20180129-川财证券-Chuancai_Research_2018_Strategy_Report__2018_China_Equity_Market_Home_Appliance_Outlook_25页_4mb

2017-2018 Home Appliance Sector Summary

Core Content

The home appliance sector demonstrated strong performance in 2017, driven by rising profitability and sustained demand. The sector outperformed the Shanghai Composite by nearly 30%, with the air conditioner segment leading the growth at 92.28%. Key companies such as LITTLE SWAN (000418.SZ), MIDEA GROUP (000333.SZ), HAIER (600690.SH), and GREE (000651.SZ) saw significant stock price increases, up 110.3%, 105.7%, 96.7%, and 90% respectively. The sector maintained steady growth in both revenue and profit from 2H2016 to 3Q2017, with total revenue reaching CNY285.65 billion (up 28.2% YoY) and total net profit reaching CNY220.9 billion (up 24.3% YoY).

Main Points

• 2017 Performance Highlights

  • Overall home appliance sector rose by 44.76% by Dec. 26, 2017.
  • Air conditioner segment showed the strongest growth at 92.28%.
  • Washing machine and refrigerator segments grew by 63.45% and 56.33% respectively.
  • Leading stocks outperformed the market, with LITTLE SWAN, MIDEA GROUP, HAIER, and GREE as top gainers.

• 2018 Outlook

  • Domestic demand and exports are expected to maintain high growth.
  • Small appliances, refrigerators, and washing machines are likely to be key growth drivers.
  • Consumption upgrade trend is expected to benefit the sector, with smart and high-end appliances gaining market share.
  • Rural market penetration is increasing rapidly, especially for washing machines, refrigerators, and air conditioners.

• Market Dynamics

  • The replacement cycle for home appliances is typically 7-11 years.
  • The 2006-2010 period saw a peak in home appliance sales, creating room for future update demand.
  • Cost increases had limited impact on leading stocks due to their ability to pass on costs through price hikes and product upgrades.

• Export Trends

  • Air conditioners, refrigerators, and washing machines are expected to maintain high export growth in 2018.
  • The U.S. tax reform and dollar appreciation are favorable for home appliance exports.
  • Anti-dumping policies in the U.S. have influenced domestic washing machine sales, but export growth is still strong.

• Industry Concentration

  • The home appliance sector is becoming more concentrated, with top companies like GREE, MIDEA GROUP, and HAIER commanding a larger share of revenue and profit.
  • The concentration ratio for small appliances is also improving, intensifying competition and favoring leading stocks.

Key Information

• 2017 Growth Drivers: Rising profitability, consumption upgrade, and improved product structure.
• 2018 Investment Focus: Leading companies with high R&D capacity and strong performance in small appliances, refrigerators, and washing machines.
• Recommended Companies: MIDEA GROUP (000333.SZ), HAIER (600690.SH), TCL (000100.SZ), HXDQ (600060.SH), ROBAM APPLIANCES (002508.SZ), LITTLE SWAN (000418.SZ), and KINGCLEAN (603355.SH).
• Market Potential: China's small appliance ownership and penetration rates are significantly lower than in other countries, indicating substantial growth opportunities.
• Smart Appliances: Inverter air conditioners and washing machines are gaining market share, reflecting the trend toward high-end and smart products.
• Risk Reminder: The report includes a risk reminder, though specific details are not provided.

Investment Strategies

• Focus on Industrial Leaders: Companies with strong R&D and performance-driven growth are highlighted as investment opportunities.
• Consumption Upgrade: The trend is expected to continue, with white and kitchen appliance enterprises benefiting from price premiums.
• Small Appliance Differentiation: The market is becoming more concentrated, with leading stocks gaining competitive advantage.
• Export Growth: Refrigerators, air conditioners, and small appliances are expected to maintain high export growth in 2018, supported by favorable policies and market conditions.

Analysts and Contact

• Analysts: Li CHEN, Peng WANG, Hongxin SONG
• Contact: Wenyi ZHOU

Research Division Locations

• Beijing: Floor 15, China Overseas International Center, 28 Pinganli West Street, Xicheng District
• Shanghai: Floor 11, Hang Seng Building, 1000 Lujiazui Ring Road
• Shenzhen: Floor 21, Duty-free Building, 6 Fuhua 1st Road, Futian District
• Chengdu: Floor 17, Unit B, China Overseas International Center, Sichuan Pilot-free Trade Zone