29 August 2025 | 7:03AM CST Gree Electric Appliances Inc. (000651.SZ): 2Q25 First Take: Revenue miss likely on competition pressure Gree reported below-expected 2Q25 results post market close of Aug 28. Total revenue/net profit in 1H25 of Rmb97.6bn/Rmb14.4bn, was -3%/+2% yoy, implying -12%/-10% yoy in 2Q25 (and -20%/-18% vs. GSe). That said, operating cash flow increased to Rmb17.3bn in 2Q25 vs. Rmb8.1bn in 2Q24. Revenue miss likely due to share loss and pricing pressure from competition. Consumer appliance ...

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.