20201223-招银国际-海尔智家-06690.HK-Premiumization,_globalization_and_synergies_37页_3mb

Summary of Haier Smart Home (6690 HK) Equity Research

Core Content

Haier Smart Home (HSH) is a global leader in major home appliances, particularly in fridges, laundry appliances, and water heaters. The company has seven major brands, including Haier, Casarte, Leader, GE Appliances, Fisher & Paykel, Aqua, and Candy, and holds a 14.7% market share in global retail volume as of 2019. It reported RMB 198bn in sales and RMB 12.3bn in net profit in FY19, with a 15% and 12% CAGR in sales and net profit, respectively, from FY14 to FY19.

The research initiates a BUY rating on HSH-H, with a Target Price of HK$26.91, based on a 20x FY21E P/E. This valuation is 9% below the average P/E of leading China home appliance peers (21.9x) but 8% above the average P/E of international peers (18.5x). The current stock price of HK$21.69 implies a 16.1x FY21E P/E, which is considered attractive.

Main Points and Key Drivers

1. Turnaround and Performance Recovery

• HSH has consistently gained market share over the past decade, even during the pandemic.
• The company has improved product quality and ASP (Average Selling Price), leading to better financial performance.
• It is expected to achieve 8% sales growth and 16% net profit growth in FY20E–22E, driven by better ASP and cost synergies from the privatization of Haier Electronics.

2. Robust Export Growth and Synergies

• Exports are expected to remain strong in FY21E due to increased demand and "Work From Home" policies.
• Synergies between HSH, GEA, and Candy are anticipated to improve overseas margins.
• GE Appliances (GEA) and Candy are set to improve performance due to restructuring, supply chain optimization, and technology sharing.
• The EU market is forecasted to grow at a 9% CAGR in FY19–20E, with further improvements in FY21E–22E.

3. Casarte's Growth Resumption

• Casarte, a high-end brand launched in 2007, had a 27% CAGR in FY14–19, but growth slowed due to production capacity constraints and the impact of the pandemic.
• Casarte is expected to resume rapid growth, with a 22% CAGR in FY19–22E.
• In 1H20, Casarte held 40%, 76%, and 42% market shares in high-end fridges, washing machines, and air conditioners, respectively.
• Casarte's ASP is significantly higher than the industry average, ranging from RMB 7K to 12K.

4. Valuation and Investment Thesis

• The target price of HK$26.91 is based on a 20x FY21E P/E, which is 9% below the average P/E of China peers and 8% above the average P/E of international peers.
• The company's valuation is considered attractive due to its faster-than-peer net profit growth, lower exposure to small appliances, and higher sales mix from self-owned brands.
• The current price of HK$21.69 implies a 16.1x FY21E P/E, which is 28% below the price of the A-share (RMB 26.42), indicating a potential undervaluation.

Key Growth Drivers

• Premiumization: Rising consumer demand for functional and stylish appliances.
• Global Expansion: Continued growth in export markets, especially in Europe and the US.
• Synergies from M&A: Improved efficiency, capital allocation, and corporate governance from acquisitions such as GEA and Candy.
• Product Innovation: Launch of innovative products with enhanced features and customer services.
• Market Share Gains: Increased dominance in key markets like China and the global white goods sector.

Company Structure and Performance

• Shareholding Structure:
  • Haier Group holds 28.54% of HSH-H shares.
  • Free float includes 34.02% A-shares and 21.15% H-shares.
• Financial Performance:
  • Revenue in FY19 was RMB 198.0bn, with net profit of RMB 12.3bn.
  • Sales and net profit CAGR for FY14–19 were 15% and 12%, respectively.
  • FY20E–22E forecasts show continued growth with 8% sales CAGR and 16% net profit CAGR.
• Earnings Growth:
  • Diluted EPS is expected to grow from 1.075 in FY20E to 1.404 in FY22E.
  • Net profit growth is projected to be 1%, 29%, and 19% for FY20E–22E.

Industry Positioning

• World Rankings:
  • 1st in refrigeration, laundry, and water heaters.
  • 2nd in large kitchen appliances.
  • 3rd in air conditioners.
• China Market:
  • 1st in refrigeration, laundry, and water heaters.
  • 3rd in air conditioners and large kitchen appliances.
• Overseas Market:
  • 2nd in North America, Australia, and New Zealand.
  • 5th in Europe, with only 7.2% market share in 2019.
  • High potential for growth in Europe due to low market penetration and synergies.

Key Risks

• Global Economic Downturn: Could impact export demand.
• Supply Chain Disruptions: Especially in key overseas markets.
• Competition: From peers like Midea and Gree.
• Regulatory Changes: In different regions where HSH operates.

Conclusion

Haier Smart Home is well-positioned to benefit from premiumization trends, robust export growth, and synergies from its international acquisitions. The company's strong brand portfolio and focus on high-end products, such as Casarte, are expected to drive significant growth in the coming years. With a target price of HK$26.91 and a current price of HK$21.69, the stock is seen as undervalued and a compelling investment opportunity.