Report Date: October 30, 2024
Broker: UOB Kay Hian
Company Overview
Background
Haier Smart Home, headquartered in Qingdao, Shandong, is a major player in home appliances and consumer electronics. As a subsidiary of Haier Group Corporation, the company designs, develops, and manufactures a range of household products, including refrigerators, air conditioners, washing machines, and dryers.
Market Position
Haier Smart Home holds a strong position in both domestic and international markets. Its ability to adapt to evolving market demands and leverage trade-in policies has helped it maintain and grow market share, particularly in Asia and Europe.
Key Financial Performance and Growth Drivers
3Q24 Earnings Overview
For the third quarter of 2024, Haier reported notable earnings growth driven by operational efficiency improvements. Revenue totaled Rmb67.3 billion, with a slight year-over-year increase of 0.5% and sequential growth of 1.1%. Gross profit improved by 0.1 percentage points year-over-year, indicating steady performance across its core business.
Domestic and Overseas Revenue
Haier’s domestic revenue decreased by 3% year-over-year in 3Q24, but retail sales have shown sequential improvement due to strong trade-in policies. Conversely, overseas revenue grew by 4% year-over-year, with particularly strong performance in Europe, South Asia, and Southeast Asia.
Potential Impact of U.S. Tariff Hikes
Management anticipates that the potential U.S. tariff hike will have a minimal impact on its operations, as 98% of Haier’s products sold in the U.S. are locally produced. This strategic localization insulates the company from some international trade pressures.
Regional Market Expansion
Domestic Market Strategy
In China, Haier has focused on optimizing operational efficiency. In 3Q24, domestic revenue amounted to Rmb31.6 billion, despite a 3% year-over-year decline. The Casarte brand performed particularly well, achieving 20% growth in 3Q24, with significant sales increases across both online and offline channels. Haier plans to consolidate its logistics network further through the acquisition of Ririshun Logistics, which will improve its supply chain and reduce costs.
International Markets Performance
Haier’s international performance has been bolstered by strong growth in Europe, South Asia, and Southeast Asia. Year-over-year revenue growth for these regions was 8%, 3%, and 8%, respectively, in 3Q24. The company anticipates continued double-digit revenue growth in Europe and significant gains in South Asia, with Southeast Asia projected to grow around 20% in the near term.
Financial Metrics and Profitability
Margins and Cost Efficiency
Haier’s 3Q24 core net profit rose by 10% year-over-year, primarily due to improved operating efficiency. The gross margin remained stable at 31.3%, while the EBIT margin improved by 1.0 percentage points year-over-year to 8.5%. These gains were achieved through a combination of effective cost controls and streamlined operations, particularly within SG&A expenses, which declined by 0.7 percentage points.
Profit and Earnings Growth
Haier’s 9M24 results highlighted a 2% year-over-year revenue increase, totaling Rmb202.97 billion, and a gross profit margin of 30.8%. EBIT for this period rose by 15% to Rmb18.54 billion, while the core net profit increased by 15% year-over-year to Rmb14.69 billion, with a net profit margin of 7.2%.
2024-2025 Earnings Forecasts
UOB Kay Hian forecasts net profit growth for Haier Smart Home to continue, with projected earnings for 2024 and 2025 at Rmb19.17 billion and Rmb21.65 billion, respectively. These projections are supported by continued efficiency improvements, growth in key international markets, and targeted investments in logistics and cost optimization.
Valuation and Recommendation
Target Price and Valuation
The broker maintains a “BUY” recommendation for Haier Smart Home, setting a target price of HK$42.00, down 3% from a previous estimate. This target price reflects a 20.4x PE for 2024 and 18.0x PE for 2025. Haier is currently trading at 13.3x PE for 2024, which represents an attractive entry point for investors given its stable growth outlook and efficiency-driven gains.
Dividend Yield
Haier’s dividend yield is projected to grow steadily, supported by robust cash flows and improved profitability. For 2024, the dividend yield is expected to reach 3.3%, rising to 4.0% in 2025 as Haier continues to enhance shareholder returns.
Conclusion
Haier Smart Home’s focus on operational efficiency, growth in key international markets, and targeted cost management strategies position it well for continued earnings growth. The company’s proactive approach to managing tariffs, optimizing logistics, and expanding its market reach reinforces its standing as a leading global player in the home appliance sector. The “BUY” recommendation from UOB Kay Hian highlights confidence in Haier’s potential to sustain its profitability and growth momentum.
