Incident: Haier Smart Home released its 2024 three-quarter report. From January to September 2024, the company achieved revenue of 202.97 billion yuan, YoY +2.2%, achieving net profit of 15.15 billion yuan, YoY +15.3%; after conversion, the company achieved revenue of 67.35 billion yuan, YoY +0.5%, and achieved net profit of 4.73 billion yuan and YoY +13.2% in 2024. Although the company's Q3 revenue was slightly pressured by the domestic consumer boom, the effects of digital transformation continued to be reflected, and the company's profitability maintained an upward trend. Looking ahead, we believe Haier's domestic business is expected to benefit from trade-in subsidies, and overseas business is expected to benefit from US interest rate cuts.

2024Q3 revenue remained stable: Haier's 2024Q3 revenue YoY +0.5%, a growth rate similar to Q2. Looking at home and abroad, we judge that the company's Q3 domestic business was still under pressure due to the impact of the consumer boom. Domestic home appliance trade-in policies have been implemented one after another, and we expect the company's domestic business to improve marginally in Q4. Compared with Q2, the company's overseas business maintained steady growth. Since the company's revenue in the US is relatively high (2024H1 American revenue accounts for 55% of overseas revenue), we judge that the company's overseas business is expected to gradually benefit from increased demand brought about by US interest rate cuts.

2024Q3 Haier's gross margin increased year on year: 2024Q3 company's gross margin was 31.3%, +0.1 pct year on year. The main reasons for the increase in the company's gross margin are: 1) the company continues to promote digital transformation on the procurement, R&D and manufacturing side in the domestic market, and establish a digital production and marketing collaboration system; 2) the company enhances cost competitiveness by building a digital procurement platform in overseas markets and enhances capacity utilization through global supply chain collaboration.

Expense ratio optimization is obvious, and 2024Q3 profitability continues to increase: 2024Q3 Haier's net profit margin was 7.0%, +0.8pct year-on-year. Q3 The company's sales/management/R&D expense ratio was -0.5pct/-0.2pct/+0.0pct year-on-year, mainly because Haier continues to promote digital transformation and has achieved efficiency improvements in marketing resource allocation, logistics and distribution, warehousing operations, and organizational management. The company's Q3 financial expense ratio was +0.2pct. We think the main reasons are: 1) the company's interest expenses increased due to the high overseas interest rate environment; 2) the RMB appreciated significantly against the US dollar in Q3, and the company's exchange losses are expected to increase.

The company plans to control Japan's daily order by entrusting voting rights: On October 29, 2024, Bingji Company signed a “Voting Rights Entrustment Agreement” with Guanmei Company, a wholly-owned subsidiary of the company, and Bingji will entrust Guanmei to exercise voting rights corresponding to 55% of the shares held by Youjin Company. Guanmei Company will actually control 100% of Youjin's voting rights. Rishun Shanghai, Rishun and their holding subsidiaries controlled by Youjin Company will all be subject to the company's actual control. Youjin Company, Rishun Shanghai, Rishun and their holding subsidiaries will be included in the scope of the company's consolidated statements. From a business perspective, Rishun is mainly a logistics company. The company fully opens up its business system and logistics system, which helps improve overall operational efficiency and promote retail transformation in the Chinese market and the upgrading of overseas brand localization capabilities. From a financial perspective, 2024H1 Youjin's revenue was 9.33 billion yuan, accounting for 6.9% of Haier Smart Home's 2024H1 revenue. It is expected that the company's revenue will increase after merging.

Investment advice: Haier's incentive system is improving, the motivation of the company's management and employees is increasing, and there is a strong incentive to explore the company's performance growth points and put them into practice. The company still has room to increase its share in overseas markets, and breakthroughs in clothes dryers, air conditioners, and small household appliances are expected to open up a growth ceiling for the domestic business. We expect the company's EPS from 2024 to 2026 to be 2.06/2.31/2.51 yuan, with a target price of 36.96 yuan for 12 months, corresponding to the 2025 PE valuation of 16x, maintaining a buy-A investment rating.

Risk warning: RMB appreciates sharply, competition in overseas markets intensifies, and raw material prices have risen sharply.