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Edited Transcript of 600690.SS earnings conference call or presentation 31-Oct-19 9:00am GMT

Q3 2019 Haier Smart Home Co Ltd Earnings Call

Qingdao Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Haier Smart Home Co Ltd earnings conference call or presentation Thursday, October 31, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anita Sun

Haier Smart Home Co., Ltd. - Senior IR Manager

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Conference Call Participants

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* Dylan Chu

CLSA Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, good afternoon, ladies and gentlemen. Welcome to the conference call. Our host today is Mr. Dylan Chu. Please begin the call and I will be stand by for the Q&A.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [2]

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Thank you, Alberta. Good morning, good afternoon. Thank you so much for joining Haier Smart Home Q3 '19 Results Conference Call today. My name is Dylan and I'll be the moderator for this call.

Today, it is our great pleasure to have Ms. Anita Sun, Investor Relations manager, Haier Smart Home; as well as Wei Gong, Finance Manager, Haier Smart Home, today to share with us the latest updates in terms of developments and future strategies.

In terms of format, we will kick off today's call with a very quick overview from Anita, and then we will open up for Q&A.

With that, I'll hand over the call to Anita, please.

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [3]

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Well, thank you very much, Dylan. And good morning, good afternoon. Thank you very much for taking the time to join us on this call. I'll go through our third quarter results very briefly before opening -- sorry, before opening up for questions.

For the first 3 quarters, sales revenue growth was under RMB 148.9 billion, 7.7% revenue growth. Net profit was RMB [717 million]. That is a 26.2% growth. And for the third quarter, on its own (inaudible) the top line growth was 4.6%. And ex the impact of the logistics spinoff, the like-for-like revenue growth would be 9.1% for the third quarter and 9.5% for the first 3 quarters. And this particular spinoff also resulted in a one-off gain of RMB 144 million in third quarter.

I would also like to highlight that the strong performance we saw in the first half of Casarte brand continued in the first quarter with 42% top line growth and also 25% for the first 3 quarters of this year. During the same period, overseas revenue grew by 25%, contributing to 47% of total revenue with almost a 100% from our own brands.

Now we are very happy to answer any of your questions. Dylan?

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [4]

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(foreign language) Thanks for the overview. Operator, could you please mention how to raise a question?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [2]

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Before you ask your questions, I think I would like to just go over some numbers because Haier has become increasingly diversified businesses. And also, in this particular quarter, we've had a little additional change with the logistics deconsolidation. So please allow me just a little bit of time and going over some top line and bottom line trends.

So firstly, on sales level. Could you please help us break down the impact of logistics deconsolidation as well as Candy consolidation, just in terms of actual amounts in terms of R&D and maintenance and also excluding those 2, in R&D trends, what was the growth rate for Haier domestic business, Haier overseas business as well as General Electric Appliance business during the third quarter, please?

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Unidentified Company Representative, [3]

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(foreign language)

[Interpreted] Yes. Actually, in terms of the logistics, the -- we -- actually, in terms of the logistics one, we do -- it's not very convenient to disclose the overall comparison period sales revenue, but we can actually have the overall picture in terms of the sales Q3, the one quarter, the sales included the logistic -- the logistic impact, it was increased to 4.6%. Exclude this consideration is 9.1%. So the net part of the Q3 is RMB 2.62 billion and the logistic invest -- investment income contribute RMB 1.44 billion. So it's one of the -- your question in terms of the logistics impact. And the other one is the Candy's one. For the revenue for the first 3 quarters, Candy actually is 7.2 -- contributed RMB 7.2 billion for the sales revenue.

So in terms of the domestic sales and overseas sales for the past 3 quarters is the domestic sales total white good sales is RMB 62.2 billion. And actually, a little bit decreased compared with last year same period, minus 2.3%. Overseas one, actually we have a very strong increase this year. The accumulated for 3 quarters is RMB 70.17 billion, and compared with the last comparison period is 23.5% increase.

In terms of the GE Appliances, the overall increase of sales is higher than the industry, and it continues a 13-quarter increase. And for the past 3 quarters, the overall U.S. -- what was industry, it's actually the -- it's a decrease for 5.2%. But GE Appliances compared with -- I mean, the share -- market share compared with the comparison period, it's 1.2% increase. For the third quarter, GE Appliances market share increased by 1.5%. The revenue of GE Appliances for the third quarter, one quarter is 14.8%, and with the increase of RMB 1 is 9.16%. And for the last 3 quarters in total is RMB 42.16 billion, and was increased 11.97%.

