Description of the event

The company released its 2024 mid-year report: 2024H1 achieved operating income of 135.623 billion yuan, a year-on-year increase of 3.03%, achieved net profit of 10.42 billion yuan, a year-on-year increase of 16.26%, and realized net profit after deduction of 10.161 billion yuan, an increase of 18.09% over the previous year. Of these, 2024Q2 achieved operating income of 66.645 billion yuan, an increase of 0.13% year-on-year, and achieved net profit of 5.647 billion yuan over the same period last year. The increase was 13.11%, achieving net profit not attributable to mother of 5.521 billion yuan, an increase of 12.57% over the previous year.

Incident comments

The scale of revenue grew steadily, and emerging markets performed well. The company's 2024H1 revenue increased 3.03% year on year, by category dimensions: air conditioning increased 3.64% year on year, refrigerator increased 1.38% year on year, washing machine increased 4.63% year on year, kitchen and bathroom appliances increased 2.14% year on year, water appliances increased 5.81% year on year; sub-regional level: domestic sales increased 2.33% year on year, export sales increased 3.69% year on year. Among them, demand for home appliances in America and Japan was affected by inflation and fell 0.14% and 6.17% year on year respectively. Europe increased 9.24% year on year, Australia increased 9.34% year on year, South Asia increased 9.86 year on year %. Southeast Asia grew by 12.37% year on year. The Middle East and Africa reached an inflection point this year after being pressured last year, with a sharp increase of 26.84% year over year.

The improvement in gross margin was compounded by a decrease in the expense ratio during the period, which combined to achieve a significant increase in the company's operating profit. The company's 2024H1 gross margin increased 0.17 pct year over year to 30.61%. By category, air conditioners increased 0.52 pct year over year, refrigerators increased 0.18 pct year over year, washing machines increased 0.28 pct year over year, kitchen and bathroom appliances increased 0.31 pct year over year, and water appliances increased 0.35 pct year over year. On this basis, the company's 2024H1 sales expense ratio decreased by 0.48 pct year on year. The main thing is that the company promoted digital reform and achieved efficiency improvements in marketing resource allocation, logistics distribution and warehousing operations. The management fee ratio decreased 0.33 pct year on year, and the R&D cost rate decreased by 0.07 pct year on year. Combined, the 2024H1 company's operating profit (revenue - cost - tax and additional - sales & management & R&D expenses + credit impairment & asset impairment loss) was 11.247 billion yuan, corresponding to a year-on-year increase of 20.46% Operating profit margin was 8.29%, up 1.2 pct year on year, of which 2024Q2 operating profit was 5.997 billion yuan, up 15.18% year on year, corresponding operating margin was 9%, up 1.18 pct year on year. In terms of segmented profit, the profit margin of refrigerators/freezers increased 1.28 pct to 8.61% year over year, the profit margin of kitchen appliances increased 0.68 pct to 8.88% year over year, the profit margin of air energy solutions increased 1.44 pct to 5.79% year over year, household laundry care solutions increased 1.36 pct to 10.39% year over year, and water solution for the whole house increased 1.53 pct to 14.75% year over year. Additionally, 2024H1's net cash flow from operating activities increased 15.13% year over year, of which Q2 increased 12.1% year over year.

It is planned to build air conditioning production capacity, and long-term competitiveness is expected to improve. On August 27, 2024, the company announced that it plans to invest in the construction of an air conditioning project with an annual output of 5 million units in Jiaozhou, Qingdao, with an estimated investment of 2.494 billion yuan, mainly to produce hangers, multi-connection products, etc., targeting domestic markets such as Shandong, Northeast China, and covering overseas markets such as Europe, North America, Australia, the Middle East, and Southeast Asia. It is expected to start production in September 2026 and the second phase in December 2027; the plan will help the company optimize the global production capacity layout and enrich the air conditioning product structure, thereby further improving the air conditioning business Global competitiveness.

Investment advice: As a global leader in major appliances, the company has operating advantages in all categories. Driven by smart home solutions, it can meet the multi-level needs of consumers, help the company achieve more sustainable scale growth, and strengthen its digital layout to improve operational efficiency. We expect the company's net profit to be 192.21, 215.12, and 25.653 billion yuan respectively in 2024-2026, corresponding to PE of 11.6, 10.4 and 8.7 times, maintaining a “buy” rating.

Risk warning

1. Risk of declining market demand due to a slowdown in macroeconomic growth; 2. Risk of overseas business operations.