Summary of Gree Electric Appliances Inc. 2Q25 Conference Call Company Overview - **Company**: Gree Electric Appliances Inc. (000651.SZ) - **Industry**: Consumer Appliances, primarily Air Conditioning (AC) Key Financial Results - **1H25 Performance**: Total revenue of Rmb 97.6 billion, net profit of Rmb 14.4 billion, representing a year-over-year change of -3% for revenue and +2% for net profit [1][2] - **2Q25 Performance**: Revenue and net profit declined by -12% and -10% year-over-year, respectively, and were -20% and -18% below Goldman Sachs estimates [1][6] - **Operating Cash Flow**: Increased to Rmb 17.3 billion in 2Q25 from Rmb 8.1 billion in 2Q24 [1] Market Dynamics - **Sales Decline**: Consumer appliances sales, mainly AC, fell by 5% year-over-year in 1H25, attributed to market share losses and intensified competition, particularly in the online channel [2] - **Domestic vs. Export Sales**: Domestic sales decreased by 5% in 1H25, while exports grew by 10% year-over-year [2] - **Contractual Liabilities**: Decreased to Rmb 12.4 billion in 2Q25 from Rmb 14.1 billion in 2Q24 [2] Profitability Metrics - **Gross Profit Margin (GPM)**: Core manufacturing GPM declined by 0.9 percentage points year-over-year in 1H25, while consumer appliances GPM decreased by 0.3 percentage points [3] - **Operating Profit Margin (OPM)**: OPM fell by 0.7 percentage points to 14.1% in 1H25 and by 1.5 percentage points to 14.5% in 2Q25 [3] - **Net Profit Margin (NPM)**: NPM expanded by 0.3 percentage points to 15.2% in 2Q25, supported by non-operating items such as government subsidies [3] Investment Thesis - **Market Position**: Gree is the largest residential split AC manufacturer in China and globally [7] - **Valuation**: The company is considered to have an attractive risk/reward profile with a forward P/E of 8x and a dividend yield of 6% [7] - **Growth Outlook**: Expected to grow in line with the overall AC market, with stable margin outlook due to product mix improvement and healthy channel inventory [7] Price Target and Risks - **Target Price**: Set at Rmb 53 based on a 10x exit multiple applied to 2027E EPS [8] - **Key Risks**: 1. Disruption to white goods demand from a weaker macro and property market 2. Rising material costs, particularly for steel and copper 3. High channel inventory impacting revenue growth 4. Diversification into other home appliances potentially reducing short-term returns [9] Additional Insights - **Cash Dividend Payout**: Potential increase in cash dividend payout ratio could serve as a short-term catalyst for stock performance [7] - **Competitive Landscape**: The company faces significant competition in the domestic market, particularly in online sales channels [2] This summary encapsulates the critical financial metrics, market dynamics, investment thesis, and associated risks for Gree Electric Appliances Inc. as discussed in the conference call.

Investment Rating - The report assigns a "Buy" rating to Midea, Gree, Haier, and Hisense, indicating a positive outlook for these companies in the white goods sector [27][28]. Core Insights - The white goods industry is expected to show resilience with a projected revenue growth of +9% and net profit growth of +11% year-over-year for the covered companies in 2Q25, driven by domestic demand and trade-in programs [1][25]. - Midea is highlighted as the leading player in the market, benefiting from a diversified revenue base and strong profitability, while facing manageable competition from smaller players [1][6]. - The report anticipates that domestic demand will become a more significant growth driver, particularly supported by trade-in programs and promotional events like "618" [1][5]. Summary by Sections Domestic Market Dynamics - Domestic demand is expected to accelerate in 2Q25, following a brief slowdown earlier in the year, with trade-in programs resuming and promotional events boosting sales [1][5]. - The National Development and Reform Commission (NDRC) plans to disburse trade-in subsidies starting in July, which is expected to stabilize funding and support growth [1][5]. Competitive Landscape - Increased competition in the online channel is noted, particularly from smaller players like Xiaomi, which may impact revenue growth and margins for these companies [1][4]. - Despite the competition, the report suggests that the risk of a full-blown pricing war is limited, as premium products continue to grow faster than entry-level offerings [1][4]. Company Performance Expectations - Midea, Haier, and Gree are expected to report approximately 10% revenue growth and 10%-12% net profit growth in 2Q25, while Hisense is projected to face more challenges due to a slowdown in its central AC business [4][24]. - The report fine-tunes earnings forecasts for the covered companies, adjusting estimates by -6% to 2% to reflect recent operational data [4][21]. Price Target Revisions - Price targets for the covered companies have been revised down by -11% to 2% to reflect changes in earnings per share (EPS) and target multiples [21][27]. - Midea is expected to maintain its leading position due to its diversified revenue streams and strong market presence, while Gree is anticipated to benefit from strong domestic demand for air conditioning [6][27].

