Capacity goes overseas to seize the market, promoting domestic demand through old-for-new exchanges, and the home appliance sector receives an increase in allocation from public offerings.

Performance stability and high dividends were the main themes of investment in the first half of the year. The household appliance sector, with these two factors, became the focus of capital competition in the first half of the year. According to Wind data, the sector has seen a year-to-date increase of over 35%, with many component stocks seeing almost a doubling in their share prices. In terms of performance, the household appliance sector achieved operating income of 798.691 billion yuan in the first half of the year, a year-on-year increase of 6.27%. Apart from kitchen and lighting, all sub-sectors achieved positive growth. The sector accumulated a net profit attributable to shareholders of 62.313 billion yuan, a year-on-year increase of 7.87%, slightly better than revenue growth. Looking at the quarterly performance, the household appliance industry achieved operating income of 424.143 billion yuan in the second quarter, a year-on-year increase of 4.69%, continuing a good growth trend in the sector. In terms of profits, the net profit attributable to shareholders for Q1 2024 and Q2 2024 reached 26.357 billion yuan and 35.955 billion yuan respectively, with year-on-year increases of 10.07% and 6.3%. This was mainly due to improved product demand, structural optimization, and improved efficiency in enterprise operations. The gross profit margin for the household appliance sector in the first half of 2024 was 27.20%, an increase of 1.15 percentage points year-on-year, with the overall gross profit margin for the household appliance industry in Q2 2024 at 25.77%, basically unchanged year-on-year; and the net profit margin was 8.81%, an increase of 0.1 percentage points year-on-year, mainly benefiting from household appliance companies actively seizing favorable opportunities in the economic upturn, improving quality and efficiency, and increasing profitability. In addition to stable performance growth, there are two other reasons supporting the household appliance sector: a sharp increase in export data and the continued improvement of domestic demand due to the implementation of the policy of trading in old for new appliances. Since China's accession to the WTO in 2001, the export of China's household appliances has continued to grow, making it a global hub for household appliance production. After more than twenty years of development, the Chinese household appliance industry chain is already well-established, with domestic brands having significant advantages in terms of technology and pricing. Since last year, China's household appliance exports have grown for 18 consecutive months. According to data released by the General Administration of Customs in September, in terms of US dollars, in the first eight months of 2024, the export of key products nationally grew by 14.7%, while traditional labor-intensive industries such as clothing, shoes, ceramics, and toys showed a decline in exports. Compared to the 3.8% growth rate for the whole of 2023, the growth in exports of household appliances in the first eight months of 2024 increased by 10.9 percentage points. Behind the high growth, in addition to the cyclical factors of external demand replenishment, the globalization of Chinese enterprises has also had a more profound impact. The increase in household appliance exports mainly comes from emerging markets, while the proportion of exports to the European and American markets is declining. On one hand, as a result of US tariffs, Chinese household appliance brands have relocated their production capacities to Southeast Asia to bypass US tariffs. On the other hand, the Belt and Road Initiative has driven the economies of countries along the route, with local people becoming increasingly affluent and their demand for household appliances growing. In contrast, due to the interest rate hike cycles in Europe and the US, the demand for household appliances is not strong. In recent years, the market share of Chinese brands in Southeast Asia has significantly increased. In terms of sales percentage, Chinese brands of TVs hold nearly 30% market share in Thailand and Indonesia, and 22%, 16%, and 11% in the Philippines, Malaysia, and Vietnam respectively. The market share of Chinese air conditioners in Indonesia, Malaysia, Thailand, and Vietnam is over 20%, while Singapore and the Philippines are close to 10%. Chinese refrigerators have a market share of up to 37% in Thailand and 20%+ in Vietnam, Malaysia, and Indonesia. Chinese washing machines have a market share of 36% in Vietnam, 28% in Malaysia, and over 15% in Thailand, Indonesia, and the Philippines. In terms of per capita