【Company Research】Haier Smart Home (6690 HK) – Outperforming by various self-upgrades

Maintain BUY on HSH-H, as we forecast 30% NP CAGR in FY20-23E vs 9% in FY17-20, driven by: 1) recovery in China and robust export growth, 2) various product and service upgrades, and 3) efficiency gain from digitalization and synergies. Our new TP of HK$ 45.83 is based on 23x FY22E P/E (rolled over from 20x FY21E), in-line with leading China peer’s avg. and 26% higher than Int’l peers’ avg.. HSH-H’s valuation is attractive at 15x FY22E P/E, vs HSH-A’s 20x and Midea’s 21x.

 

  1. FY20 results beat. Haier’s net profit from con. business rose by 26% YoY to RMB 11.3bn, beating BBG/ CMBI est. by 10%/ 12%. The beat was due to: 1) Impressive opex control and 2) lower-than-expected finance costs.

 

  1. Impressive fundamentals in 4Q20. Domestic sales grew by 20% YoY in 4Q20 (excluding Cosmoplat), and accelerated from 16% YoY in 3Q20, thanks to digitalization (integrating inventory of 30K offline Haier stores with online platforms since 2H20). Organic growth for Fridge/ Washing machines/ AC/ Kitchen appliances/ Water heater were ~15%/ 10%/ 50%/ 20%/ 15% in 4Q20. Overseas sales growth also stayed fast at 17% YoY in 4Q20, vs 18% in 3Q20, thanks to robust stay home demand and better than peers localized factory productions. More importantly, OP margin rose by 3.6ppt to 6.5% in 4Q20.

 

  1. Positive FY21 guidance following a decent 1Q21. Management highlighted an encouraging demand in 1Q21E given healthy channel inventory and ample room for ASP adjustments, and expect sales growth of double digit for domestic and HSD (given FX headwind) for overseas in FY21E. Moreover, Casarte, AC and Kitchen appliances are expected to deliver 20%+, 30+ and 30%+ growth in FY21E, driven by: 1) more high-tech product launches, 2) more user-friendly services, 3) more promotion of the “three winged bird” brand to push more sales of smart home system and categories cross-selling. 

 

  1. Efficiency gains to offset GP margin drags. GP margin may face a 4-6ppt drags in 1Q21 due to raw material inflation, but should be offset by: 1) ASP increase, 2) product premiumization and 3) efficiency gains from digitalization of services, management system and use of super factory. In long run, Haier SH targets ~10%/5% NP margin for domestic/ overseas segment.  

 

Maintain BUY with TP of HK$ 45.83, based on 23x FY22E P/E. We revised up FY21E/ 22E net profit forecasts by 10%/ 18%, to factor in: 1) faster sales growth, 2) lower GP margin but 3) better operating efficiency gain. Our new TP is based on 23.0x FY22E P/E (rolled over from 20x FY21E), equate to discount to China peers average of 22.6x and 26% premium over int’l peers’ average of 18.2x. The stock is trading at 19x/ 17x FY21E/ 22E P/E, which are fairly attractive in our view.

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