Zhongjin: both domestic and foreign sales have expected differences. The home appliances sector is still expected to emerge from the New Year market this year.

CICC released a research report stating that the fundamentals of the household appliance industry currently have expectations differences in both domestic and overseas sales. The industry's relative prosperity and sector valuation are at relatively low percentiles, and the sector still has the potential to have a year-end rally. In terms of domestic sales, the market is concerned that the government subsidy activities may be overextended and that retail sales are showing pulse-like decline. The bank believes that last year's government subsidies were not implemented for a long time, and there may still be room in low-level markets such as rural areas. Against the backdrop of policies that increase funding, expand product categories, and improve mechanisms this year, the continuation of existing policies is expected to ensure sustained growth in domestic appliance sales. CICC's main points are as follows: Reviewing the 1Q calendar effect of the past ten years: Relative industry prosperity and undervaluation are necessary conditions for a year-end rally. The essence of the 1Q calendar effect for the household appliance sector is the digestion and switching of valuations brought about by robust performance expectations. Looking back at the years 2015-2024 (excluding the heavily affected year of 2020 due to the pandemic), the sector outperformed the Shanghai and Shenzhen 300 Index six times in nine years, with a success rate close to 70%. The average return rate in 1Q is 6.2%, with a median of 7.7%, and the absolute returns are better than the other three quarters. The bank reviews history and finds that if valuations are not overestimated, there are no systematic market risks, and the expectations of annual reports and first-quarter performance are not revised downwards, then the year-end valuation switching trend usually goes smoothly, with the probability of undervalued securities rising higher. Both domestic and overseas sales have different expectations, and the sector is still expected to have a year-end rally this year. 1) Domestic sales: There are concerns that government subsidy activities may be overextended, and retail sales are experiencing pulse-like decline. The bank believes that last year's government subsidies were not implemented for a long time, and there may still be room in low-level markets such as rural areas. Against the backdrop of policies that increase funding, expand product categories, and improve mechanisms, the continuation of existing policies is expected to ensure sustained growth in domestic appliance sales. 2) Foreign sales: Previous concerns about tariffs have been an important factor suppressing sector valuations. The growth potential of emerging markets is still an important driver. 3) As of the closing on January 17, the TTM PE of the household appliances and white goods sectors reached 15.2x/12.8x, placing them in the 37% and 33% percentiles of the past ten years. The benefits of the 4Q24 industry leader from government subsidies in terms of shipments and profits have not yet fully reflected in financial statements. The first quarter is the period when most appliance industry leaders realize their annual performance, and there are still companies with performance discrepancies in their annual reports. Outlook for 2025: How will the effects of government subsidies play out? Calculations from two perspectives. 1) Fiscal subsidy multiplier perspective. The effect of fiscal subsidies is reflected in the fiscal multiplier, which shows how much additional consumer goods sales can be generated for each unit increase in fiscal subsidy expenditure. The bank calculates that the fiscal multiplier for the old-for-new replacement of household appliances from 9-11M24 is approximately 2.2. Referring to the fiscal multipliers of household appliances from 2009-2012, the bank generally expects them to decline each year. With a neutral assumption that there may be 800-1000 billion yuan of household appliance subsidies in 2025, and the fiscal multiplier for that period falls to 1.6, the bank estimates that the retail sales of household appliances in 2025 may achieve mid-to-high single-digit growth. 2) White goods shipment perspective: In 2024, government subsidies for household appliances were concentrated in September-December and did not fully cover the peak season for air conditioning. Based on historical growth centerpoints (i.e., the 2019-2023 shipment CAGR), the bank calculates that the shipments of refrigerators, air conditioners, and washing machines for domestic sales are still expected to achieve steady growth in 2025. The upgrade of the government subsidy structure on price levels and the elasticity of enterprise profits should not be underestimated. Risk warning: Risk of terminal demand over-exploitation; risk of increased industry competition; risk of external tariff changes.