CITIC SEC: The trading logic of the "interest rate cut cycle" in the home appliance industry.

CITIC SEC released a research report stating that the 50bps rate cut by the Federal Reserve will directly impact the USD financing costs of Chinese companies, especially those with a high level of foreign debt and export-oriented companies. Furthermore, if the US economy can demonstrate a soft landing, it will benefit industries sensitive to interest rates like real estate, and boost the Chinese export chain, such as benefiting Chinese home appliance exports. Additionally, the long-term expectation for the European "heating heat pump" market is positive. From 2021 to 2022, natural gas prices are expected to remain high due to public health events and geopolitical conflicts, accelerating the penetration of heating heat pumps in Europe. Germany's restarting of heating subsidies is expected to stimulate demand for heat pump installations and significantly boost the related industrial chain's business value. "The Federal Reserve rate cut + soft landing of the economy" will benefit exports. This will directly impact the USD financing costs of Chinese companies, especially those with high foreign debt and export-oriented companies. Furthermore, if the US economy can prove a soft landing, it will benefit industries sensitive to interest rates like real estate, and boost the Chinese export chain. Companies leading in global production capacity, especially those with strong competitiveness in North America, should be watched. Hong Kong stocks are relatively more resilient. Compared to A-shares, Hong Kong stocks have a closer link to the US dollar through their currency peg system, making the transmission of Federal Reserve monetary policy more direct. Investment opportunities in H-shares should be considered. Expected opening of domestic policy space. It is expected that the Federal Reserve will continue to drive rate cuts in the future, with a cumulative cut of 100-125 basis points within the year. Federal Reserve rate cuts will also provide room for other countries, including China, to continue lowering policy rates. Elastic varieties in the real estate chain should be observed. European "heating heat pumps," a new direction for component prosperity. 1) European "heating heat pumps" have a medium to long-term cycle of prosperity: currently, European natural gas prices are stable at 5-6 times higher than in other regions. From an energy security perspective, the European Heat Pump Association predicts that by 2030, annual heat pump sales in Europe will reach about 10 million units, with a CAGR of approximately 22%, showing high growth certainty in the future. 2) China's "supply chain" has greatly benefited. From 2021 to 2022, due to public health events and geopolitical conflicts leading to high natural gas prices in Europe, the penetration of European heating heat pumps accelerated (replacing wall-mounted boilers, with sales increasing by 36% in 2021 and 48% in 2022). Due to insufficient production capacity in Europe, exports of Chinese air-source heat pumps surged (reaching $1.19 billion in 2021, up 82% year-on-year, and $1.68 billion in 2022, up 41% year-on-year). 3) "Terminal demand cycle + channel inventory cycle": The end-of-term replenishment is expected to see high growth for four consecutive quarters. Starting from the third quarter of 2023, the prosperity of the heating heat pump industry is expected to decline due to high inventory, delayed installations, and decreased subsidies. Germany will introduce a new round of heating subsidies through the KFW 458 Act, starting on September 1, 2024, with subsidies of up to 70%. The subsidies amount to a maximum of 30,000 euros + 2,500 euros in emission reduction charges, covering new purchases and upgrades. This high subsidy amount is expected to significantly stimulate demand for commercial heat pump installations and greatly boost the business value of the related industrial chain. It is expected that heating pump policies in various European countries will be gradually released in the second half of 2024. The prosperity of the European heat pump industry is on the rise, and China's core heat pump components (compressors/shield pumps/valves) are now internationally competitive. Successfully integrating into the global supply chain, the industry is expected to continue to benefit from the booming heat pump export market. Risk factors: Weak domestic and foreign demand, increased trade barriers, deteriorating competitive landscape, abnormal fluctuations in raw material prices, exchange rate volatility, and other risks. Investment strategies: 1) The Federal Reserve is expected to cut rates as scheduled in September, starting with a 50bps cut. A) Anticipate the opening of domestic policy space and focus on elastic varieties. B) If the US economy can prove a soft landing, it will benefit Chinese home appliance exports. C) Hong Kong stocks may be more resilient. 2) European heating heat pumps, driven by a dual cycle of policy demand and inventory. 3) It is recommended to long-term invest in leading companies with profit stability and relative certainty.