Core views
Gree Electric releases the 2023 Annual Report and the First Quarter Report 2024. The company's revenue continued to grow, and profit performance was superior to market expectations. Air conditioning shipments hit a new peak in 2023, and it is still a high-quality industry with good growth in the white electronics sector. Gree has multiple advantages such as channel, brand, and industrial chain integration, and has a stable position in the first tier of share. In recent years, the market is paying more and more attention to high dividends and investor returns. Gree has the multiple advantages of high dividends+strong moat+undervaluation. It is recommended to focus on the company's investment value under a high margin of safety.
occurrences
Gree Electric releases the 2023 Annual Report and the First Quarter Report 2024.
In 2023, the company achieved total operating income of 205.018 billion yuan, an increase of 7.82% year on year; net profit attributable to mother of 29.017 billion yuan, up 18.41% year on year; basic earnings per share of 5.22 yuan, up 17.83% year on year.
2024Q1 achieved total revenue of 36.596 billion yuan, a year-on-year increase of 2.53%; net profit to mother was 4.675 billion yuan, 13.77% year-on-year;
The company paid a cash dividend of 13.142 billion yuan for the full year of 2023, with a cash dividend of 23.8 yuan for every 10 shares, with a dividend rate of 45.29%.
Brief review
1. Revenue continues to grow steadily, and the reservoir is expected to adjust
On the market side, the growth rate of the 23H2 air conditioning industry slowed down due to factors such as concentrated release of demand in the early stages and insufficient effective demand due to cooling consumption. At the company level, Gree Q4's revenue is expected to achieve high double-digit growth due to the repayment of prior contract liabilities. The balance of contract liabilities at the end of 23 billion yuan was 13.589 billion yuan, down 10.113 billion yuan from the end of Q3 and a year-on-year decrease of 1,383 billion yuan; the balance of other current liabilities at the end of Q23 was 61,059 billion yuan, down 1,676 billion yuan from the end of Q3, an increase of 3.310 billion yuan over the previous year.
The air conditioning industry had a high increase in 24Q1, but the retail growth rate was weaker than the production schedule. Industry online display: 24Q1 Gree air conditioning shipments +9.5%, including domestic production and sales +9.3% and export sales +10.0%. Gree achieved single-digit revenue growth on the reporting side, while the profit reservoir was expanded. The balance of contract liabilities at the end of 24Q1 was 20.491 billion yuan, an increase of 6.902 billion yuan over the previous month, and the balance of other current liabilities was 62.194 billion yuan, an increase of 1,135 billion yuan over the previous year.
2. Significant increase in gross margin and overall increase in profitability
The increase in gross margin led to an overall increase in the company's profitability. Benefiting from early low-price raw material preparation, product price increases and structural optimization, the company achieved a gross profit margin of 30.57% in 2023, an increase of 4.53 pcts over the previous year, and a gross profit margin of 29.45% in 24Q1, an increase of 2.03 pcts over the previous year.
The fee rate increased slightly in the first quarter. 24Q1 Company sales expense ratio 7.32% (+ 0.02 pct), management expense ratio 4.74% (+ 0.66 pct), R&D expenses 4.07% (-0.23pct), financial expenses ratio -2.52% (-0.97pct), net profit margin 12.76% (+ 1.75 pct).
3. Maintain a steady dividend policy with high dividend allocation value
In 2023, the company plans to pay a dividend of 2.38 yuan/share, totaling 13.142 billion yuan, with a dividend rate of 45.29% (close to 23), corresponding to a dividend rate of 5.76%. Home appliances Hakuba have continuous allocation value in the current investment environment where high dividends are emphasized. As of the end of the first quarter of 2024, Gree had cash on book of 125.2 billion, abundant cash on the books, good operating cash flow, and guaranteed dividend sustainability.
Investment advice: As a leader in the air conditioning industry, Gree has a strong moat in terms of technology, channels, and marketing. Although there have been twists and turns in recent years, as channel reforms continue to advance, the company's inventory pressure has been drastically reduced, dealer confidence in picking up goods has been restored, and overall performance is expected to improve. We expect the company's revenue for 2023-2025 to be 2174/2314/246.1 billion yuan, respectively, and profit of 318/347/37.7 billion yuan, respectively. Corresponding PE is 7.5X/6.8X/6.3X, respectively, maintaining a “buy” rating.
Risk warning: 1. The macroeconomic growth rate falls short of expectations. Household appliances are durable consumer goods and are closely related to residents' income expectations. If macroeconomic growth slows down, or it has a big impact on the company's product sales; 2. Raw material prices fall short of expectations: the company's raw material costs account for a large share of operating costs, and if bulk prices rise again, the company's profitability will weaken; 3. Overseas market risks: Uncertainty in the overseas environment has increased in recent years, and the company's export sales account is relatively high. If external demand falls, the performance will be impacted accordingly; 4. Market competition intensifies: competition in the home appliance industry is more intense in a weak market environment, and the company has a risk of losing share and low competition dragging down profits.