Event: The company released its 2024 quarterly report. 24Q1 achieved operating income of 106.5 billion yuan, +10% year-on-year, realized net profit of 9 billion yuan, +12% year-on-year, and realized net profit of 9.2 billion yuan without return to mother, +20% year-on-year.
The smart home business broke through overseas, and the ToB business grew steadily. 1) Smart home: 24Q1 revenue +11%, overseas e-commerce retail sales +60% year over year, private brands in Brazil, Egypt, Malaysia and Middle East markets were more than 50% year over year, increasing investment of 3 billion dollars to accelerate the development of overseas private brands. 2) ToB: 24Q1 revenue +9%, of which, Building Technology grew by 8.2 billion yuan, +6%, due to heat pump subsidy policies in some countries and falling European gas prices. Other categories other than heat pumps were +28%; industrial technology was 7.7 billion yuan +23%, maintaining high growth; robots, 6.7 billion yuan, -12% YoY, were mainly affected by the suspension of new production capacity expansion plans by domestic automobile manufacturers and product strategy adjustments by overseas automobile manufacturers. At the same time, the logistics automation business grew by more than 9%.
Overseas strategic OBM is a priority, and the European layout is next. In April of this year, Midea's Building Technology Department announced the acquisition of Switzerland's Arbonia climate business division (including products and systems for sustainable heating and cooling, heat storage, cold distribution, ventilation, and air filtration) for 760 million euros (equivalent to RMB 5.86 billion). This is another acceleration in European layout since the acquisition of Italian Central Air Conditioning CLIVET in 2016.
In addition, the company's heat pump production site with an investment of 60 million euros and an annual output of 300,000 units is expected to be put into operation in Feltre, Italy, in 24Q2, shortening the product delivery cycle from 5 months to 1 month.
The acquisition of Arbonia's climate business in Switzerland will further supplement the coverage of the northwest and northern Europe region while strengthening the manufacturing, channel and delivery capabilities of the HVAC building business.
Domestic sales are being traded in to revitalize consumption, and high-profile entrants seize market share. At the beginning of May, Midea announced an investment of 8 billion yuan to promote the trade-in of all brands and categories of products. Consumers of any brand of used household appliances and engineering equipment can participate in the subsidy promotion campaign. In the past three years, Midea has opened up “home” recycling functions with Meiyun Sales through green subsidies and home appliance recycling systems, integrating 100,000 + offline stores and 200,000 service engineers to form a mixed recycling system with various modes such as Internet+ recycling, community recycling, trade-in activity recycling, “delivery, demolition, refurbishment, and collection”, after-sales service network recycling, and distribution center recycling. We believe that this round of consumer stimulus activities, which mainly focus on local government+enterprise subsidies, will help the industry pattern to focus further. Furthermore, recycling and dismantling of used machines itself has economic value. The company participated in helping consumers dismantle and hand over the recycling value to consumers. At the same time, it cooperated with third party dismantling companies to quickly seize market share and give full play to its scale advantage.
Profitability has increased steadily, and cash flow from operating activities has increased dramatically. The 24Q1 company's gross profit margin was 27.58%, +3.25pct year on year. The forecast is mainly related to the optimization of product structure and regional structure and the decline in raw materials. In terms of expense ratio, the company's sales expense ratio was +1.24pct year over year, mainly related to increased brand investment expenses; financial expense ratio was +1.26pct year over year, mainly related to fluctuations in foreign exchange balance and liability valuation. In 24Q1, the company's net profit margin increased slightly to +0.13pct year-on-year to 8.45%. Furthermore, the 24Q1 company's net cash flow from operating activities was 13.9 billion yuan, a significant improvement of +50% over the same period last year. Other current liabilities increased by 7.1 billion yuan to 78.4 billion yuan, another record high. Contract debt increased 32% year over year, confirming that dealers are highly motivated to make payments.
Profit forecasting and investment ratings. We expect Midea Group's revenue to increase 8%, 7%, and 7% year-on-year in 2024-2026, and net profit to mother of 10%, 9%, and 8%, respectively. Corresponding PE is 13 times, 12 times, and 11 times, respectively, maintaining a “highly recommended” investment rating.
Risk warning: Overseas demand falls short of expectations, domestic real estate completion falls sharply, raw material prices have risen sharply, and B-side business growth falls short of expectations.