Core views

Changhong Meiling released its 2024 semi-annual report. Benefiting from export dividends combined with business growth driven by endogenous changes, the company's operating performance grew steadily in the second quarter, and the overall performance was superior to the industry. In the early stages of the market, more attention was paid to the company's performance recovery flexibility in the context of a low profit base. We believe that in recent years, the company has focused on “one goal” and closely adhered to the “three main lines”. Governance efficiency has improved markedly, and management capacity and product competitiveness are accompanied by it, which is expected to drive the company to achieve long-term performance growth.

occurrences

Changhong Meiling released its 2024 interim results report.

24H1 achieved total revenue of 14.948 billion yuan, up 16.52% year on year; net profit to mother 0.415 billion yuan, up 15.91% year on year; after deducting non-net profit of 0.433 billion yuan, up 13.22% year on year.

Looking at a single quarter, 24Q2 achieved operating income of 9.008 billion yuan, an increase of 15.43% year on year; net profit to mother of 0.259 billion yuan, up 10.18% year on year; after deducting non-net profit of 0.247 billion yuan, an increase of 11.46% year on year.

Brief review

1. Revenue side: leading the industry in growth rate, driven by export sales

At the industry level, the overall effective domestic sales demand for 24H1 home appliances is insufficient. According to summary data from Aowei Cloud Network, retail sales in the white electronics market in the first half of the year were 231.9 billion yuan, down 7.0% from the previous year. Facing intense stock competition in the traditional home appliance market, the company focused on “one goal”, closely clung to the “three main lines”, actively adjusted categories and channel strategies, and made efforts to create differentiated explosives and diversified channels. Domestic sales revenue increased 13% in the first half of the year, and operating performance was superior to the industry.

In terms of export sales, benefiting from the recovery in overseas demand and stocking demand caused by the shipping crisis, the home appliance export market is better than domestic sales, and continues to maintain a steady growth trend. The company's refrigerators and washing machines are actively seizing orders, promoting product expansion, and orders and deliveries have increased dramatically; at the same time, under the impetus of cold washing collaboration, the washing machine industry has simultaneously achieved rapid expansion. In the overseas air conditioning industry, promote product structure upgrades and enhance market development capabilities. Export sales revenue increased by 24% in the first half of the year, achieving good double-digit growth.

In terms of categories, 24H1's refrigerator and freezer business also increased by 12%, air conditioners increased by 21%, washing machines increased by 41%, and small household appliances declined by 13%.

2. Overall cost optimization and control, and overall stability of profitability

24H1 gross margin declined and net profit margin stabilized. 24Q2's gross margin was 9.89%, down 1.82 pct year on year, mainly due to factors such as rising raw material prices and fierce market competition; net interest rate was 2.96%, down 0.14 pct year on year, and remained stable overall.

There has been some compression on the cost side. The 24Q2 sales expense ratio was 4.63%, down 0.37 pct year on year, management expense ratio was 0.96%, down 0.39 pct year on year, R&D cost rate was 1.72%, down 0.04 pct year on year, financial expense ratio -0.66%, up 0.31 ct year on year.

Cash flow increased significantly, and 24Q2 achieved operating cash flow of 2.842 billion yuan, a year-on-year increase of +59.45%.

3. Deeply cultivate operations on three main lines to help the company grow in the long term

In recent years, the company has been intensively operating around the three main lines of “efficiency is king”, “product leadership”, and “benchmarking”. In terms of channel strategy, strengthen e-commerce channels, expand incremental channels, consolidate basic channels, improve chain channels, and continuously improve the quality of operations. The product side carries out classification management. By creating explosive products and promoting quality products, optimizing the value chain of inefficient and diverted products, the product structure is continuously improved, and the gross profit margin is increased. The manufacturing side improves production efficiency through benchmarking to increase Nissan, reduce employment, and eliminate process barriers; focus on heavy customs expenses, reduce costs and improve efficiency, promote cost pressure control, increase gross profit, and achieve outstanding results under comprehensive efforts. It is recommended to focus on share increase and profit repair opportunities brought about by corporate transformation, and it is expected that it will continue to rely on endogenous growth to achieve superior growth than the industry.

Investment advice: Changhong Meiling's product matrix covers a comprehensive range, and various industries have shown impressive increases during the implementation of reforms. We expect the company to achieve operating income of 27.8 billion yuan and 31.2 billion yuan respectively, up 14.6% and 12.3% year on year; net profit to mother of 0.85 and 0.98 billion yuan, up 14.34% and 15.34% year on year. Corresponding PE is 9.19X and 7.97X 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, it may have a big impact on the company's product sales; 2. Raw material prices fluctuate greatly: the company's raw material costs account for a large share of operating costs. If bulk prices rise again, the company's profitability will weaken;

3. 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 will increase or decline; 4. Market competition intensifies: In a weak market environment, industry competition is more intense, and there is a risk that the company will lose share and low price competition will drag down profits.