GDP and urbanization rate, Singapore has a higher level of development than China, Malaysia is comparable to China, and Indonesia, Thailand, the Philippines, and Vietnam are roughly equivalent to China in the 2005-2015 period. The population of the six countries in Southeast Asia is about 43% of China's, and the sales volume of white goods and black goods in Southeast Asia is about 29% of China's, with sales approximately 16% of China's. The average price of refrigerators and washing machines is about 66% and 80% of China's. As incomes and consumer levels in Southeast Asia continue to rise, there is significant room for growth in the ownership, product structure, and average price. According to the National Bureau of Statistics, the retail sales of household appliances and audio equipment in China in 2005 and 2015 were 161.3 billion yuan and 827 billion yuan, with a ten-year CAGR of 18%. The CAGRs for the retail sales of home appliances in China from 2005 to 2020 and 2005 to 2023 were 12% and 10% respectively. Looking back at the development of the domestic household appliance industry, the scale of ownership increased rapidly from 2000 to 2012 under policy stimulation, but the growth rate slowed after 2012 as the industry entered a stage of product structure upgrades. According to data from AVC in China, from 2012 to 2020, the average price of refrigerators and washing machines in the domestic offline market increased from 2891 yuan and 2061 yuan to 4740 yuan and 3375 yuan, a 64% increase. According to Euromonitor data, the CAGR of the household appliance industry in Southeast Asia from 2018 to 2023 was 5%, with the current penetration level in Southeast Asia similar to that of China around 2010. There is still ample room for penetration and price increases, and Haitong expects the Southeast Asian market to achieve an industry growth rate of around 5%-10% in the future. Looking at the domestic sales part, domestic sales of household appliances have started to recover due to the promotion of the policy of trading in old for new appliances. Recently, relevant policies have been introduced in the domestic household appliance and consumer goods sectors, with comprehensive supporting measures coming into effect. Specifically: 1) At the local level, all 31 provinces, autonomous regions, municipalities directly under the central government, and 5 planned single-city districts and the Xinjiang Production and Construction Corps have issued implementation plans to support the implementation of the policies for "two new" businesses, along with releasing over 140 sets of local supporting implementation details. 2) National debt funds have been fully allocated. In terms of consumer goods traded in for new ones, the NDRC, together with the Ministry of Finance, have jointly determined the scale of funding support based on factors such as the permanent resident population, regional GDP, and the existing stock of cars and home appliances across regions, with 150 billion yuan in national debt funds for consumer goods traded in for new ones being fully allocated to regions at the beginning of August. 3) Support policies have been fully launched. As of September 23, all 10 major supplementary measures to support large-scale equipment updates and the trading in of old consumer goods for new ones have been fully launched by various departments, with local areas also issuing complementary implementation details.A series of refined implementation measures. 31 regions including Jiangsu, Zhejiang, and Hubei have already implemented new subsidies for trading in old appliances for new ones, and e-commerce platforms such as JD.com, Tmall, and Suning have fully participated in the trade-in program for old appliances.Under the implementation of the above-mentioned policies, the sales of key consumer goods have significantly increased. Data from the National Bureau of Statistics shows that the retail sales of household appliances and audio-visual equipment have turned from a decline to an increase, with a year-on-year growth of 3.4% in August. From the perspective of platforms and stores, the recent rapid growth in consumer spending on new household appliances in exchange for old ones is evident. From August 26th to September 21st, the sales of refrigerators, washing machines, TVs, air conditioners, and other household appliances on JD.com increased by 128.8%, 86.3%, 130.6%, and 240.5% respectively, showing a significant growth rate. From September 1st to September 21st, the foot traffic at Suning's nationwide stores doubled, and the sales of computers and air conditioners achieved rapid growth of nearly 300% and 100% respectively. With major domestic and foreign festivals approaching towards the end of the year, coupled with the release of demand due to the trade-in of old appliances