2Q23 was roughly inline (robust air-con performance offsetting the weak fridge, washing machine and Casarte, strong domestic GP margin offsetting the overseas’). FY23E guidance was maintained as the outlook for both China and overseas remained positive (partly industry and party company driven). With undemanding valuation of 12x FY23E P/E, we still maintain BUY.
2Q23 results roughly inline. In 2Q23, Haier’s sales increased by 8% YoY to RMB 66.5bn, inline with BBG est. and net profit had gone up by 13% YoY to RMB 5.0bn, about 4% higher vs BBG est., growth rates were both similar to that in 1Q23. GP margin was flat vs last year, OP margin improved by 0.7ppt to 9.1%, but was offset by the higher than expected finance costs, hence NP margin was at 7.5%, only 3ppt higher than last year.
China business improved while overseas had weakened. Domestic sales growth was 7% in 1H23, picked up from 2% decline in 2H22. That was driven by strong growth for air-con (+22%) and water heater (+9%) and relatively sluggish growth for fridge (+6%), kitchen appliances (+5%) and washing machines (+0%). Casarte continued to gain more market share and sales growth had accelerated to double digit in 1H23 (from HSD in 2H22).
However, that was still below its 20%+ long-term growth target. Overseas sales growth was at 9% YoY in 1H23, slowed down from 12% in 2H22. The growth was driven by EU (+30%), South Asia (+24%) and kind of dragged by Japan (+6%), Southeast Asia (+6), North America (+5%) and Australia and New Zealand (-16%). However, it had already outperformed peers like Whirlpool. GP margin in China had improved, due to: 1) favourable raw material costs, 2) further digitalization in supply chain and 3) greater use of self-owned production (more parts were made in-house). But GP margin in overseas was dragged by: 1) increased promotion and de-stocking and 2) decline in consumption power and needs for high-end products.
But there are quite a few uncertainties for overseas. Overseas sales growth also remained fast at HSD in Jan-Feb 2023, according to management, which is without doubt industry leading, thanks to the decent performance in the high-end segment (Monogram/ Cafe sales grew by 40%+/ 30%+ in FY22). We do expect its pressure from raw materials and freight rate to ease in FY23E, however, the demand in US, price war due to excessive inventory and the Ukraine war overhang are still there.
FY23E guidance maintained. Management had reiterated their targets of 5% to 10% sales growth and 10%+ (hopefully 15%+) net profit growth in FY23E. We are slightly more optimistic to assume 8% and 16% growth.
Maintain BUY and raise TP to HK$ 30.91. We raised our FY23E/ 24E/ 25E net profit estimates by 3%/ 4%/ 2% to factor in: 1) better air-con sales and margin, 2) higher GP margin, but a 3) slower Casarte sales. Our new TP is based on 15x FY23E P/E (up from 14.5x, due to turnaround). It is trading at 12x FY23E P/E, still far below its 5 years average of 15x.