In terms of the revenue, in the past 3 quarters, in total, GE Appliances increased -- revenue increased 7%. And for the third quarter is 6.2% in USD. And net revenue increased 25%. And net revenue rate is 3.7% compared with last period is 0.5% increase. Yes, that's the overall financial performance of our Q3 financial results.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [4]

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Thanks very much for a lot of details. Could I please just double check just 2 numbers with you. Just in terms of the Haier domestic business sales growth in the first 9 months, in the first 3 quarters this year, it declined by, roughly speaking, 2.3%. Was that the first 9 months number? Or was that the Q3 number? And secondly, for overseas business, if I recall you right, for the first 9 months, its sales increased by 23.5%. Could I also please, have the Q3 stand-alone number as well, from year-over-year growth?

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Unidentified Company Representative, [5]

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Yes, for sure. The domestic ones Q3, the one quarter, the revenue is RMB 21 billion and it dropped by 3.6%. And the total one already said. So for the overseas one, for Q3 one quarter, the total sales is 23.4% and increased by 22.1%, and the total revenue already said.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [6]

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Just maybe quickly recap the numbers a little bit for investors. Definitely in term impact, there was roughly speaking 4.8% during the quarter. In terms of Candy, first 9 months contribution was RMB 7.2 billion.

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Unidentified Company Representative, [7]

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Yes.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [8]

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If I recall it right. First 2 quarters combined was roughly speaking RMB 4.5 billion, which implied about RMB 2.7 billion in the third quarter. In terms of quarters of Haier and GE growth, in terms of the first 9 months, domestic sales declined by 2.3%. Overseas sales increased by 23.5% and GE increased by 11.9%. In terms of the quarter's standalone, domestic business declined by 3.6%, overseas business increased by 23.1%, and GEA in RMB terms increased by 9.1 -- 9.2%. So -- thanks for all that. Very helpful details.

Secondly, just again on the top line level. Could you please help us break down Haier domestic sales in terms of different key categories? And if possible, also breaking down that in terms of the estimated volume trends as well?

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Unidentified Company Representative, [9]

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Okay. So in terms of the domestic sales, the -- for each one is the Q3 stand-alone is RMB 7.4 billion increased. And for the total one is RMB 22 billion. And for the washing machine is RMB 6.13 billion, and for the 9 months is RMB 15.6 billion. For the air conditioner, the -- for the home use, actually, is RMB 3.78 billion for Q3. And for the last -- for the first 9 months, it's RMB 12.9 billion. And for the air con, for the commercial use, actually is RMB 1.5 billion for Q3 stand-alone and for -- RMB 3.9 billion for the past 9 months. And for the Kitchen, Kitchen Appliances is RMB 0.5 billion for Q3 stand-alone and RMB 1.7 billion for the 9 months. And for the --

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Unidentified Company Representative, [10]

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Water heater.

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Unidentified Company Representative, [11]

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Water heater. Yes. Water heater is RMB 1.7 billion for Q3 and RMB 5.6 billion for the 9 months. Yes, this is a domestic one.

And your second question is the volume and the price, right. For the -- you are asking the first 9 months or the 3-quarter -- Q3 stand-alone. So the Q3 stand-alone for our fridge is 9 -- is RMB 2.99 billion for the volume. And the price is --

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [12]

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Right. Maybe just to year-over-year change, that would be very helpful.

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Unidentified Company Representative, [13]

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Okay. Sorry about that. So the volume for the fridge is a little bit decreased by 0.2%. And the price increased by 1.3%. And get -- I'm sorry.

Let's do that again. In the fridge, it's actually for the volume, it's steady with no increase or decrease. And the price actually increased by 0.1%. And Washing Machine is 5.7% for the volume and the price decreased by 1.1%. And the air con for home use is minus -- 19% for the volume. And decreased by 7.5% for -- and the air con for the commercial use for the volume decreased by 14.2%, and the price increased by 26.7%.

Kitchen Appliances, the volume decreased by 9.3%, and the price increased by 6.2%. The Water Heaters -- the volume increased by 13.6%, and the price decreased by 7.5%. Yes, that's it.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [14]

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All right, cool. Thank you for a lot of the details. But finally, just again, on that domestic business in the '18 and '19 alone. Just wondering if you can share with us in terms of sales trends growth for different brands -- within the key brand leader, Haier and Casarte that we learn.

