Description of the event

The company disclosed its 2024 three-quarter report: In the first three quarters of 2024, the company achieved operating income of 70.579 billion yuan, a year-on-year increase of 8.75%, achieved net profit due to mother of 2.793 billion yuan, a year-on-year increase of 15.13%, and realized net profit after deducting 2.289 billion yuan, a year-on-year increase of 10.99%; among them, 2024Q3 achieved operating income of 21.937 billion yuan, a year-on-year decrease of 0.08%, and achieved net profit to mother of 0.777 billion yuan Yuan, a year-on-year decline of 16.29%, achieved net profit deducted from mother of 0.586 billion yuan, a year-on-year decline of 26.67%.

Incident comments

Weak domestic demand has led to a slowdown in scale growth, and falling gross margin has put pressure on the profitability stage. The company's revenue increased 8.75% year-on-year in the first three quarters of 2024. Among them, Q1/Q2/Q3 was +20.87%/+6.98%/-0.08%, respectively. The Q3 revenue scale declined or was mainly due to weak domestic demand for home appliances and other business revenue declines during the reporting period. It is expected that Q3 export revenue will continue to grow at a high rate. On this basis, in the first three quarters of 2024, the company's gross margin decreased by 0.98 percentage points year on year, the sales expense ratio decreased by 0.59 percentage points year on year, the management expense ratio increased by 0.09 percentage points year on year, and the R&D expense ratio increased by 0.54 percentage points year on year. Combined, the company's operating profit for the first three quarters of 2024 (revenue - costs - taxes and additional - sales & management & R&D expenses + asset & credit impairment losses) was 3.186 billion yuan, down 3.92% year on year. 0.6 percentage points; Among them, 2024Q3's gross margin decreased by 2.45 percentage points year on year, or was mainly affected by fluctuations in bulk raw material prices and domestic and foreign sales structure changes. The sales expenses ratio decreased by 1.25 percentage points year on year, management expenses increased 0.14 percentage points year on year, and R&D expenses increased 0.68 percentage points year on year. Combined, the operating profit margin of 2024Q3 was 0.841 billion yuan, down 32.32% year on year. In addition, net cash flow from the company's operating activities fell 40.15% year on year in the first three quarters of 2024, of which Q3 fell 36.43% year on year, mainly due to the impact of the pace of stocking, as well as increases in balanced production reserves and performance bonuses paid.

The company actively promotes reform and optimization of governance mechanisms and supply chains, and actively expands overseas markets and business extensions to seek new business growth. In response to pressure from the external environment, on the one hand, the company sought reforms to promote development, initiated various changes in corporate governance and top-level design, and continued to introduce core talents and optimize incentive mechanisms; at the same time, the company optimized supply chain management, improved product structure and channel structure, improved operational efficiency, and achieved business breakthroughs. On the other hand, the company has strengthened the refined management of overseas operations, strengthened overseas independent brand strategy, strengthened domestic and foreign sales resource collaboration, and continuously improved overseas market operations. As Hisense's internationalization strategy continues to advance, the brand's overseas popularity and influence continues to increase. At the same time, Hisense continues to increase sports marketing, continuously sponsor the world's top sporting events, and greatly enhance Hisense's brand influence in the international market through top international sporting events. At the same time, through Sanelectronics, the company continues to promote the transformation from a component supplier mainly for compressors to a supplier of integrated thermal management systems for new energy vehicles, which may open up new business growth for the company.

Investment suggestions: The company covers many categories of household appliances, has a perfect brand matrix system, and actively seeks inter-brand collaboration, supply chain optimization, etc. to improve efficiency, and penetrate the market in a more efficient manner to achieve rapid scale growth. On this basis, it is expected that the size and performance of the company will return to a higher growth trend in the future. We expect the company's net profit to be 33.35, 38.66, and 4.459 billion yuan respectively in 2024-2026, corresponding to PE of 12.3, 10.6, and 9.2 times, respectively, maintaining a “buy” rating.

Risk warning

1. Macroeconomic fluctuations bring about the risk of reduced revenue delivery; 2. Market risk brought about by trade protectionism.