Initiate BUY on HSH-H, as we forecast 16% NP CAGR in FY19-22E vs 9% in FY17-19, driven by: 1) recovery in China, aided by healthy inventory and better ASP, 2) robust export growth, 3) Casarte’s rapid growth to resume and 4) synergies from M&As. Our TP of HK$ 26.91 is based on 20x FY21E P/E, 9% discount to leading China peer’s avg. but 8% higher than Int’l peers’ avg.. HSH-H’s valuation is attractive at 16x FY21E P/E, vs HSH-A’s 18x and Midea’s 21x.
- A global leader with dominance in fridge, laundry and water heater. Haier Smart Home (“HSH”) has seven major brands (Haier, Casarte, Leader, GE Appliances, Fisher & Paykel, Aqua and Candy), and it has 14.7% market shares by volume sold in the world in 2019. It posted RMB 198bn sales/ RMB 12.3bn net profit, and reported 15%/12% sales/NP att. CAGR during FY14-19.
- Turnaround supported by better product quality and higher ASP. HSH is consistently gaining more market shares and even more in 1H20, thanks to its ability to capture the ever changing customer’ needs with new products equipped with innovative technology. We are more optimistic on FY21E, thanks to healthy industry inventory and ASP uptrend since 2Q20.
- Robust exports growth and GEA, Candy’s turnaround ahead. We expect exports and stay home demand to remain strong in FY21E. Moreover, thanks to increased synergies between GEA, Candy and Haier (more tech know how and supply chain sharing), we expect overseas margin to improve in FY20E-22E. We also foresee EU sales CAGR to be fast at 9% in FY19-20E.
- Casarte is set to resume its explosive growth. Casarte sales grew by 27% CAGR in FY14-19, but slowed down due to lack of production capacity in FY19 and COVID-19 in 1H20. We expect 25%/ 20% YoY growth in FY21E/ 22E.
- Multiple synergies from privatization of Haier Electronics. We believe HSH to catch up and produce a 16% NP CAGR in FY19-22E (vs 12%/ 3% for Midea/ Gree), driven by 1) better overseas sales and margins, 2) synergies yielding from better efficiency, capital allocations and corporate governance.
- We forecast 8% sales and 16% net profit CAGR in FY19-22E.
- Initiate BUY with TP of HK$ 26.91, based on 20x FY21E P/E. Our TP is based on 20.0x FY21E P/E, at a 9% discount to China peers average of 21.9x, or 8% premium over int’l peers’ average of 18.5x, considering: 1) faster-than-peers NP CAGR, 2) less small appliances exposure, 3) greater sales mix from self-owned brand. The current stock price (derived from Haier Electronics’ last price and HSH’s H share swap agreement) of HK$ 21.69 implies 16.1x FY21E P/E, which is fairly attractive in our view.
