Analysis of Market Concerns Behind Hisense Home Appliances' Low Valuation

Hisense Home Appliances (000921.SZ) shows strong profitability with high ROE (maintained above 20% long-term, latest at 20.73%[0]) and a net profit of RMB 2.077 billion in H1 2025, but its P/E ratio is only 10.17x[0], significantly lower than the average level of the home appliance industry. The market’s valuation discount for it mainly stems from two core concerns as follows:

1. Sustainability of the “Leverage-Driven” Business Model
   ：The company’s net profit margin is only 3.59%[0], and the high ROE mainly relies on high asset turnover and equity multiplier (leverage effect) rather than the improvement of core profitability. Financial analysis shows that its accounting policies are aggressive (low depreciation/capital expenditure ratio), and the room for profit growth is limited[0]. Although the debt risk is currently rated as low, this leverage-dependent profit model may face challenges when market fluctuations or industry competition intensify.

2. Potential Impact of Low Gross Margin in Overseas Operations
   ：Although not directly verified by official data yet, the international home appliance market is highly competitive, and it is a common industry phenomenon that some enterprises’ overseas business gross margins are lower than domestic ones for a long time. The proportion of Hisense Home Appliances’ overseas business and its profit quality may be important factors of market concern. If the overseas business does have a low gross margin problem, it will continue to drag down the company’s overall profitability.

1. The divergence between the company’s valuation and profitability reflects the market’s doubt about its profit quality: high ROE comes more from operational efficiency and leverage amplification rather than high added value of products or services, and the sustainability of this profit model is discounted by the market.
2. The valuation difference in industry comparison highlights the market’s concern about Hisense Home Appliances’ business structure: compared with peers, factors such as its low net profit margin and high uncertainty in overseas business profitability have jointly led to the valuation discount.

• Sustainability risk of leverage-driven model: If market demand declines or operational efficiency decreases, ROE may fluctuate significantly.
• Low gross margin risk of overseas operations: If the profit of overseas operations is lower than expected, it will affect the company’s overall profit level.
• Risk of intensified industry competition: The home appliance industry is highly competitive, and the company may face pressure of further gross margin compression.

• Valuation repair opportunity: If the company can improve its profit structure, increase net profit margin or verify the profit level of overseas operations, the valuation is expected to be repaired.
• Industry integration opportunity: As a leading enterprise in the home appliance industry, Hisense Home Appliances may benefit from industry integration.

The low valuation phenomenon of Hisense Home Appliances is not due to insufficient profitability, but stems from the market’s concerns about its ‘leverage-driven’ business model and the uncertainty of overseas business profitability. Investors need to pay attention to the company’s business structure optimization, disclosure of overseas business profit status, and changes in ROE driving factors to comprehensively evaluate its investment value.