2024Q3 continued to improve efficiency and reduce fees, and net profit to mother grew rapidly. Maintaining a “buy” rating of 2024Q1-3, the company achieved operating income of 202.97 billion yuan (+2.2% year over year, same below), net profit to mother 15.15 billion yuan (+15.3%), after deducting non-attributable net profit of 14.69 billion yuan (+15.4%). Looking at 2024Q3 alone, the company achieved operating income of 67.35 billion yuan (+0.5%), net profit due to mother 4.73 billion yuan (+13.2%), and net profit of 4.52 billion yuan (+9.9%) after deducting non-return to mother net profit. The company has achieved remarkable results in improving efficiency and fees, and profits continue to rise. We have raised our profit forecast. We expect net profit of 19.3/21.62/24.19 billion yuan (original value was 19.06/21.5/24.12 billion yuan) for 2024-2026, corresponding EPS was 2.04/2.29/2.56 yuan, respectively. The current stock price corresponding PE is 11.7/10.4/9.3 times. The company's digital transformation is smooth. It is expected that progress will help achieve it Retailing transformation and global supply chain collaboration maintain a “buy” rating.

Export sales are expected to grow steadily, and emerging markets are growing faster. Looking at trade-in to drive improvements in domestic sales by region: (1) Domestic: We expect domestic sales to be under pressure in 2024Q3 due to poor consumption, but the company actively seizes trade-in opportunities. The retail sales of 2024Q3 terminals are improving month by month, with Haier refrigerators/washing machines/air conditioners offline/share of 44.2%/47.2%/over 20%/respectively. By brand, Casadi's retail sales growth rate was higher than the overall level. The share in the 10k+ refrigerator price segment, washing machine 10k+ price segment, and air conditioner 16k+ price segment reached 33.7%/40.2%/22.4%, respectively, and retail sales in September were +19% year-on-year; the Leader brand focused on younger demand, and retail sales in September/Q3 were +31%/+22% year-on-year respectively. (2) Overseas: 2024Q3 export sales are expected to achieve steady growth. Among them, emerging market countries are faster than developed countries. For example, the South Asian market is growing by more than 30%. We believe that the company's global production and sales layout is perfect, and we are optimistic that as the world enters a cycle of interest rate cuts, the increase in external demand will drive a steady increase in overseas revenue.

Digital transformation and supply chain collaboration continued to help improve efficiency and reduce costs. Q3 profitability continued to increase 2024Q3 gross profit margin by 31.3% (+0.1pct), mainly due to domestic digital transformation and digital production and marketing collaboration, and overseas construction of global supply chains to improve capacity utilization. The cost rate for the 2024Q3 period was 23.5% (-0.4 pct), with sales/management/R&D/finance cost ratios being -0.5/-0.2/flat/+0.2pct, respectively. Sales rate optimization benefited from improvements in efficiency in marketing resource allocation, logistics distribution, and warehousing operations under digital transformation; management rate optimization was mainly due to business process optimization and organizational efficiency improvements after the application of digital tools. Combined with a positive year-on-year impact of 0.2 pct of net investment income, 0.1 pct of the year-on-year positive impact of the reduction in asset impairment losses, and income tax factors, the 2024Q3 net interest rate was 7.2% (+0.9pct), the net interest rate to mother was 7.0% (+0.8pct), after deducting a non-net interest rate of 6.7% (+0.6pct). The impact of non-recurring profit and loss was mainly due to an increase in government subsidies.

Risk warning: Fee cuts fall short of expectations; high-end market demand falls short of expectations; competition in overseas industries intensifies.