HAIER SMART HOME(6690.HK)：RECOVERING FROM THE PAIN OF ACQUISITIONS-格隆汇

机构：中银国际
研究员：Tony LI/Penny PENG

　　The 2024 earnings suggested Haier’s NP growth was only 4% YoY in 4Q24, a rather big gap with the market expectations of double-digit growth. 4Q24 earnings suggested despite the consolidation of three new businesses acquired in 2024, the creation of synergy would take longer than previously planned. Mgmt. has taken initiatives to patch these inefficiencies, especially in Europe, and we expect earnings may see more improvement in late 2025. Still, we expect it would take time for Haier to demonstrate such progress, as well as letting the market digest the new way of Haier when low-margin businesses such as Haier RRS Logistics are consolidated. While we expect there could be near term share price pressure amid macro uncertainties, we expect there could be buying opportunities as the company continues to boost profitability through digitalisation and efforts to enhance shareholder return (such as A-share buybacks).
　　Key Factors for Rating
　　4Q24 earnings missed as one-offs weighed on NP growth. Although 4Q24 revenue grew strongly by 10% YoY or 20% QoQ to RMB83bn thanks to the consolidation of three businesses (Haier RRS Logistics, Carrier Commercial Refrigeration and Kwikot), NP grew only 4% YoY to RMB3,587m, and NPM dipped 0.3ppt further to 4.3%, below market expectations of double-digit NP growth. Mgmt. explained there are one-offs of up to RMB450m in 4Q24 related to: (i) higher finance cost; (ii) FX losses, especially related to Russian Ruble, and (iii) the incurred expenses related to Carrier business.
　　Improving overseas profitability a key priority in 2025. Aside from the newly acquired business, Haier also suffered from higher expenses in Europe in 2024 due to restructuring. It has also started to prepare for a likely increase of tariff under Trump administration since 4Q24, which could increase cost. To offset these, Haier would focus on boosting the profitability of the underperforming segments in 2025 by further cutting costs, improving efficiency with its new approach of digitalisation, as well as asking the suppliers to share the tariff burden. We expect a margin improvement in 2025 would be achievable, given the worst in 4Q24 is already over.
　　Further leveraging the premium Casarte brand in China. In 4Q24, revenue from China grew >10% YoY while sales of Casarte grew >30% YoY. This shows sales of Casarte benefitted from the replacement demand under the subsidy scheme, and we expect it will continue to be a beneficiary in 2025. While the impact of subsidy may fade in 2025, we expect Casarte’s air conditioner will still be a strong market grabber, and Haier’s priority will be promoting this brand online through platforms such as Bilibili and Xiaohongshu.
　　Efforts to boost shareholder return may limit share price downside. Given the 4Q24 miss and higher earnings uncertainty under Trump tariff plans, we expect Haier’s share price will face headwinds in the near term. However, we expect the downside risks will be limited as Haier has introduced two initiatives to boost shareholder return: (i) lifting dividend payout ratio from 45% in 2023 to 48% in 2024 thanks to its strong operating cash flow, and (ii) announcing a share buyback scheme of up to RMB1-2bn that targets 25-50m A-shares. We believe this will buy time for Haier to demonstrate the margin improvement in subsequent quarters, and restore market confidence.
　　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 cut our FY25-26 EPS by 2-3% to reflect the weaker margins after the consolidation of new businesses.
　　Our TP is lowered to HK$33.4, based on 13.5x 2025E P/E (unchanged).
　　We maintain BUY as we believe Haier is still attractive thanks to undemanding valuation with decent ROE and divided yield. We also expect it will continue to grab more market share in various markets in China, the US, Europe and developing markets with its strong product offerings.