In 3Q23, Haier managed to record 6% YoY revenue growth while reported/recurring net profit was up 13%/10% respectively, in-line with market expectations. Haier’s earnings also demonstrated better resiliency than its major peers amid softening markets in China and overseas, thanks to its continuous launch of new, high-end products. We expect the shiny performance of certain segments, such as air conditioners in China, would buy some time for other business units to improve, such as Casarte in China and Candy in Europe. We still expect Haier could be able to generate double-digit profit growth for the full year of 2023 and 2024, which could be attractive considering its current valuation at 11x 2024 P/E. Reiterate BUY.
　　Key Factors for Rating
　　Solid 3Q23 operating profit growth. Haier’s 3Q23 reported/recurring net profit growth was +13%/10% YoY, largely in-line with market expectations. Mgmt. explained that net profit was negatively impacted by rising interest cost in overseas market. Excluding such impact, we estimate that the underlying operating profit would grow by 15.5% YoY, which has met Haier’s profit target of at least 15% growth set earlier.
　　Mixed performance for top-line, but future growth is likely. 3Q23 top- line only grew by 6% YoY, as we estimate the performance of China market has faced more pressure. While Haier’s air-conditioner segment outperformed the market by achieving >10% YoY growth, other segments, particularly those under Casarte, were relatively softer due to weak recovery of domestic demand. On the other hand, overseas as a whole was relatively better, thanks to solid growth in Europe (>15% YoY) and improving performance in North America, South Asia and Southeast Asia. Despite this, Haier remained confident that growth of some weaker segment could reaccelerate in 4Q23 and 2024 thanks to its initiatives launched, such as new premium products and initiatives launched for Casarte in China and Candy in Europe.
　　More confident in achieving profit growth. Despite the macro uncertainty in China and overseas market, Haier reaffirmed its stance to push the strategy of: (1) premiumisation to create customer value and hence lifting the ASP and margins, and (2) digitisation to streamline costs. With freight cost and price of metals further moderating in 4Q23, we expect Haier could manage to achieve close to mid-teens profit growth for the full year of 2023, and likely 2024.
　　Valuation
　　We cut our 2023-25 EPS forecasts by 2% to reflect weaker global demand. Maintain BUY. Our TP is adjusted to HK$28.7 is based on 15x 2023E P/E (unchanged), or equivalent to 13.5x 2024E P/E.
　　Key Risks for Rating
　　Higher-than-expected raw material cost and freight cost, weaker property markets in China and the US, unexpected trade tension between China and international markets, and keen competition in the home appliance market.