20220509-招银国际-美的集团-000333.SZ-1Q22_beat_and_an_excellent_ToB_game_plan_6页_1mb

Midea Group (000333 CH) Company Update Summary

Core Content

Midea Group reported strong performance in 1Q22, beating expectations due to improved gross profit margin (GPM). The company is shifting its focus to generate better than industry growth over the next three years, and the research team maintains a BUY rating but adjusts the target price (TP) to RMB 67.79, reflecting a 16% upside from the current price of RMB 58.20. The TP is based on a 15x FY22E P/E, down from 22x due to a sector downturn, compared to China and international peers' average of 13x and 14x, respectively.

Main Points

• Financial Performance:

  • FY21 sales and net profit grew by 20% and 5% YoY, respectively, exceeding Bloomberg estimates by 4% and 0%.
  • 1Q22 sales and net profit increased by 10% and 11% YoY, with a 11% increase above Bloomberg estimates.
  • Domestic sales growth was 25% YoY, while overseas sales grew by 14% YoY.
  • ToC sales growth was 13% YoY, and ToB sales growth was 39% YoY.
  • Within ToB, Industrial Technology, Building Technologies, Digital Innovation, and Robotic & Automation sales grew by 44%, 55%, 51%, and 23%, respectively.

• GPM Improvement:

  • 1Q22 GPM improved by 0.5ppt YoY to 22.2%.
  • The improvement is attributed to higher average selling price (ASP) and better product mix.
  • The team is more optimistic about FY22E GPM, driven by more raw material hedging and CNY depreciation.

• Guidance for FY22E:

  • The company aims for ~10% sales and ~10% net profit (NP) growth in FY22E.
  • Key drivers include:
    1. Premiumization: COLMO sales could reach RMB 8.0bn in FY22E, up 300% YoY.
    2. Overseas Expansion: Over 600 Chinese managers have been deployed in various regions, and the company is entering more POSs and e-commerce platforms.
    3. ToB Development: The ToB segment is expected to grow from 22% of FY21 sales to ~30% by FY25E, with a 17% CAGR from FY21 to FY25E.

• Earnings Revisions:

  • Earnings for FY22E, FY23E, and FY24E have been revised downward by 7%, 6%, and 6.6%, respectively, to account for weaker GPM.
  • EBIT margin is expected to decrease by 1.7ppt and 1.8ppt for FY22E and FY23E, respectively.
  • Net profit margin is projected to decline by 1.5ppt and 1.7ppt for FY22E and FY23E.

• Valuation Comparison:

  • Midea Group's P/E ratio for FY22E is 12.9x, and for FY23E is 11.3x.
  • The company's P/B ratio is 2.8x for FY22E and 2.4x for FY23E.
  • The company is trading at 13x P/E for FY22E, which is in line with peers.

• Financial Summary:

  • Revenue is projected to grow from RMB 284,221 million in FY20A to RMB 433,369 million in FY24E.
  • Net profit is expected to increase from RMB 27,223 million in FY20A to RMB 39,752 million in FY24E.
  • The company's net cash from operating activities is expected to grow from RMB 29,557 million in FY20A to RMB 48,420 million in FY24E.
  • Capital expenditures and investments are expected to increase, with a net cash outflow of RMB 8,668 million in FY24E.

• Balance Sheet:

  • Total net assets are projected to increase from RMB 117,516 million in FY20A to RMB 192,987 million in FY24E.
  • Shareholders' equity is expected to grow from RMB 117,516 million in FY20A to RMB 192,987 million in FY24E.
  • The company's current ratio and quick ratio are projected to improve, indicating better liquidity.

• Key Ratios:

  • Gross margin is expected to increase from 22.5% in FY21 to 24.0% in FY24E.
  • Operating margin is projected to rise from 8.2% in FY21 to 9.7% in FY24E.
  • Net margin is expected to increase from 8.4% in FY21 to 9.2% in FY24E.
  • Inventory turnover days and trade receivables days remain stable at 63 and 42, respectively.

Key Information

• Target Price: RMB 67.79 (16% upside from current price).
• GPM: Improved to 22.2% in 1Q22, with expectations for further improvement in FY22E.
• ToB Growth: Expected to grow from 22% of FY21 sales to ~30% by FY25E, with a 17% CAGR.
• Sector Outlook: The team is cautious about home appliance demand for the next 3 years, highlighting the importance of the ToB segment as a new growth driver.
• Earnings Revisions: Downward revisions for FY22E, FY23E, and FY24E to reflect weaker GPM.
• Valuation: P/E and P/B ratios are in line with peers, with a focus on the 15x P/E for FY22E.
• Liquidity: The company maintains a strong cash position, with a cash ratio expected to increase to 0.6x in FY24E.
• Financial Health: The company is projected to maintain a net cash position and improve its liquidity ratios over the forecast period.

Conclusion

Midea Group has demonstrated strong performance in 1Q22, driven by improved GPM and strategic shifts toward ToB growth. Despite the downward revision of earnings, the company remains a BUY with a target price of RMB 67.79. The focus on premiumization, overseas expansion, and ToB development is expected to support future growth. The company's financial health and valuation remain favorable, with a strong cash position and stable liquidity ratios.