Goldman Sachs: In 2025, the household appliances trade-in program will add new categories, with air conditioning receiving the largest increase.

Goldman Sachs released a research report stating that the timing for the implementation of the policy measures of trading in old for new in Mainland China in 2025 is earlier than market expectations. Among them, the announced measures will have a positive impact on household appliance consumption. In terms of products, the new 4 categories (microwave ovens, water purifiers, dishwashers, and rice cookers) and air conditioners (especially VRF and other household central air conditioners) will receive the largest incremental boost. Additionally, due to the greater replacement demand, the 8 categories that have continued since last year (refrigerators, washing machines, televisions, air conditioners, computers, water heaters, household stoves, and range hoods) are still favored. Goldman Sachs' main points are as follows: Goldman Sachs stated that on January 8, 2025, the National Development and Reform Commission held a press conference along with the Ministry of Finance to release the "Notice on Strengthening the Expansion of Large-scale Equipment Renewal and Consumer Goods Trading in Old for New Policies in 2025". The expansion of the trading in old for new household appliances mainly reflects in two aspects: 1) The number of categories included in the national subsidy scope has been expanded from 8 to 12, adding microwave ovens, water purifiers, dishwashers, and rice cookers (continuing to support refrigerators, washing machines, televisions, air conditioners, computers, water heaters, household stoves, and range hoods from 2024); 2) regarding air conditioners, according to the announcement, consumers can receive subsidies for up to 3 air conditioning products (compared to only 1 product last year). In this case, the highest subsidy amount for air conditioners can reach up to 6,000 yuan. In addition, the discount rate and maximum subsidy amount per product (subsidy standards for second-tier/first-tier energy-efficient products are respectively 15%/20% of the product's selling price, with a maximum subsidy of 2,000 yuan per product) remain unchanged from last year. Consumers who received subsidies in 2024 can still use the subsidies in 2025. According to the Deputy Director of the National Development and Reform Commission, the trading in old for new plan will continue to be funded by super long-term special national bonds, with a total amount significantly higher than in 2024. However, the specific amount will be announced to the public during the National People's Congress in March. Despite this, the central government has pre-allocated funds of 81 billion yuan to ensure the continuity of the policy, especially during the Spring Festival. The Deputy Director also mentioned that regions that performed better in the implementation of the trading in old for new policy last year may receive some preferential treatment in fund allocation. Additionally, the government will further simplify the subsidy application process, shorten the subsidy payment period, and set equal participation standards for the retailer Wuxi Online Offline Communication Information Technology Co., Ltd. Goldman Sachs believes that the announced measures will have a positive impact on household appliance consumption demand. In terms of timing, the introduction of these measures was earlier than investors' expectations. Most investors expected detailed implementation rules such as scale and scope to be announced during the National People's Congress. Previously, it was widely anticipated that no specific measures would be introduced before the early March National People's Congress. With the announcement of the measures and the pre-allocated funds in place, the trading in old for new plan in 2025 is expected to be implemented smoothly, without the interruption previously anticipated. In terms of products, the new 4 categories and air conditioners (especially VRF and other household central air conditioners) will receive the largest incremental boost. In the second half of 2024, household central air conditioners performed less well than split air conditioners because the subsidy amount of 2,000 yuan had a much smaller proportion in the retail price (assuming the retail price of a central air conditioner in the popular market is 30,000 yuan, the proportion is about 7%). However, if each consumer can apply for subsidies for up to 3 air conditioners instead of 1, this proportion will increase to 20% (6,000 yuan/30,000 yuan). This is expected to enhance the attractiveness of household central air conditioners and improve demand. Additionally, due to the greater replacement demand, the 8 categories that have continued since last year are still favored. In terms of targets, aside from the leading white goods and kitchen appliances companies (recommended for purchase: Midea Group Co., Ltd(000333.SZ,00300), HAIER SMARTHOME(600690.SZ,06690), Gree Electric Appliances, Inc. of Zhuhai(000651.SZ), and Hangzhou Robam Appliances(002508.SZ)), Goldman Sachs has a more positive view on Hisense Home Appliances Group(000921.SZ,00921) because Hisense Home Appliances Group has the highest VRF profit exposure among its peers (about 50% in 2024); it also has a more positive view on Zhejiang Supor(002032.SZ), a leading enterprise in the rice cooker field that rivals Midea.