The Zhitong Finance App learned that CICC released a research report stating that the 1Q24 air conditioning domestic sales and export boom were excellent, driving the year-on-year growth in the performance of related leading and upstream industry chain companies, continuing the 4Q23 industry boom and the trend of leading performance growth. It is estimated that the revenue/net profit ratio of major home appliance companies in 1Q24 is +8%/+11% YoY. Related targets: The HVAC industry chain recommends Hisense Home Appliances A+H (000921.SZ,00921), Haier Smart Home A+H (600690.SH,06690), Gree Electric (000651.SZ); small appliances recommend Stone Technology (688169.SH), Supor (002032.SZ); performance growth companies recommend Dunan Environment (002011.SZ), Xinbao (002705.SZ), Guoguang Electric (002045.SZ).

The main views of CICC are as follows:

The home appliance sector has clearly earned excess revenue since the beginning of the year, showing defensive advantages:

1) Affected by the post-real estate cycle, the home appliance sector declined in 4Q23. 2) Baidian's low valuation, high dividend rate, good cash flow, and good annual report market expectations are currently a safe haven target. 3) The home appliance industry has global competitiveness. Home appliance exports currently benefit from the end of the inventory removal cycle in Europe and the US, the increase in the penetration rate of white electricity in emerging markets, and the increase in demand for small household appliances in the US, which has an industry beta.

1Q24 performance preview (the following all indicate the year-on-year growth rate for a single quarter):

According to CICC, 1) Some companies are showing high growth, and Dunan Environmental is expected to generate +20% revenue and +30% net profit. 2) Leading companies all performed well. Haier Smart Home is expected to generate +7% revenue and +13% net profit; Gree Electric Appliance revenue +8%, net profit +9%; Hisense Home Appliance revenue +12%, net profit +17%; and Bull Group's revenue +15% and net profit +15%. 3) Some companies have a low base for the same period. Shitou Technology's revenue is expected to be +30% and net profit +70%; Xinbao Co., Ltd.'s revenue +25% and net profit +35%. 4) Domestic sales demand of some small kitchen appliances and kitchen appliance companies is under pressure.

Domestic sales of air conditioners continue:

1) According to industry online data, domestic sales and shipments of household air conditioners in January-February were +16% year-on-year, and the growth rate for the same period in '23 was 14%, compared to the previous historical high of +8% in the same period in 2019. Domestic sales data for air conditioners matches retail data. AVC data shows a year-on-year increase of 38% in total retail sales of air conditioners online in January-February.

2) Recently, copper prices and refrigerant prices have risen rapidly. Reviewing history, the home appliance industry has a good ability to pass on costs. CICC believes that the cost transfer of the home appliance industry is lagging behind, which has an impact on the profitability of the industry in the short term, and there is almost no impact in the long term. Recently, CICC has observed that air conditioning manufacturers have already experienced the first batch of price increases.

Household appliance exports have maintained a good trend:

1) According to data from the General Administration of Customs, the export volume of home appliances in January-February (in US dollars) /value (in RMB) was +39%/+21%/+24%, respectively, compared with the high of +6%/-2%/+7% in the same period in '21, which exceeded market expectations. According to industry online statistics, the export output of air conditioners/refrigerators/washing machines in March-May was +17%/+9%/-1% compared to the same period last year. 2) China's major household exports have grown strongly since 2023, mainly benefiting from the increase in the penetration rate of major appliances in emerging markets. This trend has continued since 2024. 3) Overall home appliance exports have achieved rapid year-on-year growth since 3Q23. Mainly home appliance exports to Europe and the US have experienced a large inventory removal cycle in the past, and 3Q23 has ended inventory removal.

risks

Real estate cycle downside risk; market competition increases risk; market demand fluctuation risk.