Summary of Gree Electric Appliances Inc. 3Q25 Conference Call Company Overview - **Company**: Gree Electric Appliances Inc. (000651.SZ) - **Industry**: HVAC (Heating, Ventilation, and Air Conditioning) Key Financial Results - **3Q25 Revenue**: Rmb 40,034 million, down 15% year-over-year (yoy) [1][6] - **3Q25 Net Profit**: Rmb 7,049 million, down 10% yoy [1][6] - **Comparison to Estimates**: Revenue and net profit were 18% and 2% below Goldman Sachs estimates, respectively [1] - **Interim Dividend**: Announced Rmb 1.0 per share, representing a 28% payout ratio based on Rmb 3.86 EPS for 9M25 [1] Market Position and Competition - **Market Share Pressure**: Gree is the only major HVAC company in the coverage that reported declining revenue in 3Q25, while competitors like Midea, Haier, and Hisense reported growth [1] - **Shipments**: Gree's total shipments increased by 3% yoy, but domestic AC shipments fell by 15% yoy, compared to industry averages of +6% and -13%, respectively [2] - **Contractual Liabilities**: Increased to Rmb 13.7 billion in 3Q25 from Rmb 10.9 billion in 3Q24, potentially supporting revenue growth in 4Q25 [2] Profitability Metrics - **Operating Profit Margin (OPM)**: Decreased by 1.5 percentage points yoy to 14.5%, attributed to pricing pressure and operating deleverage [3] - **Net Operating Cash Flow**: Increased to Rmb 17.4 billion in 3Q25, up from Rmb 7.6 billion in 3Q24, supported by increased prepayments from distributors [3] Investment Thesis - **Strengths**: - Strong manufacturing capabilities due to vertical integration and economies of scale - Extensive offline distribution network - Strong brand equity in the mid to high-end AC segment [7] - **Risks**: - Revenue growth pressure as trade-in stimulus support diminishes - Market share loss due to intensified competition and a less proactive strategy in product offerings [7] - **Valuation Support**: Expected dividend yield of 7% in 2025 is anticipated to support current low valuation [7] Price Target and Risks - **Target Price**: Rmb 42, based on a 9x exit multiple applied to 2027E EPS [8] - **Key Risks**: - Demand fluctuations due to macroeconomic conditions and property market changes - Variability in material costs affecting gross profit margin (GPM) - Channel inventory levels impacting revenue growth - Progress in diversification into other home appliances [9] Conclusion - **Rating**: Neutral, with a fair risk/reward profile based on projected earnings decline in 2026E [7]