• Sale momentum slows in 4Q
• New CEO effective 27 Mar
• Increases dividend

13.7% Net Profit Growth in FY18

Haier Electronics (1169 HK) delivered an 8.3% increase in revenue to RMB85.3b and a 13.7% growth in net profit to RMB3.8b in FY18, such that full year net profit was 4% shy of our forecast but still generally within expectations. Revenue from washing machines grew 10%, with the Casarte brand registering more than 50% growth. Sales from water heaters rose 10.7%, while contribution from channel services increased 7.0%.

Overall gross profit margin rose 0.3 ppt to 17.8% in FY18, mainly due to the increase in proportion of high-end products. Sales momentum for the company has slowed unsurprisingly in 4Q18, with washing machines and water heater sales down 4% and 2%, but still outperforming the general industry.

New CEO for the Company

It was also announced that Mr. Li Hua Gang (aged 49) has relinquished his role as the CEO of Haier Electronics with effect from 27 Mar 2019, and is appointed as an Executive Director of the company. Mr. Xie Ju Zhi (aged 53) is the new CEO, and is also appointed as an Executive Director.

Mr. Xie joined Haier Group in 1989 after graduating from university, and was the Vice President of Haier Group in charge of new business segments (water purification, logistics, Haier home and Gooday services, and water heaters) since Dec 2015. Hence it is expected that he will lead the company to focus on new segments such as water-related appliances going forward.

Expecting Double-digit Earnings Growth for 2019

Looking ahead at 2019, management is expecting high single-digit growth for washing machines and water heaters, while channel services may see mid-single digit growth in terms of sales. Logistics may see mid-teens growth. For the group’s bottom-line, double-digit growth is expected for 2019 and we keep our earnings forecasts intact.

A higher dividend of HK$0.38/share has been declared, compared to HK$0.29/share in FY17. Along with the growth in net profit, the pay-out ratio has also been increased from 20% to 25%. Looking ahead, we see room for growth for both bottom-line and pay-out ratio. With softening in market sentiment, we tweak our P/E assumptions in our SOTP-valuation, and our fair value slips from HK$29.08 to HK$26.83. Maintain BUY.

Source: OCBC Research - 29 Mar 2019