Guotai Junan: Emerging markets have a competitive advantage in demand growth, and leading household appliance companies are expected to further increase their market share overseas.

Guotai Junan released a research report stating that the United States and Japan remain the core markets for white goods exports since 2024. In terms of growth rate, emerging markets have an absolute advantage, with Latin America and Southeast Asia still experiencing substantial demand growth, even after excluding core re-exporting countries. In addition, leading companies have relatively mature overseas layouts, with well-established production, research and development, and sales systems, but it takes longer for local management teams to adapt. As demand in emerging markets gradually increases, there is a greater opportunity to increase market share. Domestic Sales: There is no need to worry about the stock of mid-term replacement demand. According to Guotai Junan's estimation framework for household appliance demand, with limited room for growth in the current stock, replacement demand is a core factor affecting total demand (accounting for 60-70% of domestic demand structure). Comparing scenarios with and without subsidies, in 2024, government subsidies are expected to drive a 5% increase in the growth of the three major categories of white goods. In terms of the absolute scale of subsidy-driven categories, air conditioners show the most obvious elasticity. Under pessimistic/neutral/optimistic assumptions, the growth range of domestic sales for the three major categories of white goods - air conditioners, refrigerators, and washing machines in 2025, varies from -5~0%/+5~10%/+10~15%. In the optimistic scenario, if policies continue in 2025 with the same subsidy intensity, the effect of upgrading existing stock in lower-tier markets may be better, such as effectively meeting consumer demand for returning home for the Lunar New Year. However, in the pessimistic scenario, if the policy continues to be implemented starting from Q2 2025, the first quarter will experience a vacuum period with more significant demand fluctuations due to a high base period. Exports: Emerging markets are flourishing, and leading companies have the potential to further increase their market share. The proportion of the three major white goods categories - air conditioners, refrigerators, and washing machines exported to mature markets stands at 42%/56%/54%, respectively. Air conditioner exports are relatively diversified, while refrigerators and washing machines depend more on the European market. The proportions of air conditioners, refrigerators and washing machines exported to the US market are 11%/17%/8% respectively. Under the conservative neutral expectation, white goods exports in 2025 are expected to maintain a mid-single-digit growth rate. Air conditioners and washing machines (+6%) perform better than refrigerators (+2%). The dividend yield advantage of leading stocks remains. Referring to the current PE TTM level of 12.75X of white goods II (CITIC), which is at the 48.24% percentile in the past five years. Looking ahead, the valuation center of gravity is expected to rise: under a stable operating background, leading companies are expected to increase the dividend payout ratio, further enhancing the cost-effectiveness of a safe investment. Under cautious dividend expectation, the dividend yields of white goods companies can generally exceed 3%, with leading companies exceeding 4%, with ample net cash on hand. Investment recommendation: With the stimulus of the domestic replacement policy, leading companies benefit more significantly, with a significant increase in market share and structure. Faced with the volatile external environment overseas, leading companies that have adopted a forward-looking strategy have stronger adaptability and opportunities to increase market share. Guotai Junan is optimistic about the operational stability and certainty of leading companies. Risk Warning: The pace and intensity of government subsidy policies fall short of expectations; declining real estate sales and completions suppress household appliance sales; fluctuations in external bulk costs affect corporate profits.