Improved operating efficiency; dividend payout ratio 45.0%
Haier Smart Home achieved revenue of 261.43 billion yuan (RMB, same below) in 2023, an increase of 7.4% over the previous year, in line with expectations.
By category, the revenue of air conditioners/refrigerators/kitchen appliances/water appliances/washing machines during the period was 45.67 billion/ 81.64 billion/ 41.59 billion/ 15.01 billion/ 61.27 billion yuan, up 14.0%/5.2%/7.4%/8.9%/6.2% year-on-year, and all categories maintained the revenue growth trend. China's regional revenue and overseas revenue increased by 7.1% and 7.6%, respectively, accounting for 47.8% and 52.2%, respectively. Thanks to continuous improvement in production efficiency, the company's gross margin increased 0.2 percentage points to 31.5%, slightly higher than expected. Under the digital transformation and cost reduction and efficiency strategy, the company's operating leverage continued to increase, and the sales administration expense ratio decreased from 20.3% to 20.1%.
FY23's net profit was 16.60 billion yuan, up 12.8% year on year, in line with expectations. The net profit margin was 6.3%, up 0.3 percentage points. FY23's operating cash flow was 25.26 billion yuan, an increase of 5.11 billion over FY22. The company announced a year-end dividend of $0.804, and the dividend ratio increased to 45.0%, higher than expected.
Domestic market promotes brand upgrading
The company deepens multi-brand strategic transformation in China to meet the needs of different user segments. The high-end brand Casadi's business remained steady, and Casadi's retail sales increased by 14.0% year-on-year during the year. The brand ranks first in the attention of high-end home appliance users in Xiaohongshu; offline experience centers have been set up in 240 shopping malls to continuously enhance brand benefits. The company takes advantage of the local market to develop the world's top luxury home appliance brand “Fisher & Parker” to seize the opportunities in the ultra-high-end home appliance market. It has opened 5 experience stores in high-end shopping malls in 2023. For Tri-Wingbird, a complete home appliance design brand, retail sales increased by 8.4% year-on-year during the year, accounting for more than 60% of complete sets.
High-end brand creation boosts overseas business growth
Revenue from major overseas markets in America and Europe increased by 4.1% and 23.9%, respectively, during the period, mainly due to the company adhering to the high-end brand creation strategy, integrating global R&D resources, upgrading the product portfolio structure, and improving the user experience. The European business is still slightly below break-even. Under product portfolio optimization and business restructuring, management expects the European market profit margin to reach 0.5%-1.0% in 2024. The medium- to long-term goal is to increase the operating profit margin of overseas business to around 7%, which is similar to the operating profit margin of local European brands.
Maintain ratings and increase target prices
We slightly raised FY24E gross margin by 0.3 percentage points; maintained FY24E's net profit forecast of 18.97 billion yuan, up 14.3% year on year, and introduced FY26E net profit forecast of 23.54 billion yuan, up 9.5% year on year. The company will continue to improve shareholder returns, and the FY24E-25E dividend rate is expected to further increase to 50% or more, corresponding to a dividend rate of about 6%-7%. Raise the target price to HK$33.50, corresponding to 15 times (maintenance) of the FY24E price-earnings ratio, and a “buy” rating.