The company's recent situation
On the evening of August 2, the company announced: 1) It plans to cancel the 30 million shares already repurchased, accounting for 0.5% of the total share capital before cancellation; 2) launch the third phase of the employee stock ownership plan (draft).
reviews
The yield from cash dividends and share cancellation: 1) The company's annual cash dividend rate for the past three years (2021/2022/2023) was 72%/46%/45%. 2) Since 2020, the company has repurchased 0.617 billion shares, totaling 30 billion yuan, of which 0.384 billion shares have been cancelled, which is equivalent to 6.4% of the total share capital before two cancellations. The company cancelled 0.101 billion shares in 2021 and 0.283 billion shares in 2022, respectively. 3) We consider that the income from stock cancellation is equivalent to an increase in the dividend rate. The average annual dividend yield achieved by the company's shareholders in the past three years and stock cancellation is equivalent to 8.9% 1. 4) The shares cancelled this time account for 0.5% of the total share capital before cancellation. Considering that the company's dividend promise is at least 2 yuan/share, we estimate that the actual dividend yield for shareholders will reach a minimum of 5.5% in 2024.
Employee stock ownership plan: 1) The first two employee stock ownership plans of the company failed to achieve broad incentives for employees. The restrictions on the third phase of the plan were relatively relaxed, and it is expected that employees will be widely motivated. 2) In June 2021, the company disclosed the first employee stock ownership plan. The first phase completed the non-transactional transfer in December 2021. The actual purchase amount was 1.144 billion yuan, which actually covered more than 4,000 people, mainly executives. 2) In May 2022, the company disclosed the second employee stock ownership plan. The second phase completed the non-transactional transfer in February 2023, with an actual purchase amount of 1.108 billion yuan. 3) The grant price for the third phase of the plan is 20.31 yuan/share, the capital size is no more than 1.614 billion yuan, and the share size is no more than 79.46 million shares, accounting for about 1.41% of the company's current total share capital. The plan is to cover no more than 12,000 employees, including 7 directors and supervisors, with a maximum subscription ratio of 30%. The remaining shares cover management cadres/technical experts/business backbone. The remaining shares will last for 3 years and be locked in for 12 months. The shareholding plan is 50% divided into two 2024/2025 installments, and the company's performance assessment target is no less than 20% ROE for 2024/2025.
The company is expected to benefit from the trade-in policy. On July 25, the National Development and Reform Commission and the Ministry of Finance issued a relevant notice on trade-in. Air conditioning is included in the household appliance category subsidy, and products with energy efficiency level 1 or 2 or above enjoy a 15% subsidy of the product's sales price2. We believe that the trade-in policy is expected to drive up demand for air conditioning upgrades. In 2023, the company's overseas business revenue accounted for only 12%, mainly domestic sales revenue; the air conditioning business accounted for 74% of revenue. We believe that the company is expected to benefit from the trade-in policy as a matter of priority.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to 2024/2025 7.3/6.9 times the price-earnings ratio. Maintaining the outperforming industry rating and target price of 50.64 yuan unchanged, corresponding to the price-earnings ratio of 9.1/8.5 times in 2024/2025, there is 25% room for upward movement compared to the current stock price.
risks
Market competition risk; market demand fluctuation risk; raw material price fluctuation risk.