Core views:

The company's revenue grew steadily, profits continued to recover, and cash flow was converted into high-quality profits. In 2023 and 2024, H1 achieved net profit of 0.74 billion yuan and 0.415 billion yuan respectively, +203% and +15.91% year-on-year, respectively. Looking at gross margin by category, the company's refrigerator gross margin level is relatively high. In 2023 and 2024, H1 achieved overall gross margins of 13.94% and 11.28% respectively.

Domestic sales: The company's refrigerator business is stable and the air conditioner product line is rich. In terms of refrigerators, the company adheres to the “fresh, thin, large, embedded” product layout strategy. Domestic sales revenue of H1 refrigerators in 2023 and 2024 was 5.3 billion yuan and 2.5 billion yuan respectively. Domestic revenue of refrigerators has been stable in recent years. In terms of air conditioning, the company maintained a steady increase in revenue through refined products and channel expansion. In 2023 and 2024, H1's air conditioning domestic sales revenue was 7.8 billion yuan and 5.9 billion yuan respectively, +16.7% and +23%, respectively.

Export sales: The company focuses on emerging markets, and the export business is expected to continue to grow. In 2023 and 2024, H1's air conditioning export net profit was 0.16 billion yuan and 0.05 billion yuan, respectively, with net interest rates of 4.29% and 1.81% respectively. In 2023 and 2024, H1 achieved export revenue of refrigerators of 3.8 billion yuan and 2.2 billion yuan respectively, +84% and 29.4%, respectively. We are optimistic about the long-term development of the company's overseas refrigerator business.

The company has introduced a performance incentive plan that lasts for five years, and the incentive results have been remarkable. The 2012-2016 incentive plan was successfully implemented, and the performance incentive plan for all years other than 2015 met the standards. The incentive plan has achieved remarkable results. It has an important driving effect on increasing the motivation of the company's key talents to work, and at the same time has a significant positive effect on the company's net profit.

Profit forecast and investment advice: Net profit to mother is expected to increase by 10%, 13.7%, and 12.2% year-on-year in 2024-26, corresponding to PE 12 times, 10.56 times, and 9.41 times in 2024-26. The company continues to recover profits through continuous cost reduction and efficiency. The company was given a 24-year PE of 13 times, corresponding to a reasonable value of 10.29 yuan/share, covered for the first time, and gave it an “increase in wealth” rating.

Risk warning: Prices of raw materials in the home appliance industry have risen sharply, market competition has intensified, and exchange rates have fluctuated greatly.