Key points of investment:

Q3 performance was in line with expectations. The company released its three-quarter report for 2024. In the first three quarters, it achieved a total operating income of 7.396 billion yuan, -6.78% year-on-year, and realized net profit of 1.202 billion yuan, or -12.44% year-on-year, and realized net profit after deduction of 1.075 billion yuan, or -16.27% year-on-year; of these, Q3 achieved operating income of 2.666 billion yuan, -11.07% year on year, realized net profit to mother 0.443 billion yuan, or -18.49% year on year. Achieving net profit of 0.417 billion yuan after deduction, -22.34% year-on-year, the overall performance in Q3 was in line with our previous expectations in the performance outlook.

The trade-in policy has been implemented, and the kitchen appliance category continues to benefit. At the end of July '24, the National Development and Reform Commission and the Ministry of Finance issued large-scale equipment updates and consumer goods trade-in documents. The subsidy categories of this policy added three large kitchen appliances, water heaters, household stoves, and range hoods, on top of 2009. At the same time, the subsidy ratio also increased significantly. According to Aowei Cloud Network (AVC) omni-channel summary data, in terms of traditional kitchen appliances, the cumulative retail sales of China's range hood market from January to September 2024 was 23.1 billion yuan, up 4.5% year on year; the cumulative retail sales volume of the stove market was 13.1 billion yuan, up 6.3% year on year. Among them, the retail sales volume of range hoods in September increased 43% year on year, and the monthly retail sales of gas stoves increased 37% year on year; in terms of demand for kitchen appliances, the dishwasher market achieved retail sales of 8 billion yuan from January to September 2024, compared with the same period. 6.5% increase; retail sales volume reached 1.39 million units, up 6.2% year on year. Among them, the single-month dishwasher market achieved retail sales of 1.1 billion yuan in September, up 26.9% year on year, and achieved retail sales volume of 0.17 million units, up 29.1% year on year. The trade-in policy had a remarkable effect on driving terminal retail sales. Looking ahead to Q4, this round of trade-in subsidies will continue until the end of this year. Combined with the traditional Double 11 e-commerce promotion, we expect the kitchen appliances category to continue to benefit.

Profitability declined slightly year over year. In the first three quarters of 2024, the company achieved a gross sales margin of 50.43%, -1.60pcts year-on-year.

In terms of period expenses, the company's sales expense ratio for the first three quarters was -0.70 pct to 26.27% year on year, the management expense ratio was +0.50 pct to 4.62% year on year, and the financial expenses ratio was -0.51 pct to -1.84% year on year. In the end, the company recorded a net interest rate of 16.03% for the first three quarters, -1.14 pcts year on year.

Maintain a “buy” investment rating. We maintain our previous profit forecast for the company. We expect to achieve net profit of 1.621/1.706/1.802 billion yuan in 24-26, respectively, -6.5%/+5.2%/+5.6% year over year, corresponding to the current price-earnings ratio of 14/13/13 times, respectively. The kitchen appliance industry where the company is located is a more mature segment of home appliances. The overall market scale performance is steady, while the company has a stable share advantage in traditional categories and is actively expanding emerging categories. The support of the trade-in policy this year is expected to increase the company's revenue. At the same time, considering the company's high dividend attributes, it has long-term allocation value and maintains a “buy” investment rating.

Risk warning: the risk that real estate data is sluggish and demand falls short of expectations; industry competition increases risk; risk of fluctuating raw material prices.