Incident: Gree Electric released its 2023 annual report and 2024 quarterly report: 23A achieved revenue of 203.79 billion yuan, +7.93%, net profit of 29.017 billion, +18.41% year-on-year, after deducting non-net profit of 27.565 billion, +14.92% year-on-year; of these, 23Q4 achieved revenue of 48.972 billion yuan, +18.01% year-on-year, and attributable net profit of 8.925 billion yuan, net profit of 8.351 billion yuan, +54.09% year-on-year; 100 million, dividend rate 45.29%. 24Q1 achieved revenue of 36.364 billion yuan, +2.56% year over year, attributable net profit of 4.675 billion yuan, +13.77% year over year, after deducting non-net profit of 4.525 billion yuan, +21.55% year over year.
Main business performance was steady, and air conditioning recovery was better than expected
The 24Q1 company's main revenue was +3% year-on-year, and the internal, external, and total sales volume of the industry online monitoring company were +9%/+10%, respectively. Judging from the 23-year business trend, air conditioning revenue is expected to be better than the overall revenue. Air conditioning in '23 was 151.2 billion/ +12%, second only to 155.7 billion in '18; 23H1/H2 was +2%/+23% respectively, of which H2 air conditioning revenue was $81.2 billion, a record high. Assuming that all export sales were air conditioners, domestic and foreign sales of air conditioners were +13%/+7% in '23, domestic sales of H1/H2 were +4%/+22% respectively, and export sales of H1/H2 were -7%/+27% respectively, all improving month-on-month. Other materials-based businesses were -18% year-on-year, and the decline in H2 increased, dragging down apparent growth.
Continued cost reduction and efficiency, steady increase in profitability
The 24Q1 company's gross sales margin reached a record high of +2.03 pct for the same period. 23Q4/23A was +6.19/+2.11 pct, respectively, and profitability recovered steadily. Looking at the subregions, the gross margin of internal/export sales of air conditioners in 23 years was +3/+9pct, with export sales H1/H2 +4/+16pct respectively, and domestic sales H1/H2 were +6/+1pct, respectively. Factors such as cost, exchange rate, and export independent brands increased to nearly 70%, and the decline in the share of revenue from other businesses with low gross profit all contributed positively. 24Q1/23Q4 management/R&D/finance cost ratio total -0.6/-0.1pct, continuous optimization.
The dividend ratio advantage is obvious, and the valuation cost performance ratio is outstanding
The company's 24Q1 net operating cash flow was $2.9 billion, with total receivables of +61 billion yuan compared to the beginning of the year; contract liabilities at the end of Q1 were $20.5 billion, up from +6.9 billion at the beginning of the year and $3.5 billion at the end of Q1; and other current liabilities of $62.2 billion at the end of Q1, all with a slight increase over the same period last year. The company's dividend in '23 was 13.142 billion, with a cash dividend rate of 45.29%, corresponding to the current valuation dividend rate of over 6%. For air conditioning companies that are growing steadily, the margin of safety in dividend ratio construction is already fully attractive; however, Gree's current stock price is only slightly over 7 times the corresponding valuation, which is outstanding in terms of cost performance.
Management returns to its essence and maintains a “buy” rating
Since 2016, the company has experienced the impact of many events. There were successive Yinlong acquisitions, dividend fluctuations, price wars, mixed market reforms, and channel reforms. However, in 2023, the company's revenue/performance both reached record highs. The 24Q1 results still exceeded expectations, and the dividend rate reached 6%. The 7-fold valuation reflects excessive pessimistic pricing. The core business of air conditioning continues to recover. They are optimistic about the company's valuation repair space, and suggest an active layout.
The company is expected to have net profit of 320 billion and 35.5 billion dollars in 24 and 25, corresponding to current PE of 7.4 and 6.7 times, respectively. It will be given 8.5 times PE in 24 years, corresponding to a target price of 48.28 yuan, maintaining a “buy” rating.
Risk warning: Household air conditioners have accumulated drastically, raw material costs have risen sharply, and domestic and foreign demand falls short of expectations