Report Interpretation

Overview

This Morgan Stanley conference-takeaways update examines Haier Smart Home's FY26 outlook, its regional and product recovery plans, margin initiatives, capital spending and valuation. The central message is a restrained near-term outlook offset by planned overseas growth and operational improvements.

Core views

Management expects FY26 sales to be largely flat year on year, with 3Q still pressured by a high comparison base. The net-profit target is likewise flat year on year and includes a tax-refund benefit. In the second half, HVAC growth is expected to be in the single digits year on year, driven by overseas markets while domestic HVAC sales remain flat. Domestic white-goods sales are expected to recover to low-single-digit growth after organizational restructuring and refrigerator product-portfolio enhancements. Regional recovery is a core part of the outlook. US sales are targeted to be flat in 2H26 in US-dollar terms despite ongoing industry pressure, while margin improvement is expected after production-site and supply-chain optimization. Europe is targeted to deliver high-single-digit sales growth in local currency: white goods are expected to grow at a single-digit rate, while HVAC continues to expand rapidly. European margin is expected to improve meaningfully in 2H26 versus 1H26, provided no further restructuring costs arise. The report also highlights margin levers in HVAC. Haier's China residential air-conditioner sales grew about 10% in 1H26, with margins of 6-7%. Management's focus is better pricing through a more favorable product mix, more competitive products and synergies from segment consolidation. In the US, EBIT margin is targeted to recover from 5% currently to 7% over the next two to three years through production-site optimization and supply-chain efficiency. Costs remain an important counterweight. Copper prices continue to pressure air-conditioner profitability; mitigation measures include locked-in procurement, hedging and supply-chain savings. Direct-to-consumer operations raise warehousing and logistics expense, but management expects gross-margin savings from channel-discount optimization to support overall margins. Haier spent Rmb4.4bn on capex in 1H26, split equally between domestic and overseas investment, with most overseas spending directed to US supply-chain optimization. FY26 capex is targeted at Rmb10bn. Datacenter revenue contribution was limited in 1H26, though the business is growing rapidly and has partnerships with hyperscalers; Haier is currently focused mainly on air cooling while exploring liquid-cooling investment opportunities primarily in China. For valuation, Morgan Stanley's A-share target is based on an 11x 2026E P/E, equivalent to 2.3x PEG on 2025-27E EPS CAGR. The selected P/E is below the 13x average at which the stock has traded since 2017. For the H share, its base case applies a 10% discount to the A share, in line with the average since Haier-H's listing, implying a 9.8x 2026E P/E. The report lists an Equal-weight rating, Rmb23.00 target price and 11% upside for the A share.

Analysis framework

The report combines management conference takeaways with regional sales and margin targets, product and channel initiatives, cost pressures, capex plans and forward valuation. It values the A share using a target 2026E P/E and frames the H-share valuation through a discount to the A share.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Target 2026E P/E and PEG valuation

  Morgan Stanley sets the A-share target using an 11x 2026E P/E, cross-checking it against 2.3x PEG based on 2025-27E EPS CAGR and the stock's historical average P/E.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Raw-material cost and supply-chain transmission

  The report links higher copper prices to air-conditioner profitability and assesses procurement locking, hedging and supply-chain savings as mitigation measures.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Haier Smart Home Co Ltd (600690.SH)

  Primary covered A-share security; expected to benefit from overseas growth, margin initiatives and domestic white-goods recovery.

  Strengths

  Overseas HVAC growth, product-mix improvement, supply-chain optimization and potential US margin recovery.

  Weaknesses

  FY26 sales and net profit are targeted to be broadly flat, while domestic HVAC sales are expected to remain flat in 2H26.

  Comparison

  Valued at 11x 2026E P/E versus a 13x average P/E since 2017.

  Risks

  Chinese property weakness, air-conditioner price competition, expansion execution costs and M&A execution risk.

• Haier Smart Home Co Ltd (06690.HK)

  Covered H-share security linked to the same operating outlook.

  Strengths

  Shares the group's overseas growth and margin-improvement initiatives.

  Weaknesses

  Subject to the same domestic demand and cost pressures as the group.

  Comparison

  Base-case valuation assumes a 10% discount to the A share, implying 9.8x 2026E P/E.

  Risks

  Air-conditioner price competition, expansion-plan execution costs and M&A execution risk.

Key data

• FY26 sales outlookLargely flat yoy3Q remains under pressure from a high base.
• FY26 net-profit targetFlat yoyIncludes a tax-refund benefit.
• China residential AC growth~10% in 1H26Margins were 6-7%.
• US EBIT margin target7% over the next 2-3 yearsCompared with 5% currently.
• 1H26 capexRmb4.4bnSplit equally between domestic and overseas investment.
• FY26 capex targetRmb10bnOverseas spending is mainly for US supply-chain optimization.
• A-share valuation11x 2026E P/E; 2.3x PEGThe target P/E is below the 13x average since 2017.
• H-share valuation9.8x 2026E P/EBased on a 10% discount to the A share.

Impact & implications

The report indicates that overseas HVAC growth, product mix, supply-chain efficiency and channel-discount optimization are intended to offset weak domestic demand and copper-cost pressure. Its Equal-weight stance reflects a balance between these improvement initiatives and the muted FY26 growth outlook.

Risks

• A further slowdown in the Chinese property market could weaken demand.
• Price competition in air conditioners from market leaders could pressure performance.
• Poor execution of the expansion plan could result in higher-than-expected costs.
• M&A deals carry execution risk.