CICC: Bullish on interest rate cuts driving medium to long-term growth in demand for American hardware tools.

CICC released a research report stating that the US hardware tools are in the downstream of the real estate chain and demand is significantly affected by the US benchmark interest rate. About 2/3 of the demand for hardware tools downstream is related to house construction, home decoration, and renovation. The year-on-year changes in US hardware consumption and real estate data show a similar trend, opposite to the US benchmark interest rate. Although hardware tools are downstream in the real estate chain, industry terminal demand almost synchronizes with real estate demand. Looking ahead, CICC Real Estate Group believes that the US real estate transaction volume may have a 20-30% upside potential in the next 2-3 years, driven by interest rate cuts boosting real estate sales, and bullish on the increase in hardware tools demand in a 1-2 year horizon. In the next 1-2 years, the demand for hardware tool companies may be driven by the increase in industry terminal demand and replenishment inventory by CKH HOLDINGS. The transmission path of hardware tools demand is the improvement of terminal demand, leading to a decrease in channel inventory-to-sales ratio, an increase in channel inventory driving hardware tool companies' order and revenue growth. Looking ahead, with expectations of interest rate cuts boosting downstream demand, leading to a decrease in inventory-to-sales ratio, and promoting replenishment, CICC expects hardware tool companies' demand to be driven by the increase in industry terminal and CKH HOLDINGS replenishment. Valuation of hardware tools fluctuates with terminal demand, and it is recommended to continue monitoring the performance of terminal real estate and hardware tools demand. The valuation of hardware tool companies shows an inverse relationship with the US benchmark interest rate, influenced by terminal demand. The stock price growth after the end of an interest rate cut cycle is greater than during the cycle, mainly because terminal demand growth accelerates after the cycle ends. With the forecast of an increase in terminal demand in the next 1-2 years, CICC is optimistic about the gradual increase in company valuation along with interest rate cuts. Looking ahead, a new interest rate cut cycle has begun, and it is advised to continue monitoring the performance of real estate sales and hardware tool industry terminal demand. Valuation and Recommendations CICC recommends Hangzhou Great Star Industrial (002045.SZ), TECHTRONIC IND (00669), and CHERVON (02285), maintaining coverage of individual stock earnings forecasts, valuations, and target prices. Risks Industry demand growth falls short of expectations, US real estate demand weakens, significant currency exchange rate fluctuations.