Summary of Conference Call Notes on China Appliances Industry Industry Overview - The Chinese appliance market exhibited mixed dynamics in the first half of the year, with Q1 showing strong performance due to domestic subsidies and export pull-forward, while April data indicated a moderation in growth as exports flattened from Q1's growth [1][2][3]. - Q2 projections remain positive for overall air conditioning (AC) shipment growth, with a forecasted 9% increase, driven by a 17% growth in domestic shipments, despite a 1% decline in exports [3][4]. Key Company Insights Midea - Midea's revenue grew by 20.5% YoY in Q1, driven by domestic subsidies and export front-loading. However, growth is expected to decelerate to 4-5% for the remainder of the year [18]. - Forecasted revenue growth for Midea is approximately 9% in 2025, with home appliances contributing 66% of revenue, expected to grow by 8% [19]. - The company is focusing on energy solutions and industrial technology, with a projected 15% revenue growth in these segments [19]. - Midea's operating profit margin (OPM) is expected to dilute as it grows lower-margin businesses faster, with a forecasted OPM of 11% in 2024 [19][24]. Gree - Gree is expected to grow its topline by 6.5% YoY in 2025, but is likely to face challenges from softening domestic demand in the second half of 2025 as national trade-in subsidy programs taper off [8]. - The company’s topline growth is projected to decelerate significantly to 3.5% YoY in 2H25, underperforming industry peers [8]. Haier - Haier is projected to grow its topline by 7.4% YoY in 2025, with earnings expected to increase by 13.7% YoY, driven by growth in overseas markets, particularly in emerging markets [7]. - The target price for Haier is set at 28 RMB, indicating a potential upside of 5-6% [7]. Market Dynamics - Domestic sell-through growth is primarily volume-driven, with significant increases in both offline (20%) and online (45%) sales volumes, despite modest average selling price (ASP) growth of 3% [4]. - Intense pricing competition is noted in the entry-level segment, with manufacturers like Midea implementing price cuts of 5% across their online portfolio and targeting deeper reductions of 10-20% on specific entry-level products [4]. - The overall market remains value-conscious, with consumers showing a preference for premium SKUs due to national trade-in subsidy programs [4]. Production and Shipment Insights - April data indicated a cooling trend in AC shipments, with only 3% growth compared to 16% in Q1, driven by a flattening of exports [3][12]. - The production plans for Q2 indicate a 7% growth in domestic shipments for Midea, while exports are expected to remain flat or decline [18]. - The overall industry shipment data for ACs shows a YoY growth of 18% in Q1, with a projected 9% growth in Q2 [12]. Investment Implications - The investment outlook for Midea, Haier, and Gree is maintained at Market-Perform, reflecting cautious optimism amid mixed market dynamics and competitive pressures [11]. Additional Insights - The robotics and automation segment is expected to grow, with Midea positioned to benefit from potential growth in humanoid robotics manufacturing [6]. - Midea's long-term model forecasts a revenue compound annual growth rate (CAGR) of 7.7% and earnings CAGR of 9.1% from 2024 to 2029 [20]. This summary encapsulates the key points from the conference call regarding the Chinese appliances industry and the performance outlook for major companies within the sector.