The cost dividend in the home appliance sector has gradually subsided, waiting for the domestic real estate and overseas markets to improve marginally. From January to December '23, the home appliance industry outperformed the Shanghai and Shenzhen 300 market. It is a necessary condition for valuation to be in the bottom area. Real estate recovery and consumption recovery are catalytic factors.
The Zhitong Finance App learned that Everbright Securities Research released a research report saying that as of December 29, 2023, the ten-year valuation fraction for the home appliance sector was drastically reduced compared to the end of the first half of 2023 (10-year PE fraction 12.2%), reflecting market concerns about real estate completion data and outflow of foreign capital. The bank believes that there is no need to be overly pessimistic. First, Baidian's performance growth is determined by multiple factors (renewal demand, profit retention, overseas business, and product upgrades can better dilute the impact of completion), and second, the current attractiveness of Baidian stocks to foreign investors has increased dramatically (as of December 29, Gree (000651.SZ) /Midea (000333.SZ) TTM dividend ratio has surpassed US bond yields).
The main opinions of Everbright Securities Research are as follows:
When valuation repair is in progress
In December 2023, the consumer electronics (CITIC) sector rose and fell by -0.37%. Among them, the sub-sectors of white goods/kitchen appliances/black appliances/small household appliances rose and fell by +1.16%/-6.67%/-3.57%, respectively, while lighting, electrical and others rose -1.28%. As of December 29, 2023, the ten-year valuation quota for the home appliance sector was drastically reduced compared to the end of the first half of 2023 (10-year PE fraction 12.2%), reflecting market concerns about real estate completion data and outflow of foreign capital. We think there is no need to be overly pessimistic. First, Baidian's performance growth is determined by multiple factors (renewal demand, profit retention, overseas business, and product upgrades can better dilute the impact of completion), and second, the current attractiveness of Baidian stocks to foreign investors has increased dramatically (as of December 29, GLEE/Midea's TTM dividend ratio has already surpassed US bond yields).
Market review & external environment
The cost dividend has gradually subsided, waiting for the domestic real estate and overseas markets to improve marginally. From January to December '23, the home appliance industry outperformed the Shanghai and Shenzhen 300 market. It is a necessary condition for valuation to be in the bottom area. Real estate recovery and consumption recovery are catalytic factors. The external operating environment of the industry: (1) Cost dividend: In December 2023, steel and copper prices were +8% and +4%, respectively. The cost dividend gradually subsided. At the same time, considering the relatively stable price of raw materials and the favorable price ability of household appliances, 2024 is expected to be a year where the impact of raw materials is neutral. (2) Real estate recovery: The new housing sales market has not stabilized from January to November '23. The cumulative sales area of commercial housing in the country was -8.0% YoY in January-November, and the cumulative real estate completed area in January-November was +17.9% YoY. (3) Overseas markets: High inventories of durable consumer goods in the US and high retail resilience of home appliances are mainly due to residents' excess savings being consumed for about half a year. Considering the decline in US real estate loan interest rates, the market expects that US real estate fundamentals may improve. It is recommended to focus on the pace of durable goods being removed from storage and structural inventory replenishment opportunities.
White electricity (overconfigured): The air conditioning cycle continues or exceeds expectations. It is recommended to focus on it
(1) Domestic: Domestic sales and shipments in the air conditioning industry increased 14% year-on-year from January to November '23. Domestic sales increased year-on-year in November, and retail sales rebounded significantly year-on-year. The continuation of the air conditioning cycle may exceed expectations (low channel inventory+gradual economic recovery), so it is recommended to focus on it. In terms of air conditioning prices, the average price of Gree online in November was 3,548 yuan/unit (-5.2% YoY), the average price of Midea was 3,613 yuan/unit (+7.8% YoY), and the average retail price of Gree in November offline was +0.6%/+3.2% YoY. Ice washing continued a steady growth trend. In January-November, domestic sales and shipments in the refrigerator/washing machine industry were +5%/+3% year-on-year. Demand for cold washing was mainly based on updates, and the trend of high-end washing is obvious. The recovery in demand for ice washing will be more obvious after residents' desire to consume is restored. (2) Overseas: Air conditioning industry exports accumulated +6% year-on-year from January to November '23, and overseas demand is expected to gradually recover in the second half of the year. Overall, the valuation level of white power is one of the lowest in consumer goods. Its stable performance and macroeconomic factors will drive the valuation center back upward. It is recommended to overallocate white electricity, recommend Gree Electric (undervalued and high dividends, maximum flexibility for domestic economic recovery), Midea Group (net profit growth expectations in 24 years will lead to stock price elasticity), and Haier Smart Home (06690) (the upward trend in stock prices comes from the bottom up of overseas beta).
Clean appliances (standard): Participants' profit demands are getting stronger, and the competitive environment is expected to improve
1) In terms of sweepers, industry leaders have been intensively promoting new products since September. By increasing the unit price of the new model and reducing the price of the old model, Covos (603486.SH) and Stone (688169.SH) have all completed the product matrix of various price bands, forming a series of products with a price band of 3000/4000/5,000 yuan to meet industry competition. From October to November 2023, the online sales volume of the sweeper industry was +17% year-on-year, and the growth trend was upward (the industry's 23Q2 and 23Q3 sales were +2% and +0%, respectively). Looking ahead to the next 24 years, Covos will defend on the basis of actively supplementing new models with a price band of 3,000 yuan (dealing with competition through the T10 series facelift in 23), will maintain the mid-range price band market through the facelift T30 model and maintain the high-end market through the X series; it is expected to win a lower price band share in 24 years; Stone will defend on the basis of a complete product matrix, and may expand the product matrix to the 2,500 yuan price band. 2) In terms of floor washers, Tianke's business has changed a lot since September. Through Fuwan 2.0/3.0 series price reduction and full-function product promotion (Fuwan CHORUS PRO STATION/Fuwan Wiper PRO), the online retail sales share increased from 42.0% in August to 50.4% in November (average price dropped from 2,942 yuan to 2,703 yuan in August). From October to November 2023, the floor washer industry's sales were +19% year-on-year, up from the 23Q2 and 23Q3 growth trends. Among them, second-tier manufacturers grew faster. Looking ahead to 2024, it is expected that the overall sales volume of the industry will continue to grow, while product prices will drop further and competition in the industry will be fierce (low-cost products are estimated to reach around 1,500 yuan).
Risk warning: The macroeconomy fell short of expectations, real estate sales fell short of expectations, RMB appreciation exceeded expectations, and raw material prices exceeded expectations.