Gree:2Q17beat but GPM pressure in 2H17;Buy given inexpensive valuation

Valuation remains inexpensive at 11/11x 17/18PE and 5% yield

    Gree’s 2Q17NP beat DB/market estimates by 35%/17% due to sales growthacceleration and operating leverage. We believe channel inventory remains at ahealthy level at the beginning of the cold year (end of July). Thus, we raised oursales forecasts for 2017-2019by 7-9%. Meanwhile, we lower our 2017GPMforecast by 1.6ppt to reflect raw material price hike pressure in 2H17. Although2018will be a tough year given high base in 2017due to property boom andrestocking, we believe product upgrades and relatively inexpensive valuationwith 5% yield warrants a Buy recommendation.

    2H17outlook