What's new
　　On September 7, Haier Smart Home (Haier) held an annual investor meeting, where it announced strategic roadmaps centering on customer-oriented thinking. On the one hand, the company will stick to its brand portfolio consisting of high-end brands, scenario-based brands, and ecosystem-based brands, which we think will enhance its competitive edge in various market segments. On the other hand, the firm will continue the digital transformation of its business operations and distribution channels, and its distributors, which previously mainly focused on corporate clients, will also begin to focus on retail clients. We believe Haier is able to resist the adverse impact amid industry downturn and maintain steady growth despite the volatile market environment at home and abroad in the near term.
　　Comments
　　Global extension backed by high-end brands to expand room for growth. Casarte is a high-end subsidiary brand of Haier established in 2006 and officially entered the market in 2007. Thanks to years of investment and brand cultivation, revenue at Casarte increased by 27%, 74%, 31%, and 21% YoY in 2H20, 1H21, 2H21, and 1H22. In 2021, Casarte generated revenue of Rmb12.9bn outperforming its peers. Haier started its global expansion via M&A of foreign home appliance brands in 2010. It capitalized on synergies created by technologies and R&D capabilities of global brands to develop high-end products. In 1H22, the firm’s major high-end brands, namely Monogram, Café, and GE Profile, saw their revenue grow 40% YoY in the North American market. Casarte in August opened a flagship store in Thailand and made its public appearance at International Funkausstellung Berlin in September. We think Haier’s global expansion is progressing rapidly.
　　Transitioning to retail distribution channels via establishment of brands enabling precision marketing and digital transformation. Haier launched its scenario-based brand (providing multiple solutions based on certain scenarios) Triwing Bird in September 2020. In our view, the brand was established to lock in target customers at earlier purchasing phases. By cooperating with various ecosystem-based service providers, the firm expects to expand its presence in pre-installation markets. In 1H22, the number of Triwing Bird’s “001” stores increased to 208, with the transaction volume of its outlets rising rapidly. The firm started digital transformation in 1H21, which gave a significant boost to its operating efficiency. Its selling and G&A expense ratios dropped 0.5ppt and 0.3ppt YoY in 1H22. Haier continued to engage in customer-oriented thinking and the building of digital platforms. In 1H22, it started pilot projects of helping distributors focus more on individual customers in Anhui province. We think such effort will enhance the firm’s sales, distribution, and operating efficiency in lower-tier markets.
　　Ramping up R&D and manufacturing efforts in the air conditioner business. In contrast to refrigerators, washing machines, and water heaters, Haier’s air conditioner products were relatively less competitive and profitable compared with Gree and Midea. The firm reduced stock keeping units (SKU) to focus its efforts on blockbuster air conditioner products. It started R&D of new products in advance and enhanced the self-sufficiency of core products. In 1H22, Haier’s revenue from air conditioners rose 5.5% YoY in the domestic market, registering growth despite the industry downturn. In addition, the firm is cementing its presence in the central air conditioner market. It launched a new product combining central air conditioning and underfloor heating in 2022, which we think will help its retail distributors to reach out to more customers. Its central air conditioner products delivered notably higher growth than split-type air conditioners at retail sales distribution channels in 1H22.
　　Financials and valuation
　　We leave our 2022 and 2023 earnings forecasts unchanged. Haier A-shares are trading at 16.4x, H-shares at 13.8x, and D-shares at 4.7x 2022e P/E. We maintain an OUTPERFORM rating for A-shares, H-shares, and D-shares. We raise our TP for A-shares by 10% to Rmb34.50 (21.4x 2022e P/E with 30% upside), considering A-shares’ premium valuation. We maintain our TPs for H-shares and D-shares at HK$35.50 and EUR1.80, implying 18.9x and 7.4x 2022e P/E with 37% and 57% upside.
　　Risks
　　Risks concerning global business operations; fluctuations in demand; fiercer competition.