Haier reported mixed 2Q24 results, as revenue was weak, up only 0.1% YoY, trailing behind major peers. However, 2Q24 NP was still up 13% YoY, showing its efforts in lifting efficiency through automations and digitisation. Weakness in domestic market, especially since 2Q24, could indeed be concerning, but we expect the home appliance trade- in programme initiated by the Chinese government could lift some demand, and Haier should be well positioned to benefit from it. Haier also sped up its expansion in overseas and we expect it to be well prepared to capture overseas demand lifted by upcoming rate cuts. Hence, after recent correction, we still view Haier attractive when return and risk are considered. Maintain BUY.
Key Factors for Rating
Mixed 2Q24 results as topline missed. 2Q24 revenue was only up 0.1% YoY to RMB66.6bn, below market expectations and the growth was weaker than some major peers. Haier cited that they proactively reduced sales to distributors to avoid channel inventory from piling up. 2Q24 operating profit was up 11% YoY to RM7.0bn. While the growth itself may not be impressive, we hold the opposite view since it was mainly achieved through SG&A ratios enhancement as OPM was up 1.1ppts YoY to 10.5%, a multi-year high. This reflects Haier’s initiatives to enhance efficiency is not hindered by slower revenue growth and operating deleverage.
Domestic market may see some improvement in 2H24. In 1H24, revenue from China only grew 2.3% YoY to RMB64.8bn, suggesting a slight YoY decline in 2Q24. However, mgt. is confident that 2H24 could see some HoH improvement as the Chinese government launched a large scale campaign to promote trade-ins of home appliances through subsidies. As the subsidy could be up to 20% of the ticket price, and up to RMB2,000 per item, mgt. expects this campaign could be positive to mid- to high-end appliances with higher retail price. This could help boost the 2H24 sales when provincial governments have finalised their arrangements by 3Q24. In this regard, Haier has also already prepared high-end products eligible for the subsidies through its own brand and also Casrate. If successful, this may also lift GPM in 2H24, in our view.
Speeding up overseas expansion in selected markets. In 2Q24, revenue from North America and Japan were mostly flattish, reflecting some macro headwinds. However, Haier achieved rather strong growth in other markets, such as Europe, ANZ, South Asia and Southeast Asia, as their revenues were up 8-9% YoY, and made market share gains in key markets. It is noteworthy that Haier has also made progress in its expansion of Thailand air-conditioners facilities in August, which is expected to start production in Sept 2025. If running smooth, this could help localisation and market share gain in several countries.
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
We revised down our 2024/25/26 EPS forecasts by 2%/4%/6%, mainly on weaker sales assumption on China and the US after weak 2Q24 figures were reported.
Our TP is lowered to HK$30, based on 13.5x 2024E P/E (unchanged). We maintain BUY as we expect Haier could still deliver double-digit earnings growth in 2024, and the recent correction makes its valuation, currently at 10x 2024E P/E, attractive.