CITIC SEC: Changes in domestic demand and landscape brewing in the furniture industry, huge potential for overseas development.

CITIC SEC released a research report stating that the panel furniture machinery industry has certain attributes of both real estate and consumer goods. With the stabilization of the real estate market and the policy of "replacing old with new" in consumer goods, the investment expectations and attention of the sector have recovered. The bank believes that there are four major investment directions in the panel furniture machinery industry: 1) in domestic demand, the elimination of tail players and the increase in industry concentration; 2) in domestic demand, the domestic replacement of imported equipment by large furniture factories; 3) in overseas markets, the huge development potential hidden in the uneven development of different regions; 4) in overseas markets, Chinese manufacturers have cost-effective advantages and are expected to continue to increase their overseas market share. The leading domestic company, which has maintained a balance between domestic and foreign markets since its listing, is optimistic about its dual growth in the domestic and overseas markets and continuous increase in market share. The main points of CITIC SEC are as follows: From the perspective of domestic supply side, the industry concentration in China is low, leading companies have significant advantages, and the localization rate continues to increase. 1) Market size: The bank estimates that the domestic market size in 2023 will be between 14 to 16 billion yuan, with the demand for upgrading and replacing equipment by medium and small furniture factories as the base. 2) Market structure: Highly dispersed, the bank estimates that by 2023, over 60% of the market will come from medium and small equipment vendors, but leading equipment vendors have established significant leadership. 3) Domestic vs. imported equipment: There is a significant price gap due to raw materials, labor, and overall efficiency, and the gap is difficult to bridge. In recent years, the scale of imported equipment has shrunk significantly, and the localization rate has increased. From the perspective of domestic demand side, the demand of medium and small furniture factories is the basis, and the update cycle of large furniture factories is expected to provide incremental growth. 1) Terminal demand: The weight of demand for second-hand housing and inventory renovation is expected to gradually increase, enhancing the consumption attributes of the industry. 2) Demand logic of different customers: Large furniture factories focus on high automation and stability, while medium and small furniture factories focus on cost-effectiveness and short investment payback period. 3) Update cycle of large furniture factories: The starting point of the last capital expenditure cycle was in 2017, and is about to enter the update and replacement cycle. 4) Downward trend in investment by large furniture factories: Influenced by continuous decline in profit margins, limited financing channels, etc., large furniture factories have shown a downward trend in investment. Leading domestic equipment is expected to replace the previous generation of imported equipment. The domestic market is about to undergo changes. 1) Leading companies integrate the market share of small equipment vendors: Leading companies, relying on scale, capital, and profit advantages, feed back into product research and development and dealers, widening the gap in product quality and service. 2) Leading companies replace imported equipment: With large furniture factories entering the update cycle and exhibiting a trend of reduced investment, some domestic equipment with high cost-effectiveness and qualified product performance are expected to replace the previous generation of imported equipment. 3) Impact of real estate: If the performance of the real estate terminal is weak, it is expected to accelerate the integration of the tail market share; if the performance of the real estate terminal is good, it is expected to accelerate the release of incremental demand from large furniture factories. The development of the panel furniture machinery industry shows huge potential due to the uneven development in different regions of the overseas market. 1) Market size. 2) Uneven industry development: According to CSIL data, in 2021, China, the United States, and Germany accounted for 52% of the global furniture output value, while the bank estimates that these three countries' market share of panel furniture machinery market accounts for 75% of the global market, showing that the development of panel furniture machinery in other regions is insufficient, with huge development potential. 3) Driving factors: Improvement in furniture production automation, popularization of furniture consumption, globalization of furniture supply chain. Chinese manufacturers have the advantage in price-performance ratio, with huge growth potential. 1) Extremely low overseas market share; 2) European and American markets: Large space, Chinese equipment vendors mainly seeking structural opportunities. 3) Markets of developing countries with low furniture consumption: High sensitivity to equipment prices, large space for expansion and improvement in automation rate, Chinese equipment vendors are expected to grow together with the furniture industry in developing countries. Risk factors: Unanticipated completion and sales of domestic real estate; lower than expected domestic furniture consumption; the equipment renewal and procurement of domestic customized home furnishing listed companies falling short of expectations; equipment procurement by domestic medium and small furniture factories falling short of expectations; slower than expected recovery of the overseas furniture machinery market; increased competition in the domestic market leading to fluctuation in company profitability; slower than expected expansion in overseas markets.