1Q22 results in line with our forecast
　　Haier Smart Home announced 1Q22 results: Revenue rose 10.0% YoY to Rmb60.25bn, attributable net profit grew 15.2% YoY to Rmb3.52bn and recurring attributable net profit increased 13.0% YoY to Rmb3.19bn. The results are in line with our expectation.
　　High-end brands continue to lead growth; stronger performance for its competitive fridge and washing machine products.
　　The firm continues with its strategy of independent brands and high-end positioning. 1Q22 domestic and overseas revenue rose 16% YoY and 4% YoY, maintaining solid growth despite volatile demand. We estimate overseas revenue growth would be faster in local currency.
　　The firm enjoyed a boost from high-end brands. Revenue from the Casarte brand in China rose 32% YoY in 1Q22, while overseas high-end brands such as Monogram, Café and GE Profile booked over 30% YoY revenue growth, much faster than overall revenue growth.
　　Retail sales in the Chinese mainland of fridges fell 8% YoY, washing machines were down 12% and air conditioners fell 9% YoY in 1Q22. Haier’s growth outpaced the sector, and it grew market share, in our view. For example, Haier’s market share in air conditioners rose to 14% (+2ppt YoY) for online channels and 16% (+3ppt YoY) for offline. For fridges, market share climbed 1ppt to 41% (online) and 2ppt to 40% (offline).
　　Earnings stable; expense ratio falls further.
　　1Q22 GM was largely flat YoY at 28.5%. Raw material prices have risen YTD in 2022. The firm raised product prices to address cost pressure, and its product structured improved with higher contribution from high-end brands. As a result, its gross margin remained stable.
　　The firm continued to control expenses, and 1Q22 sales and G&A expense ratio fell 0.4ppt YoY to 13.9%, and 0.3ppt YoY to 3.6%. The firm continued its high-end strategy, and increased investment in core technologies for the smart home. As a result, R&D expenses rose, and the R&D expense ratio rose 0.3ppt YoY to 4.1%.
　　Due to product price rises and expense control, the firm’s 1Q22 attributable net margin rose 0.3ppt YoY to 5.8%.
　　Trends to watch
　　Despite short-term headwinds from fluctuating demand and COVID-19 resurgence in China, Haier continued to market its Three-Winged Bird brand and built 120 new Three-Winged Bird 001 stores. It also worked on boosting the suite-oriented sales of the high-end Casarte brand. Haier also acquired a cleaning appliance firm TAB (with products such as sweeping and mopping robots) to expand its offering in the domestic small appliance market. For markets overseas, the firm’s strategy is to improve competitiveness and upgrade its offering with differentiated products and suite-oriented products. We expect the firm’s market share to further increase. We think Haier has improved its operations since 2020, and can maintain solid revenue and profit despite volatile external conditions.
　　Financials and valuation
　　We maintain our 2022 and 2023 earnings forecasts. Haier A-shares is trading at 15.2x, H-shares is trading at 14.2x and D-shares is trading at 5.7x 2022e P/E. We maintain OUTPERFORM for A-shares, H-shares and D-shares with TPs of Rmb31.30, HK$35.50 and EUR1.80, implying 19.4x, 18.9x and 8.4x 2022e P/E with 27.6%, 33.2% and 45.2% upside.
　　Risks
　　Risks concerning global operations; fluctuations in demand; fiercer competition.