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Unidentified Company Representative, [15]

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For the fridge, Haier --

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [16]

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I think just for the overall business, it would be very helpful. Just in terms of the total categories for either Haier and Casarte?

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Unidentified Company Representative, [17]

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Actually, 25?

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Unidentified Company Representative, [18]

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(inaudible)

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [19]

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If we don't happen to have that data, perhaps, maybe just one more -- just 2 more questions.

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Unidentified Company Representative, [20]

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One second. In terms of the sales, the Casarte Q3 stand-alone increased by 7% -- 42% leader minus a little bit decreased by 0.9% and Haier, a little decrease by 9.6%.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [21]

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Okay. Great. Thanks so much for further details. Finally, in terms of bottom line, just a little bit of color around profitability in terms of different segments. Just one question. If we exclude the impact from logistic deconsolidation as well as Candy consolidation, what would Haier core net profit growth have been in Q3 '19? And secondly, just in terms of this quarter, could you please give a little bit of color in terms of sort of net marginal range or profitability situation for GEA, Candy, Haier different segments?

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Unidentified Company Representative, [22]

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So in terms of the logistics consideration, we may actually think about it. It should be the next quarter is growing extraordinary items. So the increase rate is 8% for the Q3 stand-alone.

Yes, for the GE Appliances, net profit ratio, as I said before, it's 3.7%. And the Candy, the Candy, actually the -- incurred a loss in the last 9 months is what (inaudible) is minus 103 -- RMB 132 million. It's a profit before revenue for the Candy, yes. Sorry, loss before -- loss before tax, sorry.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [23]

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Okay, cool. That's super clear. And thank you for your patience.

With that, operator, could you please take any questions from the line?

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Operator [24]

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Sure. Our first question comes from Jason (inaudible) with (inaudible).

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Unidentified Analyst, [25]

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Dylan, something for management. Can I ask in Chinese directly. I think it's easier for management to discuss in Chinese.

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Unidentified Company Representative, [26]

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Yes, sure. Maybe Anita can help translate?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [27]

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Yes.

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Unidentified Company Representative, [28]

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Okay. I can help translate. Yes, please.

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Unidentified Analyst, [29]

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(foreign language)

[Interpreted] Right. I have noticed that Haier started to introduce more promotions, in particular, on the Internet platform in the first quarter. And could you please share a bit more color on that? And also, number two, could you please share with us your outlook for the appliance industry in the year 2020?

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Operator [30]

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Jason, do you have any further questions?

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Unidentified Analyst, [31]

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No.

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Operator [32]

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(Operator Instructions)

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [33]

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Yes. Actually, how do we go back to Jason on these questions?

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Operator [34]

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Jason, if you have any follow-up questions?

(Operator Instructions)

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Unidentified Company Representative, [35]

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(foreign language)

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [36]

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[Interpreted] Right. Okay. I'll just answer very briefly this question. Yes, we've made a big change in our overall strategy. In particular, with the low-end SKUs, and it was not only for the Internet, but also for the offline platform. We are committed to match our competitor's price, in particular, for the low-end SKUs in order to (inaudible). On the other hand, we remain committed to our positioning in mid- to high-end categories as well as SKUs in order to maintain profitability. And so far, strategy has been paying off quite significantly. We have seen double-digit growth in the past months. And we also believe this trend will continue for the months coming. And actually -- for the appliances industry next year. And we believe that overall momentum might remain under pressure, but with all these changes and adjustments we have made, in particular, to the China distribution network, we also believe that our strong momentum could continue for the next 4 quarters.

As to the overseas business, and we have seen quite strong growth for at least 2 years. And also, we believe that our trend can continue in most of the regions, in particular, GE Appliances. In this space, we'll continue to outperform in this industry.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [37]

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Great. Thanks, Anita. Operator, could you take the next question.

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Operator [38]

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(Operator Instructions)

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [39]

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While waiting for the next question, I'll just jump in. And Anita, you have mentioned that October trend has been pretty strong, domestic side of sales momentum, partly driven by more proactive discounting. How would that impact sort of Q4 margin? And do you think this is Haier in particular? Or do you think this is industry-wide phenomenon?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [40]

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Great. And well, the short answer is that we don't think it's going to be a negative impact on the bottom line but, on the contrary, with a significant increase in volume, and there is a very good chance that we could improve the bottom line as well. And what we did in the background platform was done to cut the overall number of our teams by roughly 30%, and the figure is going to be around 50% by the end of the year. And that impact is significantly improved in the per SKU contribution and also a deduction in the overall cost for our products.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [41]

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Okay, great. And you mentioned that you believe this momentum, the sort of double-digit growth momentum can be sustainable into November and December. Just considering sort of the big online season coming up. Will we be doing anything different in terms of double 11 and double 12 very big historically? And do we have any sort of visibility in terms of sort of online growth in Q4?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [42]

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Well, I should say our growth has always been outperforming the online average. And we believe that's going to be the case for the upcoming promotional period. And in particular, which is -- with fewer products with better performances. And we also believe that the momentum could continue.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [43]

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Okay. Got it.

