The slowdown in sales growth in 2Q24 was a small surprise, but the margin improvement was impressive, in our view. We are confident about the Company as the outlook in 2H24E is decent in both China and overseas, supported by factors like government subsides, potential interest rate cut, new product launches and turnaround in margins in the EU, etc.. Maintain BUY and fine tune TP to HK$ 31.58, based on 14x FY24E P/E. Current valuation of 11x FY24E P/E and 4% yield is not demanding vs 5-year average of 15x.
The boost of the "old for new" trade in subsidies has already kicked
in since Aug 2024. In our view, the subsidies for home appliance imposed lately should be more favorable for high-end products and industry-leading brands (e.g. Haier and others). For example, in Hubei province during 10- 27 Aug 2024, the YoY sales growth of home appliances was as high as 30%. And more high-end products, such as fridge/ washing machine priced at RMB 8,000+ and air-conditioner priced at RMB 4,000+ were rather hot selling, some Casarte has recorded 100%+ YoY growth. Noted that Haier has also provided extra subsidies (financed by the brand) for a number of key SKUs of Casarte brand, in order to stimulate more high-end demand from customers. We also believe market leaders like Haier can be more benefited (vs smaller brands), as 31 (out of all 33) local sales companies are already in talk with the local government about these potential subsidies programs, and 2,100 (out of 2,300) distributors across China will be entitled as well (about 91% of total, and this could be one of the highest among its peers). Based on the Company's estimates, around RMB 30bn of subsidies will be distributed in 2H24E (will roll out in a few more provinces in Sep 2024) and the multiplier effect was estimated to be at around 5x.
No change in FY24E guidance. For FY24E, Haier is still targeting MSD sales growth in China (Casarte brands could still deliver a 10%+ growth) and in overseas (US to have positive growth and ex-US overseas can have 10%+ growth). And in terms of categories, the Company is aiming for positive growth for fridge/ washing machines/ water heater and 10%+ growth for air-conditioner/ kitchen appliance.
Maintain BUY and fine tune TP to HK$ 31.58. We fine-tuned FY24E/ 25E/
26E net profit forecasts by +1%/ -1%/ -1%, in order to factor in slower-than- expected sales growth but better-than-expected operating leverage and efficiency gains in both China and the EU. Our new TP is still based on 14x FY24E P/E (unchanged). It is trading at 11x FY24E P/E, still far below its 5- year average of 15x.
