Profit increased by double digits in the first half of the year. In the first half of 2024, Haier Smart Home's revenue/net profit increased 3.0%/16.2% year over year to 135.6 billion/10.4 billion yuan, and revenue/net profit increased 0.1%/13.1% year on year to 66.6 billion/5.6 billion yuan in the second quarter. Domestic and foreign gross margins maintained an upward trend in the first half of the quarter, rising 0.5/0.3 percentage points to 29.0%/32.3%, respectively. Thanks to the advancement of digital transformation, the cost ratio continued to be optimized, and the sales/management expenses ratio was optimized 0.5/0.3 percentage points year on year in the first half of the year.

The net profit margin for the first half of the year and the second quarter reached 7.8%/8.6%, an increase of 0.9/1.1 percentage points over the previous year.

Overseas business led revenue growth in the second quarter. Haier's overall revenue in the second quarter achieved a slight increase of 0.1%. Among them, overseas business continued to grow in the middle and low single digits in the first quarter, offsetting the decline in the Chinese business (China business grew 8% in the first quarter and fell 4% in the second quarter). Looking at overseas subregions, Europe/Southeast Asia/South Asia all accelerated. The year-on-year growth rate accelerated to > 10% -> 15% >10% in the second quarter (about a high single digit in the first quarter); business performance in North America remained the same as the previous year, and the decline in revenue in the Japanese market narrowed to 3% month-on-month (-9% in the first quarter). Overall, overseas business increased 3.7% year-on-year in the first half of the year. Revenue growth rates in the Europe/South Asia/Australia/Southeast Asia markets were 9.2%/9.9%/9.3%/12.4% respectively, while the emerging markets of the Middle East and Africa achieved a high increase of 26.8%, which was an important contributor to the company's revenue growth in the first half of the year.

China's business performance is under pressure, and short-term policy support should improve. By category, the washing machine business achieved low single-digit growth in the second quarter. The refrigerator and air conditioning business showed medium single-digit and double-digit declines respectively, and the fishery industry and kitchen appliance business continued to grow. The Casadi business achieved 5% growth in the first half of the year (14% growth rate in the first quarter), and the command brand targeting young people achieved a 31% increase. As the rules of trade-in subsidies continue to be implemented, the ice washing business, which has already entered the stock market, is in the centralized renewal stage. Haier is expected to benefit first with its market share of half of the ice washing market, and domestic sales are expected to improve quarterly.

Keep buying. The results of Haier's digital transformation continued to receive positive feedback, and the cost rate was reduced quarterly, which actively contributed to the increase in profit margins. Overseas markets are expected to accelerate sales spurred by interest rate cuts. Coupled with the continuous optimization of product structures and impressive growth rates in emerging markets, overseas business revenue and profit prospects are positive (operating profit in overseas markets increased 17% year-on-year in the first half of the year). Benefiting from the help of policies, domestic sales are expected to compare or improve month-on-month. Overall, the annual profit is still expected to achieve the 15% growth target. Maintain the target price of HK$35.79/ RMB 33.1 (600690 CH). Keep buying.