Operator, do we have any further questions from the lines?

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Operator [44]

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Not at the moment, Dylan. (Operator Instructions)

Next question comes from Ryan Chen(inaudible) with Pacific Eagle.

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Unidentified Analyst, [45]

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(foreign language)

[Interpreted] Could you please share with us a bit of color on the profitability of the domestic business and that versus the overseas -- excuse me, versus overseas business? And whether there's been any change in the third quarter of this year?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [46]

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Okay. So in terms of the net overseas fund, the net profit rate for the overseas, other than GE Appliances, the overall one is about 2%. And for GE Appliances, as I said before, this is 3.7% for the overseas one. And for the domestic one is much better than the overseas is -- at about 6% or 6% above.

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Unidentified Analyst, [47]

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(foreign language)

[Interpreted] And also, what are your goals in terms of profitability for the overseas business? And also over what time period?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [48]

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So in terms of the overseas ones, it takes time to -- for us, at least, to reach the level of the domestic one. That's our -- I mean, short end objective. So in terms of GE Appliances, the EBITDA rate should reach to 8%. That's it.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [49]

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Can I jump in and ask a quick follow-up? So you mentioned the target for GEA is to reach EBITDA margin of around 8%, and currently, this quarter. But for example, last year or this year, where would the full year EBITDA margin be for GE Appliance business?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [50]

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So actually, in terms of the 3 -- the 3.7 is the net profit rate. So the EBITDA rate, we are close to 8% currently, but it's not near reached. But our short-term objective is to reach to 8% at least for GE Appliances EBITDA rate.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [51]

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Right. But we're already around sort of 8% EBITDA margin. But the 3Q might be a big quarter. So in terms of full year, maybe 2018, do you happen to recall what level of EBITDA margin GEA achieved back in last year?

Just very roughly speaking, just to get a sense how much further room for improvement there could be on GEA margin level?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [52]

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So in terms of the operating margin for the GE Appliances is 6% for the current year. And in the future, the CEO of GE Appliances have such forecast and said, 8%. It's quite reasonable and reachable. Yes.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [53]

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Okay, great. So another 2% room for profitability for 8%.

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [54]

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Yes.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [55]

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Okay. Very helpful. Operator, could you please...

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [56]

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Yes, we're committed to continue outperforming the industry and its peers. And so we play growth for us, number 1 in the market.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [57]

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Okay, great. Operator, could you -- please.

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Unidentified Analyst, [58]

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Yes. I want to continue to ask. I mean, I've asked about the -- you have given very helpful information on the overseas margins. But then what you said trend? Is it trending up as a whole? Or is it now still in the phase of integration, means that we have not seen a positive uptrend? Yes. Can you comment on that, the trend of the margin?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [59]

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Yes. We have seen double-digit revenue growth from the overseas, the entire overseas market with even faster bottom line expansion.

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Operator [60]

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Our next question comes from (inaudible) with Morgan Stanley.

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Unidentified Analyst, [61]

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Anita, (foreign language)

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [62]

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(foreign language) Okay. I will switch to English.

And -- yes, you are quite correct. We did share, we'll see this that we believe there is great potential in terms of the procurement as well as the revenue synergies with GE Appliances. And the initial target towards -- excuse me, is RMB 1 billion in procurement savings. And after a brief 6 months period of integration, we raised USD 300 million. And as of the first year of integration, then we managed to identify a total worth of USD 17 million worth of procurement synergy projects. And the figure was around 18 million in the second year. So -- so far, we're pretty much on track with this. And we also believe this is just the low-hanging fruit. This only marks the beginning of the integration process. And we are committed to take this even further. And by co-creating and co-designing the particular modules and the components with GE Appliances. And also this particular integration doesn't only mean that we get access to Chinese but that also Chinese get access to the entire Haier portfolio, including Fisher & Paykel appliances(inaudible) as well as the recent addition of Candy business, who has very strong connections with good quality suppliers in Turkey. That is the second largest appliances manufacturing base in the world and engineers are particularly interested in exploring this potential.

