Core views

Midea Group released its report for the third quarter of 2024. Against the backdrop of weak domestic effective demand, the company bucked the trend and achieved steady growth in domestic sales performance, demonstrating its deep heritage as a leader.

At the same time, relying on strong manufacturing capacity and a heritage of multinational cooperation, the company has accumulated a large number of export orders, and the export growth rate continues to be maintained. Looking forward to the future, the global home appliance market is vast. As the leading white electric appliance market in terms of overall competitiveness, Midea's share is expected to continue to break through upward, driving further growth in business performance.

occurrences

On October 30, 2024, Midea Group released its report for the third quarter of 2024.

In the first three quarters of 2024, the company achieved total operating income of 318.975 billion yuan, +9.57% year-on-year, net profit to mother of 31.699 billion yuan, +14.37% year-on-year, after deducting non-net profit of 30.377 billion yuan, or +13.17% year-on-year.

Looking at a single quarter, 24Q3 achieved total operating income of 101.701 billion yuan, +8.05% YoY, net profit to mother of 10.895 billion yuan, +14.86% YoY, after deducting non-net profit of 10.196 billion yuan, or +10.96% YoY.

Brief review

1. Revenue bucked the trend and increased steadily, and the export sales side continued to be strong

Domestic demand led the industry with lackluster results, and export sales growth remained steady. Looking at the domestic market, the domestic demand market experienced coolness and weakness in the third quarter. The growth rate of domestic sales of white electricity slowed significantly, while price competition increased. Relying on strong comprehensive operating capabilities, Midea bucked the domestic Q3 trend and achieved mid-single digit growth in a single quarter.

Among them, washing machines are expected to grow by more than double digits, while air conditioners and refrigerators are expected to grow by about one digit. Overseas markets continued to perform strongly. Relying on early overseas orders, the company achieved double-digit growth in all Q3 categories on the export side. At the same time, the company implemented the OBM priority strategy. Overseas e-commerce sales increased by 50% year-on-year in the third quarter, and Amazon will increase by more than 35% each day.

By business group, revenue for the 24Q3 reporting period for smart homes, new energy and industrial technology, intelligent building technology, robotics and automation was 67.8 billion yuan (+9%), 8.3 billion yuan (+8%), 6.7 billion yuan (+5%), and 6.9 billion yuan (-9%), respectively.

2. The gross margin has declined somewhat, and the overall net profit margin is stable

The company's gross margin declined somewhat in the third quarter. 2024Q3 achieved a gross profit margin of 26.04%, a year-on-year decrease of 1.08pct. The price side loosened mainly due to rising prices of bulk raw materials compounded by weak domestic demand.

Financial expenses fell sharply, and net interest rates increased year-on-year. 24Q2 achieved a sales expense ratio of 9.54% (+0.82pct); a management expense ratio of 3.61% (-0.29pct); R&D expense ratio of 3.68% (+0.06pct); and a financial expense ratio of -2.34% (-2.02pct). Relying on the decline in financial expenses, the company achieved a net interest rate of 10.83% in a single quarter in Q3, an increase of 0.46pct over the previous year.

3. In the context of a weak market, the value of Midea's allocation is highlighted

In recent years, along with increasing pressure on global macroeconomic growth and increasing uncertainty in the trade environment, the allocation value of the home appliance sector has gradually been recognized by the market. From a growth perspective, the logic for home appliances to go overseas is smooth, the large overseas market+weak competitive environment has built a long-term growth track, and the continuous increase in the share of the domestic high-end market has also broadened the room for domestic sales growth. Looking at the valuation dimension, under the PEG investment paradigm in the past, the value of the home appliance sector was still underestimated. Compared with historical and similar assets, the valuation of the home appliance sector, especially white electricity, is still at a low level and has a strong cost performance ratio. In terms of dividends, Baidian's dividend ratio is generally high. With high-quality cash flow and abundant cash on the books, there is plenty of potential to increase dividends in the future, providing the possibility to reduce net assets and increase ROE. Combined with the trade-in policy catalyst, we believe that Midea's investment has a significant cost performance advantage at this point, and it is recommended to focus on the company's investment value.

Investment advice: Relying on long-term hard work, Midea leads the domestic market share in various categories of household appliances. With continuous global resource allocation and industrial investment, combined with the support of leading manufacturing levels, Midea continues to break through in global share. Consumption has recovered steadily in the post-pandemic era, and the company's performance is expected to grow rapidly. Operating revenue of 407.6, 442.6, and 478.5 billion yuan is expected to be achieved in 2024-26, up 9.57%, 8.57%, and 8.12% year-on-year; net profit to mother of 38.4, 42.5, and 46.8 billion yuan, up 13.73%, 10.91%, and 10.07% year-on-year, corresponding PE is 14.4X, 13.0X, and 11.8X respectively, maintaining the “buy” rating.

Risk warning:

1. The macroeconomic growth rate fell short of expectations. Household appliances are durable consumer goods and are closely related to residents' income expectations. If macroeconomic growth slows down, it may have a big impact on the company's product sales;

2. The decline in raw material prices falls short of expectations: the company's raw material costs account for a large share of operating costs. If bulk prices rise again, the company's profitability will weaken;

3. Overseas market risk: Uncertainty in the overseas environment has intensified in recent years, and the company's export sales account is relatively high. If external demand falls, performance will be impacted accordingly; 4. Market competition has intensified: in a weak market environment, industry competition is more intense, and the company has the risk of losing share and low price competition dragging down profits.