• Share price rises amid trade tensions
• Solid fundamentals over longer term
• Potential catalysts in the mean time

Share Price Rises Amid Escalation of Trade Tensions

The share price of Haier Electronics Group (1169 HK) has appreciated by about 6.6% over the past six trading sessions compared to the Hang Seng Index’s 1.3%, likely spurred by re-ignition of trade tensions between the US and China. Recall that around the end of May, the Trump administration said it would proceed with tariffs on US$50b on Chinese imports and broader investment restrictions.

After a third round of China-US trade negotiations ended in Beijing on Sunday without a breakthrough, concerns over trade have only increased. Against such a backdrop, it is probably no surprise that stocks such as Haier Electronics, with little exposure to overseas sales, was a beneficiary in terms of share price performance.

Only about 3.9% of the group’s revenue was derived from export sales in 2017 and we do not see a fundamental impact on earnings should trade tensions escalate.

Overall Consumption Upgrade Trend to Drive Growth Over Longer Term

The white goods sector in China is well past the rapid growth stage and is now relatively matured and consolidated. However, there is still the overall consumption upgrade trend in home appliances, with companies’ new product launches featuring high tech, smart systems and improved user experiences.

We believe this will be in demand by consumers, made possible by a rising middle class in China. In addition, market leaders like Haier are looking to expand overseas sales over time with growing brand awareness of Chinese companies in the world.

We are forecasting ~18% earnings growth for the next two years, supported by forecasted averageselling prices increases due to a shift in product mix towards higher-end products.

Potential Catalysts Mainly Corporate Actions

There are also potential catalysts which could unlock value – the group plans to seek an Ashare listing for the logistics segment, and there could be potential asset injections from unlisted Haier entities such as the water purifier business.

Based on our SOTP-based FV of HK$32.80 for the stock, this implies FY18/19F P/E of ~17.6x and PEG of ~1.0x.

Source: OCBC Research - 5 Jun 2018