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Unidentified Analyst, [63]

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(foreign language)

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [64]

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Well, again, thank you very much for highlighting the revenue synergies. And well, basically, we attribute a large percentage of the strong momentum to this particular partnership we share with the current management. And their growth is almost entirely driven by the launch of new products, and they have managed to increase significantly their market share in the traditionally weak sales of fridge and the washing machine, who happened to be Haier's strongest categories. And our best-selling Casarte washing machine unit will soon be introduced to the U.S. market. And we also believe that it's just an example of how this integration can help creating synergies and unlock potentials.

And as to introducing GE's brand and product into the Chinese market, so far we have just a little under 20 GE showrooms with a little under RMB 100 million in revenue so far this year. More in the Kitchen department.

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Unidentified Analyst, [65]

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(foreign language)

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Operator [66]

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(Operator Instructions) Our next question comes from Christine(inaudible) with (inaudible).

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Unidentified Analyst, [67]

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Actually, I have one question on the margin expansion. In Q3, actually, we saw a better margin expansion than the first half of the year. Actually, could you give us some more color on the outlook of the margin expansion from 2 aspects: Number one is from GE margin and HOPE assets? And number two is from domestic and overseas OP margin assets?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [68]

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Allow me to translate.

(foreign language)

Obviously, the gross margin, we had aimed to increase it continuously. So in terms of these profits, profit rate that one. To be clear, our overseas sales or share for our whole business are increasing. So -- but the overseas profit rate or gross margin rate are lower, actually currently lower than the domestic one. So the overall in the near -- foreseeable near future, the profit rate will increase a little bit slowly just because the sales structure are changing.

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Unidentified Analyst, [69]

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Okay. And I'm sorry, I have a follow-up question on the air conditioner segment. And as to the Q3, we still saw a decline on the domestic air conditioner sales. So I don't know whether we can see a turnaround on the domestic home air conditioner sales?

(foreign language)

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [70]

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So as per our records, into September, it's already going to be positive. And we're forecasting in Q4, it will be a positive increase.

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Operator [71]

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(Operator Instructions)

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [72]

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I guess just to follow-up on Christine's question on air conditioning. Just in terms of next year, 2020. Just again, on air conditioning, in addition to a more proactive market pricing strategy and sort of bringing down Casarte positioning, price positioning -- will there be other sort of initiatives to drive our market share in air conditioning? Because we did have quite significant capacity investment in air conditioning category. What would be sort of our short-term market share target for next year? And for the medium-term market share target over sort of next 3 to 5 years for air conditioning category please?

(foreign language)

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [73]

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(foreign language)

[Interpreted] Yes, you are correct that we are facing our volume for low-end products and trying to create differentiated experiences from that to above. And also, we managed to expand the price range of Casarte brand to 4,500 and 10,000, respectively. That overlaps a little with the high end, Haier unit. And according to (inaudible) that we are -- we have a brief unprecedented opportunity in air conditioner category as of now that our market structure as well as (inaudible) are ready to support our expansions. And unlike anybody else in the market in terms of Haier's home selling of such products, we are trying to provide our customers with what you call fresh air solutions. And hopefully, that will pay off in the coming future.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [74]

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Operator, do we have any last questions?

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Operator [75]

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We do have a few more questions on the queue. And the next question comes from (inaudible) with (inaudible).

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Unidentified Analyst, [76]

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(foreign language)

[Interpreted] Thank you very much for your question. And I'm going to share very briefly our growth revenue performances in different channels. And well, basically, with the -- our recent supply chain capability integration that we are in the middle of, and now we have seen quite great performances in the -- our own distribution network, our smaller, independent distributors, if you like. Some of them can generate double digit, at least, high single-digit revenue growth at our most recent quarter and month. And while the traditional chain retailers continue to suffer a small decline, e-commerce business on the other hand is delivering double-digit revenue growth. And again, that is greater than the average on the Internet. And as to different percentages of different channels and e-commerce contributed a little under 20% of overall revenue in China. And big box retailers, [30%],and the rest are from independent Haier's own retailers.

And that's the last part of the question. And as to the second part and why at the moment, our largest exposure in the commercial market is in the air conditioner categories. And that the revenue percentage is a single-digit figure. But we have this particular segment does not suffer from the ups and down of the inventories. So it has been delivering solid double-digit growth for the past couple of quarters.

