Haier Electronics: Consumer Durables Leader, with Net Cash Balance Sheet

Kisalaya Singh of ANYA Investment Partners presented her in-depth investment thesis on Haier Electronics (Hong Kong: 1169) at Asian Investing Summit 2020.

Thesis summary:

Haier Electronics is the HK-listed subsidiary of China’s Haier group that focuses on manufacturing and distributing washing machines, water heaters, and water purifiers alongside distributing other Haier brand products. Consumer durables is a cash cow business with a long growth runway in China and overseas markets, which has been very efficiently run and has continuously gained market share.

While competition is high in low-end product segments, Haier has been steadily moving up the value chain and now dominates the high-end product category via its home-grown high-end brand, Casarte. Profit has grown at a five-year CAGR of 11.6%, far ahead of the revenue CAGR of 4.8%, reflecting the professional management’s ability to capture scale and premiumization.

The shares recently traded at a discount to market at a 2020E P/E of 12x, with 36% of the market capitalization in net cash despite ROIC in the high teens. This is reflective of the low multiples associated with moderate-growth companies in China as well as confusion about the future of company strategy.

In late 2019, an indicative privatization proposal was presented by the parent company that is likely to combine all Haier consumer brands. The timing is uncertain, but this will help bridge the value of the cash for which Haier gets little credit reflected in the 2020E ex-cash P/E of 7.6x. The margin of safety is high in light of Haier’s dominant brand position in an oligopolistic market, scale-driven advantages, and a fortress balance sheet. Even if the privatization catalyst fails, it would not be unreasonable to expect strong returns over the next three to four years, driven by moderate growth, steady margins, and the valuation multiple catching up to the market multiple.

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About the instructor:

Kisalaya Singh serves as managing partner of ANYA Investment Partners, a value-based investment partnership primarily focused on investment opportunities in Asian companies. Kisalaya’s previous work experience includes Segantii Capital Management, FrontPoint, The Blackstone Group, and Merrill Lynch. He holds an MBA from IIM Ahmedabad.