Description of the event

The company disclosed its quarterly report: In the first quarter of 2024, the company achieved operating income of 23.486 billion yuan, an increase of 20.87% year on year; realized net profit attributable to mother of 981 million yuan, an increase of 59.48% year on year; realized net profit without return to mother of 838 million yuan, an increase of 60.89% year on year.

Incident comments

High growth in export sales and an increase in domestic sales share helped the company to perform well in revenue. The company's revenue in the first quarter of 2024 increased 20.87% compared to the same period last year, up 13.46% from the fourth quarter of 2023. The overall revenue scale growth performance was excellent, or the main benefit was: 1) The company's cold business export sales are expected to achieve high growth. The company has actively strengthened overseas localization and continued to promote R&D, production and marketing collaboration in recent years. At the same time, the European and American markets are in the inventory replenishment stage. According to industry online data, total sales of Hisense home appliances and refrigerators increased 35.08% year on year from January to January 2024 Among them, export sales performance was clearly superior to domestic sales. Export sales increased 52.05% year on year, and domestic sales increased 16.23% year on year; 2) The company's household air conditioning sector revenue is expected to be higher than the industry's growth level. Industry online data shows that in the first quarter of 2024, the overall sales volume of the air conditioning industry and Hisense air conditioning sales increased 19.4%/32.2% year on year respectively. The company's share increased, compounded by rising prices. The company's home air conditioning sector is expected to achieve relatively rapid growth in the first quarter; 3) The company's central air conditioning sector is expected to achieve relatively resilient growth under external environmental pressure, and industry online data It shows that in January-January 2024, Hisense Hitachi central air conditioning sales increased 13.10% over the same period last year. In summary, all business segments of the company have achieved good performance. Export sales have achieved higher growth, and domestic sales have achieved higher growth than the industry, demonstrating the positive effects brought about by the company's reform drive.

The gross margin increased year-on-year, and the cost ratio was significantly optimized, which together led to a significant increase in the company's performance. The company's gross margin increased 0.51 percentage points year-on-year to 21.63% in the first quarter of 2024, which is expected to benefit mainly from the optimization of product and regional sales structures. In terms of cost ratios, the company continued to deepen internal reforms, continuously improve long-term mechanisms, and improve organizational effectiveness. In the first quarter of 2024, the sales expense ratio decreased 0.09 percentage points year on year, management expenses decreased 0.01 percentage points year on year, and R&D expenses increased 0.33 percentage points year on year. Combined, the company's operating profit (gross profit - taxes and additional - sales & management & R&D expenses plus asset and credit impairment losses) increased sharply by 36.02% year on year. On this basis, the company's financial expenses fell 0.22 percentage points year on year. This is mainly due to an increase in exchange earnings. At the same time, considering the year-on-year reduction in the comprehensive income tax rate in the first quarter of 2024, the company's net profit margin to mother increased 1.01 percentage points year-on-year, corresponding to a sharp increase of 59.48% year-on-year in net profit to mother. On this basis, the company's inventory turnover days improved 10.63% year over year. It is worth noting that in the first quarter of 2024, the net cash flow from the company's operating activities fell 82.4% year on year to 156 million yuan. Considering that current raw material prices are still on the expected upward channel, we think it may be due to the company reserving raw materials in advance in order to lock in lower costs.

Investment suggestions: The company covers many categories of appliances, has a perfect brand matrix system, and actively seeks inter-brand collaboration, supply chain optimization, etc. to improve efficiency, and achieve rapid scale growth by penetrating the market more efficiently. On this basis, it is expected that the company will maintain the trend of increasing scale and efficiency. We expect the company's net profit to be 34.25, 39.45, and 4.541 billion yuan respectively in 2024-2026, corresponding to PE of 17.09, 14.84, and 12.89 times, respectively, to maintain a “buy” rating.

Risk warning

1. Macroeconomic fluctuations bring about the risk of reduced revenue delivery; 2. Market risk brought about by trade protectionism.