Business

Know the Business

Figures converted from CNY at historical FX rates — see data/company.json.fx_rates. Ratios, margins, and multiples are unitless and unchanged.

Bottom line. Haier Smart Home is a globally diversified, multi-brand white-goods and HVAC manufacturer earning mid-teens ROE on $43bn of revenue, with cash generation that covers a 55%-and-rising dividend. The market is pricing it like a maturing China leader caught between fading appliance subsidies at home and US tariff pressure on GE Appliances — and is underweighting the slow grind of overseas margin convergence (Europe restructured, India scaling, HVAC reorganised toward one-third of revenue) that has kept operating margin widening even as gross margin gives ground.

1. How This Business Actually Works

Haier sells appliances. The revenue line is ASP × units × five product platforms × ~160 countries. The business is built on three structural choices:

1. A multi-brand stack across the price ladder — Casarte (premium), Haier (mass-premium), Leader / Candy (value), plus regional flagships GE Appliances (US), Fisher & Paykel (ANZ), AQUA (Japan/SE Asia). The stack defends share at every price point without diluting the premium brand.
2. A "global enablement, local execution" platform — shared R&D, procurement, and digital tooling at the centre; local manufacturing, distribution, and product calibration in 30+ countries. ~52% of FY2025 revenue is earned outside China.
3. A centralised DTC distribution model that now flows 57% of shipments factory-to-consumer, compressing dealer inventory and tightening pricing control.

Management is reorganising around two engines: smart home appliances (refrigerator, laundry, kitchen — ~64% of revenue) and a newly-consolidated HVAC division (Air + Water Solutions = ~24% today, targeted toward one-third and "close to half" of revenue over time).

On economics: Haier's cost stack is dominated by raw materials — steel, copper, aluminium, plastics, compressors — at ~84% of COGS per the company's own disclosure. That means gross margin is structurally exposed to commodity cycles and competitive pricing (FY2025 lost about 1.1ppt of gross margin to a Q4 copper spike). The real operating-leverage lever sits below the gross line, in selling and distribution — and that is where Haier has won the last eight years.

Selling and distribution expense ratio collapsed from 16.4% of revenue in FY2018 to 11.2% in FY2025 — over 500bps handed to operating profit by the centralised DTC model and digital marketing rebuild. Admin expense crept down 0.5ppt. Net margin widened from 5.6% to 6.5% despite gross margin compressing ~3 ppt. Gross margin tells you about copper and competitors; SG&A tells you about Haier.

Durable pricing power lives at the top of the stack — Casarte. Casarte holds 43% offline share of refrigerators priced above $1,430 in China, 76% of washing machines above $1,430, 53% of air conditioners above $2,143. These are not commodity products; they are the high-margin ballast under the corporate average. From the FY2025 annual report: "Casarte's brand value rose to $13.3 billion." Whatever consolidated gross margin does, that brand is the moat.

2. The Playing Field

The peer set splits cleanly into two universes. Chinese majors (Haier, Midea, Gree, Hisense) all earn positive returns and trade at 8-14x earnings; the spread between them reflects mix, not management. Western majors (Whirlpool, Electrolux) are both loss-making, both restructuring, and together carry a market cap (~$4bn) smaller than Hisense alone. Two implications:

Haier's overseas business is competing against impaired opponents. GE Appliances has held the US #1 position for four consecutive years against a Whirlpool that lost money in FY2024 and post-Indesit-spin is shrinking. In Europe, Candy/Hoover grew double-digits with ASP up 10%+ in 2025 against an Electrolux that has been restructuring for three years. The structural arbitrage — Chinese cost base + premium brand + global platform vs. legacy Western incumbent — is intact.

Haier's profit-margin gap to peers is largely a mix story. Gree's 17.6% net margin reflects 70% AC concentration (highest-margin category); Midea's 9.4% reflects industrial robotics + HVAC weight. Haier's 6.5% reflects the diluting effect of overseas businesses still margining in the low single digits — exactly the gap management is closing with the European restructure, the HVAC consolidation, and the India / Pakistan / Vietnam ramp. The opportunity is to converge upward to Midea, not to leapfrog Gree.

3. Is This Business Cyclical?

Moderately. The volume cycle is shallow — global major-appliance retail value grew 3.3% in 2025 and the industry rarely contracts more than mid-single-digits — because installed-base replacement (8-12 year cycle) puts a floor under demand. The price and margin cycle is sharper, and that is where the equity moves.

