Haier Smart Home
　　1Q24: more evidence of strong efficiency improvement
　　Haier had an impressive 1Q24, as reported net profit/recurring net profit grew strongly by 20%/25% YoY, respectively. This mainly reflects Haier’s strong and continuous efficiency improvement, and we expect the story of margin expansion would still be valid in 2024 and beyond. While the macro environment, both domestic and overseas, is unlikely to be very favourable to overall home appliance sales, we believe Haier’s 1Q24 performance has also proved its ability to innovate, and hence generate above-industry average growth. Maintain BUY as we believe its current valuation is still undemanding, with a good balance of value and growth.
　　Key Factors for Rating
　　1Q24 net profit beat expectations. While 1Q24 revenue was somewhat in- line (+6% YoY to RMB69.0bn), net profit beat expectations as it was up 20% YoY to RMB4.8bn. Excluding one-off items, recurring net profit growth was even stronger as it was up 25% YoY. While there is a mild improvement of GPM of 30bps YoY to 29.0%, such strong NP growth was mainly supported in SG&A level, as OPM expanded by 1.0ppt to 8.4%. This shows that Haier has been successful in pushing reforms and digitalisation, hence lifting its profitability.
　　Encouraging performance in China despite weak macro. In 1Q24, Haier recorded 8% YoY revenue growth, with >30% YoY growth in operating profit. While this is a very positive result of efficiency enhancement, we also view that Haier is also successful in providing competitive products, and hence capturing more market growth in certain segments, such as air conditioners and kitchen appliances which had >10% YoY growth. On the other hand, Casarte brand also achieved 14% revenue growth, showing stronger acceptance among wealthier consumers and effective retail channel building.
　　Still outperforming in overseas even demand is weak. Haier’s overseas revenue was up 4% YoY, while operating profit was up >10% YoY. While the numbers may not be impressive, we believe this is already an outperformance versus peers as demand in developed markets was dragged by sticky inflation. We expect Europe would continue to be a strong growth driver, as it has revamped Candy brand, which demonstrated resilience in Jan-Feb 2024.
　　Key Risks for Rating
　　Higher-than-expected raw material cost and freight cost, weaker property markets in China and the US, unexpected trade tension between China and international markets, and keen competition in the home appliance market.
　　Valuation
　　Our TP of HK$30.6 is based on 13.5x 2024E P/E (unchanged).