China Galaxy Securities: Optimistic about the consumption sector market trend from the Spring Festival to the annual performance period.

China Galaxy Securities released a research report stating that they are optimistic about the consumer sector market from the Spring Festival to the annual performance period. Companies with high certainty of performance growth, relatively low valuations, and high dividend yields are worth paying attention to. The current policy of replacing old items with new ones for consumer goods in 2025 has been issued. The bank believes that the subsidy amount, eligible product categories, and merchant qualifications in the home furnishing industry are expected to be further relaxed. It is expected that the impact of national subsidies on the performance of listed companies in 2024 will be concentrated in Q1 2025, while the continuity of policies in 2025 will continue to benefit downstream demand recovery. The main points of China Galaxy Securities are as follows: In 2024, retail sales of social consumer goods achieved stable growth, with strong support from the policy of replacing old items with new ones. In 2024, the total retail sales of consumer goods reached 48.79 trillion yuan, a year-on-year increase of 3.5%; among them, the year-on-year growth rates in Q1, Q2, Q3, and Q4 were +4.7%, +2.7%, +2.7%, and +3.8% respectively, with December seeing a year-on-year increase of 3.7%. The stimulus policies for consumption had a significant effect, with the growth rate of social retail sales in Q4 significantly outperforming Q3. The retail sales of household appliances, audiovisual equipment, furniture, automobiles, and construction and decoration materials above quota collectively drove the growth of social retail sales by about 1%. The effect of subsidies on the consumer industry is significant. 1) Household appliances benefit the most from the subsidy category of replacing old items with new ones. In December, the retail sales of household appliances over the limit reached 113.3 billion yuan, a whopping 39.30% increase year-on-year. After the subsidies were implemented in August, the total social retail sales of household appliances from September to December increased by 29.95% year-on-year. Due to the concentration of retail sales caused by subsidies, the growth rate of retail sales of large-scale enterprises was higher than that of the overall household appliance retail sales. According to Total Push data from AVCloud, the overall retail sales of household appliances in December 2024 increased by approximately 36.84% year-on-year. 2) Furniture subsidies involve contracts, and the promotion process is slower than that of household appliances, but they also have a stimulating effect, with social retail sales in December/Q4 increasing by 8.8%/9.0% year-on-year. The bank believes that the subsidy amount, eligible product categories, and merchant qualifications in the home furnishing industry are expected to be further relaxed. It is expected that the impact of national subsidies on the performance of listed companies in 2024 will be concentrated in Q1 2025, while the continuity of policies in 2025 will continue to benefit downstream demand recovery. 3) The subsidy for communications has achieved certain effectiveness, with social retail sales in October, November, and December increasing by 14.4%, -7.7%, and 14% respectively year-on-year, with some fluctuations between months. Due to the influence of reselling subsidies, the promotion of mobile phone subsidies has been delayed; in 2025, a maximum subsidy of 500 yuan per mobile phone will be announced, which is expected to effectively prevent reselling subsidies and promote the implementation of subsidies. 4) The subsidy policy for 2025 will be greatly expanded and will likely span the entire year. According to Galaxy Macro calculations, the scale of consumer goods subsidies for 2025 is expected to reach around 500 billion yuan, with various types of consumer goods policies expected to overall drive the year-on-year growth of social retail sales by approximately 1.7 percentage points, further enhancing the stimulative effect on consumption. Significant growth in travel, entertainment, and mental-related consumption. 1) In recent years, there has been a significant structural change in residents' consumption behavior, with a high growth in travel, entertainment, and mental-related consumption. In 2024, railway and civil aviation passenger traffic reached a historic high, with year-on-year growth of +12% and 18% respectively. In December, civil aviation passenger traffic maintained double-digit growth, mainly due to the recovery of international flights and the increase in inbound tourism due to transit visa policies. According to data from the Immigration Administration, the number of foreign tourists entering the country without visas in December was 2.67 million, a year-on-year increase of 60%, driving a 40% year-on-year increase in international flights and a 9% year-on-year increase in domestic flights for domestic airlines. 2) Consumption in catering and accommodation sectors is sluggish due to insufficient effective demand and increased supply, with growth rates continuing to slow down. The national catering revenue growth rate in December slowed by 1.3 percentage points to 2.1% compared to November, and is expected to be affected by the uneven distribution of dining vouchers in various regions. 3) The sports and entertainment sector has fully benefited from the above trends, with year-on-year growth rates of 16.7% and 11.1% in December and 2024 respectively. It is expected that industries like eSports and trendy entertainment will contribute to a certain extent to drive growth. Demand for essential goods is resilient, with early stocking for Spring Festival-related consumption. 1) Retail sales of tobacco and alcohol were gradually slowing down, but in December, they increased year-on-year by 10.4%, mainly due to the early arrival of the Spring Festival in 2025 leading to early channel stockpiling. 2) Sales of beverages in December decreased by 8.5% year-on-year, with a quarter-on-quarter growth rate of -4.2 percentage points, mainly due to the fact that important outlets such as convenience stores were not covered by the statistical scope; the bank believes that the structure of beverage channels is evolving, with the proportion of sales from grocery stores and convenience stores increasing (Nielsen data shows that these two account for 70%+ of the industry's revenue), and showing fast growth, driving a year-on-year increase of 8.2% in overall beverage sales in October-November 2024. With continued increased travel activities, timely consumption of beverages from small outlets is expected to continue to benefit, so there is no need to worry too much. 3) Sales of grain and oil products increased by 9.9% year-on-year in December, and by 9.9% for the whole of 2024. The demand for essential goods is robust, with the rise in pork prices combined with early stocking for the Spring Festival driving resilience throughout the year. 4) Retail sales of clothing decreased by 0.3% year-on-year in December, with slightly warmer temperatures in North China and East China compared to the same period last year, resulting in some pressure on sales of high-priced winter clothing. Excluding the impact of temperature, actual consumer power remains steady; sales of cosmetics increased by 0.8% year-on-year in December, showing an improvement from the previous overall downward trend, with the extended Double 11 promotion period in Q4 2024 catalyzing an improvement in cosmetic sales, although still affected by the high base period; sales of gold, silver, and jewelry decreased by 1.% year-on-year in December, with the rate of decline narrowing, as the price of gold has been rising since 2024, putting pressure on end consumer demand, with demand for gold, silver, and jewelry expected to stabilize after gold prices stabilize. Risk warning: risks of economic recovery falling short of expectations; risks of policies falling short of expectations; risks of intensifying industry competition.