GREE ELECTRIC APPLIANCES(000651)：STEADY GROWTH IN REVENUE IN Q1 IMPROVED PROFITABILITY OF CORE BUSINESS-格隆汇

机构：兴业证券
研究员：YAN Xiaoqing

Event
Company Profile GREE ELECTRIC APPLIANCES, INC. OF ZHUHAI is a China-based company principally engaged in the manufacture and sale of household appliances. The Company's main products include household air conditioners, central air conditioning systems, air water heaters, small household appliances, industrial products and mobile phones, among others. The Company distributes its products under the brands of Gree and TOSOT. The Company distributes its products in domestic market and to overseas markets. （Source: Reuters）
GREE ELECTRIC APPLIANCES （“GREE”/ the company） announced its 2021 annual financial report and the first-quarter results ended on March 31st of 2022.
In 2021, GREE achieved CNY 189.66 billion in revenue, up 11.24% year on year （YoY）； it reported CNY 23.06 billion in net income attributable to shareholders, a rise of 4.01% YoY.
In Q421, the company made CNY 50.11 billion in revenue, a 16.44% YoY growth; it posted CNY 7.42 billion in net income attributable to shareholders, a decrease of 12.48% YoY.
In Q122, the total revenue was 35.54 billion, an annual growth of 6.02%; the net income attributable to shareholders stood at CNY 4.00 billion, at a 16.28% annual clip.
GREE plans to distribute CNY 20 for every 10 shares, with dividend rate of 48.01%.
Comments
GREE saw steady growth in revenue in Q1.
By regions, the company’s sales volume in China and to overseas markets rose by 10.78% YoY and 12.56%YoY, respectively.
By business lines, the company’s air conditioners/ household appliances/ industrial products/ intelligent equipment/ green energy jumped by 13.96%/ 7.96% / 38.60/ 42.77%/63.13% from a year prior.
According to ChinaIOL.com, in Q122, GREE’s sales volume of air-conditioners decreased by 12.00% YoY in China while that increased by 9.31% YoY in overseas markets.
According to ALL VIEW CLOUD （AVC），the average price of the company’s air-conditioners online and offline in Q122 climbed by 5.14% YoY and 12.65% YoY, respectively.
In the short term, the normal spending on air conditioners was disrupted due to the COVID-19. Given the rigid demand and peak season to come, the demand for the company’s air-conditioners is expected to improve.
The profitability of GREE’s main business in Q1 improved, and its operating cash flow improved from a year before.
The gap between gross margin and selling expense rate declined by 0.27 percentage points （PP） in Q421 but increased by 1.55 PP in Q122.
The selling and R&D expense rates in Q122 declined by 2.28PP and 0.26 PP from a year earlier but the administrative and financial expense rates increased by 0.98pp and 0.48 pp from a year earlier.
In Q122, the ratio of net profit attributable to shareholders was 11.27%, up 0.99PP year on year.
Deducting impacts of businesses suffering from losses, we hold that the company’s profitability of its core businesses enhanced remarkably.
The single-quarter net operating cash flow in Q122 was CNY 3.39 billion, compared with a loss of CNY 4.27 billion in the same period last year.
The contract liability at the end of Q122 rose by 21.32% YoY, thanks to distributors’ higher willingness to pay in advance.
Earnings forecast and investment recommendation As a leading player of air conditioners in China, GREE boasts strong competitive advantages in products, channels and brand influence.
Thanks to the smooth progress of channel reforms, the company’s rising momentum recovers steadily.
Given the raw materials costs and COVID disruptions, we revised up its earnings forecast and estimated its EPS to CNY 4.42 in 2022, CNY 5.13 in 2023, and CNY 5.69 in 2024, implying a price-to-earnings ratio to be 7.06x, 6.08x, and 5.49x, based on the closing price on April 29th. Reiterate “Outperform”。
Potential risks a surge in raw materials prices; intensified competition; worse-than-expected COVID impacts