Zhitong Finance learned that SDIC Securities released a research report saying that according to the description of the plan adopted by the National Standing Committee, it is expected that the current home appliance trade-in policy will involve the central financial administration, the scale of the subsidy may be larger, and the implementation effect of the policy may be better; the current policy may subsidize high-energy efficiency grade, green and energy-saving household appliances, which is expected to promote the upgrading of the product structure of the home appliance industry. Leading home appliance companies account for a higher share of sales of energy-efficient products and are expected to benefit more from the policy. In addition, the increase in sales of home appliances is expected to drive an increase in orders for upstream components, and components such as electronic expansion valves related to energy-efficient products will benefit.

Related targets: Recommended home appliance leader Midea Group (000333.SZ), Haier Smart Home (600690.SH), Gree Electric (000651.SZ), Hisense Vision (600060.SH), etc. Upstream components recommend Sanhua Intelligent Control (002050.SZ) and Dunan Environment (002011.SH), leading home appliance components.

SDIC Securities views are as follows:

The trade-in policy is expected to boost sales of home appliances and upgrade the product structure:

The fourth meeting of the Central Committee on Finance and Economics in February 2024 encouraged trade-in of traditional consumer goods such as automobiles and home appliances. On March 1, the National Assembly reviewed and approved the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”. The bank believes that in recent years, the funding for the home appliance policy has mainly come from local finance, and the scale of funding is relatively small, but the main players promoting the current trade-in policy are higher, and the conference stated that “we must adhere to the linkage between central finance and local governments” and “increase fiscal, taxation, financial policy support, etc.” It is expected that this round of policies will involve the central government, and the scale of subsidies may be larger, and the implementation effect may be better. Furthermore, the plan states “insist on encouraging advancement, eliminating backwardness, and adhering to standard leadership and orderly upgrading” and “making better use of the driving role of standards such as energy consumption, emissions, and technology.” It is expected that this round of policies will subsidize high-efficiency, green and energy-saving household appliances more strongly, which is expected to promote the upgrading of the product structure of the home appliance industry.

The current policy subsidy may be skewed towards energy-efficient products, and home appliance leaders will benefit even more:

Judging from the central government policy documents and consumption upgrading trends in recent years, the bank expects that the current household appliance stimulus policy will provide greater subsidies for high-energy efficiency, green and energy-saving household appliances, which is expected to promote the upgrading of the product structure of the home appliance industry and drive an increase in the average price of household appliances. Considering that the sales volume of energy-efficient products of household appliances is relatively high, and they have R&D, production and product advantages, the bank believes that home appliance faucets will benefit more from the subsidy policy. Furthermore, compared with the period of the previous round of household appliance stimulus policies, the concentration of the white electric appliance industry has increased markedly, and white electricity leaders are expected to benefit more from the household appliance stimulus policy. According to industry online data, sales of air conditioners, refrigerators, and washing machines in 2023 CR3 increased by 2 pct, 13 pct, and 25 pct, respectively, compared to 2008.

Upstream parts companies are expected to clearly benefit from the trade-in policy:

On the one hand, the home appliance stimulus policy is expected to boost sales of home appliances and increase orders from upstream parts companies. On the other hand, the policy provides greater subsidies for energy-efficient products, which is expected to drive upstream enterprises to upgrade their product structure. The electronic expansion valve has better regulation and energy saving performance, and is a key component for improving the energy efficiency of air conditioners. The bank believes that the current household appliance stimulus policy is expected to drive a rapid increase in sales of electronic expansion valves and boost sales of upstream parts companies.

The potential renewal demand is huge, and the subsidy policy is expected to accelerate the release of demand:

In the three years of the pandemic, household appliances have accumulated a large amount of demand that needs to be updated but not updated. At the same time, from 2024 to 2026, there is also a need to renew household appliances on a larger scale. Subsidies are expected to stimulate the release of demand at an accelerated pace. Without a trade-in subsidy policy, the bank expects year-on-year sales growth in air conditioners/refrigerators/washing machines/color TVs to be -10%/-9%/+5%/-6%, respectively, and the total sales growth rate of the four major categories is -6%. Under a neutral assumption, the 12 billion yuan subsidy fund is expected to drive the year-on-year growth rate of air conditioners/refrigerators/washing machines/color TV sales to -3%/+33%/+24%/+3% in 2024, with an increase of 7 pct/42 pct/19 pct/9 pct, respectively, compared to the unsubsidized scenario. The total domestic sales growth rate of the four major categories is expected to rise to 10%. The subsidy policy will drive the growth rate to increase by 16 pcts, and the trade-in subsidy policy is expected to clearly boost the sales of major appliances.

Risk warning: Policy implementation plans fall short of expectations, sharp rise in raw material prices, risk of real estate policy changes, sharp appreciation of RMB, risk of falling short of expectations in estimates and assumptions