Company Reports

We maintain our CNY 33/HKD 36.70 fair value estimate for narrow-moat Haier following mixed first-half results. While revenue grew only 3% year on year given domestic demand softness, operating profit outperformed with 20% growth amid product premiumization and supply chain digitalization. As a result, the company lifted gross margins for the domestic and overseas businesses and reduced the marketing cost ratio by 50 basis points to 13.8% versus a year ago. Management envisions continuing earnings improvement, given new government subsidies on home appliances in China and more cost control. We lowered our 2024 revenue forecast by 3% but raised our operating profit estimate by 17% to account for the better margins. Our midcycle forecasts are intact. Haier’s shares still have decent upside to our valuation; we think the market underappreciates the firm's sector leadership and potential for improving profitability.

As a seasoned home appliance manufacturer, Haier has been among the top brands globally for the past decade with a stronghold in refrigerators, laundry appliances, water heaters, and air conditioners. We ascribe the company’s industry-leading role to its effective multibrand strategies, robust product development capabilities, and broad distribution coverage through online and offline channels. For domestic products, Haier positioned its namesake brand for mass-market consumers while targeting the premium Casarte brand to wealthy households. As Casarte products have constantly outperformed in sales growth versus Haier’s other brands in China, we expect the company’s high-end products to improve the overall revenue mix over the next few years.

We are positive about the incremental subsidies to the nationwide home appliance trade-in program revealed by the National Development and Reform Commission, or NDRC, and the Minister of Finance, or MOF, on July 25, 2024. The subsidies will span eight categories, including air conditioners, fridges, and washing machines. Each consumer can enjoy a subsidy for one product per category, with 15%-20% discount on the selling prices of energy-efficient units. Compared with prior subsidies, we are upbeat that more clarity is provided on the funding, which is mostly backed by the issuance of super-long-term government bonds. While the CNY 150 billion in total subsidies also incorporates automobile and consumer electronic products, we expect a material proportion to flow to home appliances.

We are initiating coverage of Haier Smart Home, a leading China home appliance producer with strong global footprint, with a fair value estimate of CNY 33.00 per A-share (HKD 36.70 per H-share). We assign a narrow moat, Medium Uncertainty Rating, and Standard Capital Allocation Rating to the firm. Haier has been one of the largest home appliance manufacturers globally thanks to strong brand reputation, active acquisition strategies, and cutting-edge technologies in multiple product categories. We think the company’s ramping up of premium brand Casarte’s representation, coupled with continuing supply chain digitalization, will drive a 6.3% compound annual growth rate for domestic operating profit over the next five years. While overseas businesses’ margins still lag the domestic one, we foresee a gradual pickup amid ongoing product mix upgrades and marketing cost savings. As such, we model a 2023-28 CAGR of 5.8% and 9.5% for Haier’s revenue and earnings per share, respectively.

As a seasoned home appliance manufacturer, Haier has been among the top brands globally for the past decade with stronghold in refrigerators, laundry appliances, water heaters, and air conditioners. We ascribe the company’s industry-leading role to its effective multibrand strategies, robust product development capabilities, and broad distribution coverage through online and offline channels. For domestic products, Haier positioned its namesake brand for mass-market consumers while self-breeding the premium Casarte brand for wealthy households. As Casarte products have constantly outperformed in sales growth versus those of Haier’s other brands in China, we expect the company’s high-end products to improve overall revenue mixes over the next few years.