We maintain BUY and revised down TP to HK$ 27.30. Even though Haier’s　3Q22 results were inline and we continued to be impressed by its strategy and outperformance, we still need to take into account of industry downturn. Therefore we cut our TP to HK$ 27.30, based on 11x FY23E P/E (from 14x due to sector de-rating). Its current valuation is attractive at 8x FY23E P/E, vs Haier-A’s 11x, Midea’s 8x and China peers average of 10x, given 15% NP CAGR in FY21-24E.
　　3Q22 results roughly inline. Sales/ net profit grew by 9%/ 34% YoY to RMB 62.9bn/ 3.7bn, inline with BBG est. Domestic sales growth was resilient at 9%, driven by all categories, such as fridge (+10%), washing machines (+7%), water heater (+8%) and air-con (+9%) while overseas sales growth had also increased by 9% YoY, consisting of a rather strong EU (+28%), SEA (+27%), AU (+8%). We believe the main drivers remain to be: 1) successful premiumization, where sales growth for high-end products in US/ EU/ AU are 40%+/ 30%+/ 40%+ and 2) effective efficiency gains thru digitalization in many functions and processes within the Company (e.g. on R&D, sourcing, production, supply chain). Therefore, GP margin and OP margin for domestic/ overseas market increased to 34.4%/ 27.8% (+0.6ppt/ flat) and 7.3%/ 4.5% (+ 1.0ppt/ +0.5ppt).
　　Relatively soft for Casarte in 3Q22, but long-term growth is still intact.Casarte sales grew by 10%+ in 3Q22, consisting of strong growth in Jul/ Aug and slowdown in Sep 2022, due to: 1) more COVID-19 outbreaks, 2) shrinking sales from channels like GOME and 3) a weak property market. However, management is still foreseeing a similar growth in 4Q22E, supported by self- upgrades like: 1) further expansions into high-end shopping malls, 2) more sales from customized solutions, 3) better product launches in categories like air-con, water heater, TV and lifestyle appliance. Moreover, roadmap for Casarte oversea expansion is already set and will be carried out step by step.
　　Remain cautious about the industry, but much better for Haier on 4Q22E　and FY23E outlook. We believe Haier can still outperform and be able to achieve their target (15%+ net profit growth), thanks to: 1) ASP hike in overseas market (even in EU), 2) widening client base in US, 3) GP margin improvements boosted by declining raw material prices (effect to be way more meaningful since 4Q22E), 4) further localization with ramp up of new factories in EU (e.g. fridges in Romania, dishes washers and dryers in Turkey), 5) even higher cost-consciousness among all the departments within the Company and 6) more in-house productions for spare parts and accessories.
　　Maintain BUY but cut TP to HK$ 27.30. Our new TP is based on 11x FY23E　P/E (from 14x). It is trading at 8x FY23E P/E, not demanding in our view, vs China peers average of 10x and ~30% discounts to Haier-A’s 11x FY22E P/E.
　　Heat pump is a rising star. Separately speaking, benefiting from the heat wave experienced in EU, the demand of heat pump has surged, therefore Haier is likely to ramp up its sales volume from around 50K units this year to about 400K units in FY23E, since this category fits perfectly in the framework of carbon reductions and energy- savings and has fairly bright future.