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Unidentified Analyst, [77]

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(foreign language)

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [78]

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Well, thank you very much for the question. Yes. And we've always very, very much our distribution network, and we do believe in creating values and share values with our distributors, and that is precisely the goal behind this entire supply chain capability integrations. Basically, we would like for our distributors to spend all their time and energy on their retail performance, then we will take care of all the back end tasks including warehousing, delivery, asset sales, guarantees, even their inventory management. And this year, we will, on the other hand, we've also managed to really reduce the -- all of the procedures and paperwork in the back end supporting platforms in order to make the life easier for our distributors. And again, that's been very well received.

So that will help the momentum that we have seen in October will continue into the coming quarters. But on the other hand, we will continue to make investments in this whole distribution network integration.

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Unidentified Analyst, [79]

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(foreign language)

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [80]

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Well, thank you, very much. Yes. Well -- as depressing as the industry looks, we still believe that this is still the greatest potential is share volume in all the sites. This is our free time special for washing machine or fridge. So again, air conditioner will remain one of our most important products going forward. And you might have noticed this year is actually the first time in our entire history that we allowed -- that we are selling at least at the same prices as our competitor in the low-end SKUs, and we will continue with this particular strategy that is, to on one hand to focus some volume in the low end. On the other hand, try to create a difference, try to create values from mid and above. And also Casarte air conditioners are doing very well in the past quarter. We will continue with this new product launch.

And while, as autumn has reached in recent months, these strategies have been paying off, and we will certainly continue to use it next year.

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Operator [81]

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Our next question comes from Jenn Chen (inaudible) with (inaudible) in Sweden.

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Unidentified Analyst, [82]

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(foreign language)

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [83]

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(foreign language)

[Interpreted] As you said, well, when it comes to government subsidies, we basically know as much as you do. And so the answer is, so far, we have not been informed of any such upcoming policies. On the other hand, we are benefiting from the (inaudible) cuts the first 9 months this year, the mid -- about [60%] expansion. And partly offset and attributable to the (inaudible) cuts. And we did get back in marketing activities for -- as to the expense ratio, our long-term goal that we continue to optimize the overall selling expense ratio. I would also like to point out that we have a slight different sector compared with the others in that we are closer to the retailers than anybody else.

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Operator [84]

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Our next question comes from Greg (inaudible), an investor in U.K.

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Unidentified Participant, [85]

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Can you hear me now?

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [86]

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Yes, we can hear you now.

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Unidentified Participant, [87]

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Two questions. The first was just on the margin numbers you gave us. I think you said the GE was 3.7%, and the domestic business was 6%. Can you give us the same on a comparative basis, what those numbers were a year ago? And then I have one more question after that, please.

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [88]

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(foreign language)

[Interpreted] The comparable period figure has never been disclosed. But the trend is that we have seen faster bottom line expansion compared with the top line performance.

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Unidentified Participant, [89]

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Is that for both businesses, both China as well as GE? Okay. And my second question was about the -- it was about the comments you made about -- so you're discounting more in the online channel and offline to compare to match prices of your competitors. But then you've also said that you are cutting the number of SKUs as well on the low end. Can you just give us -- did I hear the number of 50%? Can you just put that into context? Because on the one hand, you're discounting on the low end, then you're also cutting the number of low-end SKUs. So can you just help me understand and just explain a little bit more about that, please?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [90]

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Yes. Allow me to clarify. We are not just cutting the number of SKUs in the low end, it's actually the entire portfolio. We're cutting the lower end and high end bottom 30% SKUs.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [91]

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Due to the time constraint, operator, could you help us to tally as to the number of questions on the line?

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Operator [92]

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Sure. (Operator Instructions)

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [93]

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Yes. Actually, there is no more questions on the lines. Anita, would you like to give us sort of a brief concluding remark?

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [94]

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Well, thank you very much, Dylan. And I'm very grateful for your time. And if you have any remaining questions, you know where to find me.

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Dylan Chu, CLSA Limited, Research Division - Research Analyst [95]

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Okay, great. Thank you so much for your time and for sharing with us, and thank you all for dialing in today. If there's any further questions, please feel free to reach out to Anita or myself. Thank you very much.

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Anita Sun, Haier Smart Home Co., Ltd. - Senior IR Manager [96]

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Thank you.

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Operator [97]

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Thank you for participation. This concludes the conference.