3Q23 was roughly inline, but that was already impressive given the tough environment. FY23E guidance should be intact and FY24E growth could stay fast, but all the growth would be driven by internal improvement. Based on the highly certain growth, we do think its current valuation of 11x FY23E P/E is not demanding at all, maintain BUY.
　　3Q23 result was roughly inline. Sales rose by 7% YoY to RMB 67bn in 3Q23, inline with BBG est., while net profit increased by 13% to RMB 4.2bn, also inline with BBG est. Net profit was 5% below CMBI est. just because of a higher-than-expected tax rate. Sales growth might have slowed down from 8% in 1H23. However, if we also consider the negative/ flattish industry growth in China/ US, high base last year and higher finance costs, Haier has already done a great job and gained more market share.
　　Stable outlook in 4Q23E and FY23E guidance should be maintained. We believe the target of MSD to HSD sales growth and 10%+ net profit growth in FY23E should remain intact, supported by the low base in China in 4Q22 and sales acceleration in the EU (driven by strong product pipeline), even though the industry environment could stay rather promotional.
　　Still confident on China’s growth in FY24E, but more from self- improvement. Management expects the industry sales to stay sluggish in FY24E in China, but still see many internal growth drivers: 1) rapid growth from Casarte may resume, as it will wrap up its reforms in 4Q23E and will have more upgrades on its products and branding in FY24E, as well as more DTC transformation, 2) “Three wings bird”’s growth may become explosive (targeting RMB 5bn in FY23E and RMB 10bn in FY24E), thanks to better new products (after upgrades in R&D tools), better services (more seamless O2O services to clients) and higher efficiency (more integration with various BUs within Haier group etc.), 3) air-con business’s reform, management is targeting 20%-25% sales CAGR, plus a gradual improvement in efficiency (from design to production to logistics), through increasing the mix of in- house production of different components (e.g. factory of compressor may start in FY24E and drive up around 1 ppt margin). Also, the margin can still be improved through driving up the productivity per labour (by digitalization) and more costs savings (e.g. on marketing).
　　Maintain BUY and cut TP to HK$ 26.34. We revised down our FY23E/ 24E/ 25E net profit estimates by 2%/ 4%/ 3% to factor in: 1) lower other income & gains, and 2) higher tax rate. Our new TP is based on 13x FY23E P/E (down from 15x, due to an even tougher industry outlook). It is trading at 11x FY23E P/E, still far below its 5-year average of 15x.