First, the cycle hits gross margin a quarter or two before it hits earnings, because SG&A is sticky and management has spent eight years dropping S&D as a share of revenue. The FY2023 gross-margin reset (-370bp) telegraphed nothing to net margin because admin and selling discipline caught it. Watching the gross line is more informative than watching the bottom line.

Second, the cycle is partly policy. The Chinese 2024-25 "trade-in for new" subsidy directly pulled premium-mix volume into Haier. Q1 2026 retail data showed the China appliance market down 6.2% YoY as the policy faded — Haier's domestic revenue still grew double-digits, but the industry tape is now negative and the price war is intensifying.

Third, the cycle is regional, not global. In FY2025 China softened, the US went into a tariff-led contraction, Europe revenue grew double-digits with ASP +10% on the restructure tailwind, and South Asia / SE Asia accelerated. The earnings line is a weighted average of four phase-offset regional cycles — why operating margin keeps grinding higher even as one or two regions are under stress.

4. The Metrics That Actually Matter

P/E and revenue growth are the wrong watch list for this company. The metrics below read in the right order — top-of-funnel commodity and ASP first, mix-up next, cash discipline last.

The reason ROE has stayed near 16-17% even as the gross line gives ground is the bottom four rows of this scorecard moving in the right direction at the same time. The bear case isn't that Haier stops generating cash; it's that one of those four rows breaks.

5. What Is This Business Worth?

This is a single economic engine, not a sum-of-the-parts story. Haier has no listed subsidiaries (Haier Electronics was bought in and delisted in December 2020), no separately-traded financial stakes, and no regulated/non-regulated mix demanding different multiples. The right lens is earnings power on a mid-cycle ROE × payout ratio, with adjustments for the convergence opportunity below.

The arithmetic is straightforward. Haier is doing roughly $2.79bn of net income on $17.0bn of book equity (16.5% ROE), converting that to $2.45bn of free cash flow (a 1.33x OCF/NI ratio enviable in a hard-goods manufacturer), and returning more than half through a committed 58%-60% payout. At the HK listing's HK$20.40 ($2.61) close on 2026-05-20, the equity trades around 9× trailing earnings — a single-digit multiple consistent with the market expecting one or more of (a) the China cycle staying negative for several years, (b) US tariff pressure on GEA compressing group margin structurally, or (c) overseas margin convergence not happening. All three could be wrong at the same time, and that is the variant view.

The tri-share structure (A-share Shanghai 600690, H-share Hong Kong 6690, D-share Frankfurt 690D) creates a persistent A/H price spread — the A-share typically trades at a meaningful premium to the H-share for the same underlying earnings. That is a market-microstructure feature, not a valuation lens.

6. What I'd Tell a Young Analyst

Watch four things, in this order:

1. Casarte premium share by category in China. The single best read on whether the premium moat is real — track the >$1,430 SKU shares in refrigerators (43% offline today), washing machines (76%), and air conditioners >$2,143 (53%). If any slips into the 30s, the premiumisation thesis is breaking and the gross-margin floor is going.

2. Overseas operating margin trajectory. FY2025 overseas op margin is ~4.4% on $22.3B of revenue. Every 100bp of convergence toward the corporate average (~6.7%) is roughly $220M of incremental operating profit. The largest unrealised lever in the business and the most under-modelled.

3. GE Appliances under US tariffs. GEA is ~30% of group revenue and the most acutely-pressured part of the platform. The chairman's letter signals FY2026 US margin is set to be worse before it improves; the open question is whether the supply-chain re-base lands in FY2027 or pushes into FY2028. A tariff-resolution catalyst would re-rate the stock more than a China rebound would.

4. HVAC revenue mix progress. ~24% today, targeting 33% and "close to half" over time. Mid-twenties through FY2026 is in-line; flat-lining in the high-twenties is the management plan failing.

Three things to stop watching:

• Quarterly revenue growth at the consolidated line. The four regional cycles average to a number that is almost always between 3% and 8% and rarely tells you anything new.
• Order-book or backlog disclosures. Appliances are a ship-from-stock business; "orders" is a manufactured concept.
• The Casarte versus Haier-brand revenue split in isolation. The premium-share metrics above are tighter.

The variant view the market may be missing: operating margin has expanded every year since FY2018 even as gross margin compressed three full percentage points. That is the visible result of a deliberate, multi-year SG&A discipline rebuild that has more room to run as overseas regions adopt the same DTC playbook. At a single-digit multiple with a 6%+ dividend yield and a committed rising payout, the asymmetry sits on the right side of the trade.