1Q24 results were higher than our expectations

The company announced 1Q24 results: revenue of 68.978 billion yuan, +6.01% year over year; net profit to mother of 4.773 billion yuan, +20.16% year over year; net profit without return to mother of 4.640 billion yuan, +25.41% year over year. The company's performance was higher than our expectations, mainly due to improved product structure, continued progress in internal cost reduction and efficiency, simultaneous optimization of gross profit margin and expense ratio, and higher profit margin improvement than we expected.

Domestic profits continued to improve, and the high-end brand Casadi grew faster: 1) According to Aowei data, retail sales of domestic air conditioners, refrigerators, and washing machines were +4%/+9%/+10%, respectively. Major appliances showed strong demand resilience. 2) Haier's cold washing advantage continues to be maintained, and 1Q24's retail sales share ranked first; in 1Q24, Haier's air conditioning revenue increased by more than 10% year on year, and domestic sales volume market share was +0.6ppt to 13% year on year. 3) From 2022 to 2023, Casati is in an adjustment phase, and revenue growth slowed month-on-month due to various factors such as fluctuations in domestic consumption power and continuous inventory removal of washing machines. Thanks to the continuous deepening of channels and product packages in the early stages, 1Q24 revenue was +14% year over year, and has recovered to a good level. 4) Driven by measures such as increasing the share of the middle and high-end, promoting the integrated layout of the industrial chain, and digital transformation on the procurement and R&D side, the gross margin of the domestic market increased year-on-year in 1Q24, and operating profit increased by more than 30% compared to the same period last year.

The North American market is still under pressure. European relays are driving overseas improvements: 1) Whirlpool/Electrolux revenue in 1Q24 was -3%/-5%; among them, North American demand fell short of expectations. The revenue in North America was -8%/-14%, respectively. The price competition pressure on the industry was strong, and the average price/sales volume declined. 2) 1Q24 Haier's overseas revenue was +4% year-on-year, continuing to increase its share in the North American market. We expect to outperform comparable companies. 3) Haier leverages collaborative advantages in R&D, procurement, supply chain, logistics, etc. around the world, and the product structure continues to be optimized. Among them, European business improvements have accelerated, driving 1Q24 overseas gross margin to increase year-on-year, and operating profit of +10% over the same period last year.

Expense rate optimization, good operating quality: 1) The company strictly controlled the cost rate during the period, and 1Q24 optimized 0.8ppt to 20.6% year-on-year. Interest expenses increased by 207 million yuan year-on-year due to interest rate hikes in overseas markets.

Excluding this impact, the company's 1Q24 operating profit was +27% year-on-year. 2) Net operating cash flow of $1,725 billion in 1Q24, +27% year-on-year.

Development trends

Looking at the medium to long term: We believe that Haier is expected to continue to increase its share in overseas markets, and European performance is expected to improve significantly, contributing to profit flexibility; in the Chinese market, air conditioning and Casati are still the core growth highlights.

Profit forecasting and valuation

The company's profit continued to improve, and we slightly raised our 2024/2025 profit forecast by 2%/4% to 191.16/22.09 billion yuan. Currently A shares/H shares/D shares correspond to 14.2x/ 11.9x/5.4x 2024ep/E. A/H/D shares maintained an outperforming industry rating. Due to the recent rise in sector valuations, the target price for A/H/D was raised 25%/22% to 36.0 yuan/37.0 HKD/1.8 euros, corresponding to 17.8x/16.3x/6.7x 2024e P/E for A/H/D shares, with 25%/37%/25% upside.

risks

Global business risk; risk of demand fluctuation; risk of increased competition; risk of acquisition failure.