Date: 7 October 2024
Broker: OCBC Investment Research
Company Overview
Haier Smart Home, one of China’s top white goods/home appliances companies, has evolved from a refrigerator company in the 1980s into a global leader in the home appliance industry. Ranked first globally in the major home appliance sector with a 14.7% retail market share in 2019, Haier focuses on providing smart home solutions to cater to the increasing demands of users seeking an enhanced lifestyle.
The company adopts a global multi-brand strategy, combining its Chinese brands (Haier, Casarte, Leader) with acquired international brands such as GE Appliances, Candy, Fisher & Paykel, and AQUA. This multi-brand strategy has allowed Haier to expand its presence to more than 160 countries and regions worldwide.
Recent Performance and Market Position
As of 7 October 2024, Haier Smart Home’s stock is rated “BUY” by OCBC Investment Research, with a last close of CNY 32.15 and a fair value estimate of CNY 46.00. The company is expected to benefit significantly from recent economic stimulus measures in China.
Haier has demonstrated improved sales growth recently, with mid-to-high single-digit year-on-year growth expected for 2024. Despite muted domestic demand for home appliances in the second quarter of 2024, the company experienced positive year-on-year sales growth in August, driven primarily by an uptick in air conditioner installation volumes (more than 20% YoY in August 2024).
Beneficiary of Stimulus Measures
Haier Smart Home is identified as a key beneficiary of China’s consumption-boosting measures. The easing policy measures announced by policymakers in late September 2024, aimed at stabilizing home prices, reducing mortgage interest burdens, and revitalizing stock markets, are expected to positively impact consumer sentiment and the home appliance market.
Additionally, the consumer goods trade-in subsidy program, which encourages the replacement of older household appliances, is predicted to further enhance sales growth. Haier is particularly well-positioned to benefit from this program.
Financial Performance
Haier Smart Home reported the following financial data for FY2023:
- Revenue: CNY 261.4 billion
- Gross Profit: CNY 82.4 billion
- Net Profit: CNY 16.6 billion
- EPS: CNY 1.8
- Dividend per Share (DPU): CNY 0.8
Key financial estimates for 2024 and 2025 are as follows:
- 2024E Revenue: CNY 282.0 billion
- 2025E Revenue: CNY 304.8 billion
- 2024E Net Profit: CNY 18.8 billion
- 2025E Net Profit: CNY 21.4 billion
- 2024E EPS: CNY 2.0
- 2025E EPS: CNY 2.3
- Gross Margin: Projected to improve from 31.5% in 2023 to 31.9% in 2025.
The company is expected to expand its operating profit margins by around 50 basis points in 2024.
Key Strengths and Opportunities
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Global Expansion: Haier’s product category and geographical expansion remain key drivers of growth. The company is focusing on overseas markets, where it is expected to see continued growth.
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Consumer Sentiment: The company is poised to benefit from improving consumer sentiment, driven by China’s recent economic measures.
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Market Leadership: Haier is regarded as a market leader, particularly in the home appliance sector. The company’s forward P/E ratio of 14x is set at a premium to its historical average, reflecting its strong market position.
ESG Practices
Haier Smart Home is noted for its robust e-waste management programs, outpacing many global peers in business ethics practices. The company is committed to the Basel Convention, which prohibits exporting e-waste to non-OECD countries, and conducts ethics training for all employees. However, its corporate governance practices are rated as average compared to global peers.
Risks and Challenges
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Competitive Environment: A more intense competitive environment could pose a risk to Haier’s market share and profitability.
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Consumer Spending: Delayed consumer spending on replacement goods, due to economic uncertainties, could negatively impact sales.
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Cost Pressures: Higher-than-expected raw material prices and increased selling expenses could exert pressure on Haier’s margins.
Potential Catalysts
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Higher Demand: An increase in demand for Haier’s air conditioners and kitchen appliances could drive better-than-expected performance.
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Market Consolidation: Faster-than-expected market consolidation could strengthen Haier’s market position.
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Margin Expansion: A product mix upgrade could lead to higher-than-expected margin improvements.
This report was prepared by OCBC Investment Research, 7 October 2024.
