Core views
Hisense Home Appliances released its 2024 quarterly report. Revenue results all exceeded market expectations, and the implementation of governance dividends and product structure improvements created high growth. Looking forward to the future, we believe that Hisense's overall profitability still has a lot of room compared to leading companies. After the equity incentive, the company is in the process of releasing operating dividends. The differentiation and high-end strategy is reaping good results. The development of overseas independent brands is in full swing. We are optimistic about the long-term sustainability of the company's performance growth in the context of improved governance, and reaffirm the long-term investment value of Hisense home appliances.
occurrences
On April 24, 2024, Hisense Home Appliances released its report for the first quarter of 2024.
The 24Q1 company achieved revenue of 23.486 billion yuan, an increase of 20.87%; net profit to mother of 981 million yuan, an increase of 59.48%; deducted non-net profit of 838 million yuan, an increase of 60.89%; and a net profit margin of 4.18%, an increase of 1.01 pct
Brief review
1. Revenue analysis: Air washing has grown rapidly, and export sales have performed well.
Looking at the subregion, benefiting from the company's operational efficiency and response to overseas orders, we expect the export side to show greater flexibility in the first quarter. In particular, the ASEAN region achieved a good breakthrough in independent brand building and a high increase in regional performance; the domestic sales side also performed better than the industry, and overall domestic revenue is expected to grow by more than double digits.
By category, we expect the ice washing business to achieve high double-digit growth, mainly due to the low base and the recovery of overseas orders in the same period last year. While the export side released elasticity, the domestic sales side is also expected to achieve good double-digit growth; the air conditioning industry had a high increase in production schedules in the first quarter, benefiting from endogenous strength. We judge that Q1's shipping performance is superior to the industry and is expected to achieve more than double digit growth; the performance of the CCTV sector is relatively steady. Despite being dragged down by the decline in real estate completion, it is expected to achieve good growth.
2. Profit analysis: Profitability continues to increase, with both main business and finance contributing gross profit margin: 24Q1 gross profit margin of 21.63%, +0.51pct year over year, mainly benefiting from improved operational efficiency and product structure upgrade; rate side: overall stability, 24Q1 sales expense ratio 10.00% (-0.09pct), management expense ratio 2.65% (-0.01pct), R&D expense ratio 3.30% (+0.33pct), financial expenses ratio -0.31% (-0.22pct); non-financial expenses ratio: other revenue increased by 0.71 billion, Mainly due to value-added tax deductions; changes in fair value increased by 84 million yuan, mainly due to financial management income; and a decrease of 28 million yuan in income tax, mainly due to an increase in the share of the domestic low tax rate sector.
Investment advice: Hisense's home appliance product matrix covers a comprehensive range, and the prospects for each growth curve are clear. The introduction of equity incentives has driven corporate governance into a new stage, which is expected to catalyze valuation repair and continued growth in subsequent performance. We expect the company's revenue in 2024-2026 to be 955/ 1056/116.2 billion, respectively, with growth rates of 11.52%, 10.60%, and 10.10%; net profit to mother will be 35.71/41.02/4.664 billion yuan respectively, with growth rates of 25.87%, 14.85%, and 13.70% respectively. Corresponding PE is 13.6X, 11.8X, and 10.4X, maintaining the “buy” rating.
Risk warning: 1) Macroeconomic growth falls short of expectations: Home appliances are durable consumer goods and are closely related to residents' income expectations. If macroeconomic growth slows down, it may have a big impact on the company's product sales.
2) Market competition intensifies: In a weak market environment, industry competition is more intense, and there is a risk that companies will lose their share and low price competition will drag down profits.
3) Risk of fluctuations in raw material prices: The company's raw material costs are relatively high, and corporate profits are more sensitive to fluctuations in raw material prices. In the cost structure of home appliance companies, commodity raw materials account for more than 85% of operating costs. If commodity prices rise again, the company's profitability will weaken.
4) Risk of fluctuations in the real estate market: The company's main business is highly correlated with the real estate market. Housing completion and sales growth have declined in recent years, and the scale of hardcover housing has decreased. If the real estate market continues to be sluggish, the company's future revenue growth or downgrade 5) The integration of Sandian's business falls short of expectations: Uncertainty about the overseas environment has increased in recent years. Japan's debt ratio at its highest was 88%. Delays in the integration of Sanden's business will affect the company's performance expectations, making it difficult to reverse losses.