We maintain BUY on Haier and turn more optimistic on 2Q22E outlook, thanks to robust fridges sales, easing in margin pressure and government’s attitude on relaxing property market and boosting consumptions. Our new TP of HK$ 33.13 is based on 16x FY22E P/E (re-rated from 15x due to better sales and sentiment).Its current valuation is still attractive at 14x FY22E P/E, vs Haier-A’s 16x, Midea’s 12x and China peers average of 15x, given 15% NP CAGR in FY21-24E.
　　1Q22 results inline, even with pandemic. Sales/ net profit grew by 10%/ 15% YoY to RMB 60.2bn/ 3.5bn in 1Q22, roughly inline with BBG est. Domestic sales was impressive with 16%+ growth (ASP +11%/ volume +4%) in 1Q22, despite the Covid-19 outbreaks and lockdowns, while overseas sales increased by 4%+, consisting of relatively weak US and EU but much better Asia, Australia and New Zealand markets. Despite the flattish GP margin, NP margin still managed to increase by 0.2ppt to 5.9% in 1Q22 thanks to more savings in opex thru digitalization and ASP increases.
　　2Q22E outlook turns more positive. Management pointed out that sale growth had accelerated in Apr 2022 vs 1Q22E and we now forecast 12%/ 20% sales/ net profit growth in 2Q22E, driven by: 1) robust fridges sales growth in Apr (by 168%) and many unfulfilled orders, 2) faster air-con sales growth, after more investments in technology, products, personnel and digitalization, 3) more sales from series of products/ customized solutions, where the ASP can easily reach RMB 30-50K/ 200K+, 4) premiumization, where sales growth of Casarte and high-end brands in the overseas (Monogram/Café/GE Profile) were fast at 32% and 30%+ in 1Q22, 5) new categories expansion, where sales growth of dryers and dishes washers were exponential at 114%/ 57%.
　　Costs pressure in FY22E should be manageable and efficiency improvement will continue. GP margin in 1Q22 consisted of 0.2ppt drop due to higher raw material costs and freight rates but was offset by 0.3ppt increase thru efficiency improvement. We believe guidance of “stable GP margin” in FY22E is achievable, because of 1) recent RMB depreciation, 2) more localization of productions in the overseas markets, 3) more ASP increases if necessary (prices were already raised 4 times since end of last year). We also think a 0.5ppt improvement of opex in FY22E is feasible. Hence the long term target of 7%+ net profit margin by FY25E is still intact.
　　Maintain BUY but raise TP to HK$ 33.13. We revise up our FY22E/ 23E/ 24E net profit forecasts by 1%/ 4%/ 8% to factor in: 1) faster fridges sales growth, 2) slightly better OP margin. New TP is based on 16x FY22E P/E (up from 15x). It is trading at 14x FY22E P/E, not demanding in our view, vs China peers average of 15x and ~15% discounts to Haier-A’s 16x FY22E P/E.