老板电器(002508)

Event: Robam hosted an earnings call on 2018 Aug 23 after 2Q18 result releaseConclusions: (1) 2Q18 earnings miss, (2) management further cut long-termrevenue growth guidance from 20% to 10-15%, (3) Robam and Little Swan'sdeceleration likely hint significant deterioration in home appliances retailenvironment. We cut our earnings forecasts by 3-11% between FY18-20 andreiterate a cautious view on the sector.

The print: slowest sales growth since at least 2010, operating profit missed DBeby 17%

Robam's 2Q18 revenue came in at RMB1,905mn, up 4% YoY. DB operating profitat RMB371mn, declined by 3% YoY. The disappointment was equally driven by(1) weak demand for rangehood and cooking hob (1H18 sales YoY decelerated to6% vs. 12% in 2H17) and (2) gross margin pressure (down 1.7 ppt YoY), on topof a slight operating deleverage. Channel-wise, the weakness was likely drivenby a sharp deceleration in exclusive stores (to 5-10% YoY in 1H18 vs. over 15%in 2H17).

Robam's struggle may reflect an industry trend

Robam and Little Swan's sharp declaration points to challenging retailenvironment: similar to Robam, Little Swan (a major washing machine

brand and among the first home appliances companies to report 2Q18results) also reported significant sales growth declaration in 2Q18. Bothcompanies claim their reported revenue is a close reflection of enddemand (vs. air conditioner brands' wholesale revenue that tend tolag distributors' actual conditions). We thus believe the actual retailenvironment for home appliances in China could have deteriorated muchmore significantly in 2Q18 vs. market's general belief.

Robam's guidance cut points to even weaker outlook: during the 2Q18call, Robam management guided for a 10-15% sales growth YoY in thecoming years. This marks another cut to long-term guidance (note Robamhad previously cut its sales growth guidance to "over 20% YoY" from "30%YoY" in February 2018 during the 4Q17 earnings call). We expect Robamto face more difficulties in penetrating into lower tier cities, as pricingdiscipline likely deteriorated sharply after Vatti's distributor bankruptcy.

Revisions, valuation and risksWe cut our 2018/19/20E forecasted earnings by 3%/7%/11%, respectively. This ismainly to model reduced long-term revenue growth guidance. Note that our cutfor 2020 is heavier than that in 2018 as we forecast a milder growth trajectorydriven by aforementioned difficulties to penetrate the lower tier cities.Our forecasts are lower than consensus as we anticipate more pressure forRobam's distributors to branch into lower tier cities.