Description of the event

The company disclosed the three-quarter report: In the first three quarters of 2024, the company achieved operating income of 146.722 billion yuan, a year-on-year decrease of 5.34%, achieved net profit due to mother of 21.961 billion yuan, a year-on-year increase of 9.30%, and realized net profit after deducting 21.163 billion yuan, an increase of 10.14% over the previous year. Among them, 2024Q3 achieved operating income of 46.939 billion yuan, a year-on-year decrease of 15.84%, and achieved net profit to mother of 7.825 billion yuan The year-on-year increase was 5.47%, and net profit not attributable to mother was 7.299 billion yuan, an increase of 2.09% over the previous year.

Incident comments

The revenue scale was under pressure in the short term, gross sales margin was significantly optimized, and profitability was greatly increased. The company's revenue fell 5.34% year on year in the first three quarters of 2024. Among them, Q1/Q2/Q3 were +2.56%/-0.57%/-15.84%, and the overall scale of Q3 declined significantly. According to our estimates, 2024Q3's main business revenue fell by about 9.6% year on year, and other business revenue fell by about 50.7% year on year; the decline in main business revenue or mainly due to weak domestic sales demand in the air conditioning industry in July-August, and export sales revenue is expected to continue to grow at a high rate. On this basis, in the first three quarters of 2024, the company's gross margin increased by 0.97 percentage points year on year, the sales expense ratio decreased by 1.64 percentage points year on year, the management expense ratio increased 0.31 percentage points year on year, and the R&D expense ratio increased by 0.28 percentage points year on year. Combined, the company's operating profit (revenue - costs - taxes and additional - sales & management & R&D expenses + asset & credit impairment losses) for the first three quarters of 2024 was 21.207 billion yuan, up 14.79% year on year. Increased by 2.54 percentage points; among them, the gross margin of the 2024Q3 company fell 0.46 percentage points year on year, or mainly due to the strong trend of bulk raw materials. The sales expense ratio decreased 4.35 percentage points year on year, or mainly due to the increase in the share of export business and the optimization of company expenses. Taken together, the company's gross sales margin increased 3.89 percentage points year on year, maintaining a positive trend. The management expense ratio increased 0.39 percentage points year on year. The overall operating profit of the 2024Q3 company was 7.679 billion yuan, up 13.88% year on year, corresponding operating profit margin was 16.36%, up 4.27 percentage points year on year. In addition, net cash flow from the company's operating activities decreased by 67.89% year-on-year in the first three quarters of 2024. Among them, Q1/Q2/Q3 were -119.52%/-48.95%/-13.12%, respectively, and the cash flow situation improved month-on-month. The company's contract debt at the end of 2024Q3 was 10.876 billion yuan, down 3.23 billion yuan from the end of 2024Q2 and 12.826 billion yuan from the end of 2023Q3, or related to the weak domestic demand environment and changes in the company's channels during the reporting period.

Trade-in is clearly driving air conditioner sales, and I am optimistic that the Q4 scale will pick up after the company completes its warehousing. The home appliance trade-in policy has been gradually implemented since September. According to data from Aowei Cloud Network, in September 2024, the company's air conditioning online/offline sales were +88.5%/+78.9%, respectively, and sales volume was +88.2%/+64.6%, respectively. However, according to industry online, the company's air conditioning shipments fell 28.9% year on year in September 2024. Therefore, we believe that with the elimination of channel inventories and additional countries' supplementary sales and structure, the 2024Q4 company's domestic sales shipments may be restored.

Investment suggestions: The company has formed multiple industrial brand matrices, covering the two major fields of consumer goods and industrial equipment, and has extended the upstream and downstream layout of the industrial chain. Based on this, the company actively explores market segmentation needs, broadens business scenarios, and actively expands potential businesses such as new energy and intelligent equipment. We expect the company's net profit to be 314.38, 342.05, and 37.108 billion yuan respectively in 2024-2026, corresponding to PE of 7.9, 7.2 and 6.7 times, respectively, maintaining a “buy” rating.

Risk warning

1. Risk of macroeconomic fluctuations affecting the company's sales revenue; 2. Risk of profit fluctuations due to price fluctuations of factors of production such as raw materials.