and sustained high growth in emerging export markets, the good momentum in the household appliances sector in the second half of the year is expected to continue. Mutual fund managers are increasing allocation, favoring white goods sector Based on the above factors, mutual funds have gradually increased their allocation to the household appliances sector this year. Data shows that by the end of the second quarter of 2024, the market value of heavy-weight stocks in the household appliances sector accounted for 4.34% of mutual fund holdings, an increase of 0.78 percentage points from the first quarter of 2024. Looking at sub-sectors, mutual funds primarily focus their allocations (4.34%) on the white goods sector within the household appliances industry. By the end of the second quarter of 2024, the proportion of white goods allocation increased by 0.93 percentage points to 3.44%, while the allocation proportions of black goods, small household appliances, and lighting increased by 0.081 percentage points, 0.05 percentage points, and 0.01 percentage points respectively; kitchen and bathroom and parts sectors saw a decrease of 0.01 percentage points and an increase of 0.14 percentage points in industry holdings respectively, with the changes in allocation proportions basically in line with the trends of changes in various sub-industries. In the view of analysts, companies that receive high allocations from mutual funds are typically those with impressive export data performance, indicating that companies with high export business growth are likely to continue benefiting. Midea Group Co., Ltd (00300): The company's sales of household air conditioners, washing machines, refrigerators, kitchen appliances, and other household appliances rank in the top three globally, with market shares of 23.7%, 14.2%, 10.5%, and 6.0% respectively. Based on sales and revenue figures for 2023, the company is the largest household appliance company globally. Sales-wise, Midea has established a comprehensive online and offline sales network in overseas markets. As of August 30, 2024, Midea has around 5,000 after-sales service points overseas, and more than 9,000 retailers in Southeast Asia have joined the overseas sales platform. In terms of effectiveness, Midea's overseas OBM business has grown rapidly. In 2023, OBM business revenue accounted for over 40% of overseas smart home business revenue. Furthermore, Midea Group Co., Ltd recently listed on the Hong Kong Stock Exchange and completed a dual listing with A+H shares. The company plans to raise funds, allocating 20% for global R&D investment, 35% for improving global distribution channels and sales networks, enhancing overseas sales of its self-owned brands, 20% for expanding overseas production capacity, 15% for improving manufacturing infrastructure and supply chain digitalization, and 10% for operational funds and general corporate purposes. Currently, Midea has 43 major production bases worldwide, including 22 overseas production bases in 12 countries, enabling global production and delivery. Overseas production capacity is mainly distributed in Brazil, Japan, Thailand, Vietnam, Germany, Egypt, and Italy. With the commissioning of production capacity from raised funds, Midea's revenue contribution from overseas operations is expected to further increase. Hisense Home Appliances Group (00921): Hisense Hitachi, established in Qingdao through a joint venture between Hisense Group and Hitachi Air Conditioning, was consolidated into the company's financial statements in the fourth quarter of 2019. Its main businesses include central air conditioning (through a Hisense Hitachi subsidiary), refrigeration, household air conditioners, kitchen appliances, and other businesses. In 2023, central air conditioning, refrigeration, and household air conditioning accounted for 26%, 30%, and 19% of revenue respectively. However, in terms of profit structure, due to the higher net profit margin of Hisense Hitachi, which has been maintained at around 15% in recent years, it accounted for 56% of net profit in 2023. By region, about 60% of domestic revenue and about 30% of overseas revenue were generated by Hisense Hitachi. In the first half of the year, Hisense Home Appliances Group achieved revenue of 48.642 billion Yuan, a year-on-year increase of 13.27%, with a non-GAAP net profit of 1.703 billion Yuan, a year-on-year increase of 34.82%. Looking at domestic and international sales, in the first half of the year, domestic and international sales revenue saw year-on-year growth of 4% and 28% respectively. Despite external pressures in the second quarter of 2024, with real estate and consumer performance showing signs of weakness, Hisense Home Appliances Group continued to grow steadily, with its second-quarter performance growing by over 15%.