effectively stimulate the release of demand for refrigerator updates and product structure upgrades, thereby boosting refrigerator compressor sales (see the special report “How does the trade-in policy affect the consumption of household appliances?”). As a leader in the refrigerator compressor industry, Changhong Huayi is expected to fully benefit from the “trade-in” policy.
Q1 profitability increased year on year: Q1 Changhong Huayi's net profit margin was 2.4%, +0.9pct year on year. The company's profitability improved mainly due to: 1) the company continued to optimize the product structure and continuously strengthen revenue and cost reduction efforts; Q1 gross margin +1.1 pct year on year; 2) changes in the structure of current accounts receivable and accounts receivable at the end of the period, expected credit loss decreased, Q1 credit impairment loss/revenue +0.8 pct year over year; 3) exchange rate factors led to an increase in exchange earnings, and the Q1 financial expense ratio was -0.5 pct year on year. In the future, profitability is expected to improve steadily as the company continues to optimize its product structure and improve production efficiency.
Q1 net operating cash flow outflow increased: Changhong Huayi Q1 net operating cash flow of -400 million yuan compared to -410 million yuan in the same period last year. The net outflow of the company's operating cash flow increased, mainly due to the decline in revenue scale, YoY of -28.8% of the cash received from sales of goods and provision of labor services in Q1. The monetary fund balance at the end of the Q1 period was 5.61 billion yuan, YoY +49.4%, and cash reserves were quite abundant.
Investment advice: Changhong Huayi has a stable leading position in the global ice pressure industry. The company continues to optimize its product structure and actively expand the NEV air conditioning compressor business, and its business performance is expected to improve steadily. The company's EPS for 2024 to 2026 is expected to be 0.60/0.71/0.83 yuan respectively. For the first time, it covers the investment rating of Buy-A, giving the company a dynamic price-earnings ratio of 15 times in 2024, which is equivalent to a six-month target price of 9.07 yuan.
Risk warning: Competition in the industry has intensified, raw material prices have risen sharply, foreign trade intrusion risks, and related assumptions and predictions fall short of expectations.