CITIC SEC: The dual drivers of first-time homebuyer demand release and policy relaxation. It is recommended to layout the home sector on dips.

CITIC SEC released a research report stating that the home appliance subsidy in 2024 has achieved certain effects. In cities or regions with large policy flexibility and high flexibility, the demand for home appliances has improved significantly. However, it is important to note that the demand released in this round is mainly driven by essential needs. As for the release of existing home renovation demand and the end of the trend of consumption downgrading in the home appliance industry, it is expected that further policy efforts and optimization are still needed. Looking ahead to 2025, in regions where the new version of the home appliance subsidy policy has been introduced, there seems to be a trend of stricter policies and higher standards. However, CITIC SEC believes that a gradual improvement and relaxation of policies will still be the main direction. While the emphasis is on local subsidies, policies in various regions are expected to provide a more friendly operating environment. Therefore, CITIC SEC recommends positioning the home appliance sector on dips and patiently await catalysts. CITIC SEC's main points are as follows: Review of 2024: Marginal improvement in consumer willingness, boosting the effect of essential needs. The home appliance subsidy activities officially started in 2024Q4 and can be divided into 3 stages. The first stage (September-October): Subsidy policies were gradually released, and the market feedback was positive in the first month. Since September 2024, home appliance subsidy schemes have been intensively implemented in various regions. By the end of October, detailed subsidy regulations for home appliances and home furnishings were introduced in 29 provinces across the country. In cities with more flexible policies (such as Guangzhou), the home appliance demand improved first and achieved good results. The second stage (November): Optimization of policies in multiple regions, expanding the subsidy effect. In November, as the online cross-regional subsidy quotas in benchmark cities were close to being used up, many regions began optimizing their policies (such as opening up online subsidies, reducing dealer thresholds, and increasing individual subsidy amounts). Positive performance was seen in Fujian Xiamen, Jiangsu Nanjing, Hubei, and Guizhou in November, leading to a further increase in furniture retail sales growth to 10.5% in November, validating the effect of the home appliance trade-in policy. The third stage (December): This round of subsidies is coming to an end, and consumer wait-and-see attitudes are becoming stronger. As subsidy quotas in various regions are gradually used up, consumers are choosing to delay their consumption and adopt a wait-and-see attitude, leading to a slowdown in the growth of orders for home appliance companies in December. Analysis framework: Differences exist in policies in various regions, with higher flexibility leading to better results. Since the authority to formulate home appliance subsidy policies has been delegated to local level cities, there are significant differences in policies in various regions. The effectiveness of home appliance subsidy policies in different regions can be judged from four dimensions: 1) the scope of subsidized products, 2) the convenience of consumer use, 3) the threshold for dealer participation and payment conditions, 4) whether online platforms are accessible. In terms of results, regions where the 2024 home appliance subsidy has been effective include Guangdong (Guangzhou/Foshan/Dongguan), Sichuan, Jiangxi, and the optimized policies of Hubei. These regions have comprehensive coverage of subsidized products, convenient consumer use of subsidies, dealer thresholds not limited to statistics, short financing periods, and open online cross-regional subsidies. However, it is important to note that the demand stimulated by this round of home appliance subsidies is primarily driven by essential needs. While there has been some marginal improvement in demand nationwide, the overall trend has not been systematically reversed. The purpose of the policies is to reverse the downward trend in home appliance prices and better release the demand for existing home renovations, which was not fully achieved in 2024 and still has room for improvement in 2025. Outlook for 2025: Policies will gradually improve, with local subsidies as the main focus. As of February 2025, key regions such as Jiangsu, Shanghai, Fujian, Guangzhou, and Hubei have issued detailed regulations for the trade-in of old for new home appliances in 2025, while many provinces have stated that the transition period will continue the trade-in activities in accordance with the 2024 standards. Based on the provinces that have issued regulations for 2025 or implemented national subsidies according to the new regulations, the preliminary plans currently adopt stricter standards (similar to the initial version issued at the end of September 2024). Hubei Province briefly experimented with opening up online subsidies nationwide. It is predicted that the home appliance subsidy policy in 2025 will focus on local subsidies, with simultaneous promotion of online and offline subsidies. The policies in various regions are expected to experience a process from strict to relaxed, similar to the changes in 2024, hence requiring more patience with the policies. The total amount of home appliance subsidies in 2025 is expected to reach 50 billion yuan, driving home appliance consumption by about 300 billion yuan, thereby boosting the growth rate of the home appliance retail market by 11.9pcts to -8.5%. Apart from direct monetary subsidies, local governments are also expected to introduce supporting policies to better support the release of demand for existing home renovations. Risk factors: - The strength of the home appliance trade-in subsidy policy in 2025 is lower than expected. - Improvements in real estate sales and deliveries fall short of expectations. - Increased industry competition. - Weakening consumer purchasing power. - Decreased export demand. - Overseas geopolitical risks. - Changes in trade policies. - Fluctuations in shipping prices. Investment strategy: Considering the pressure faced by real estate deliveries, we believe that the home appliance industry in 2025 will continue to exhibit the fundamental characteristics of "strong expectations and weak realities." It is important to focus on companies with better operating stability and a clear long-term logic for investment. Since the beginning of 2025, there has been a weakening of orders during the subsidy downtime, and the terms of subsidies in provinces that have introduced the 2025 home appliance trade-in subsidy regulations have become stricter, leading to some pressure on the sector's sentiment in the short term. We believe that policy optimization takes time, and subsequent policies introduced by benchmark cities are expected to gradually improve, which is a high-probability event. On the export side, we believe that orders are facing pressure to slow down, and as uncertainties in profitability factors gradually increase, the export situation will return to stability. We are closely monitoring stock opportunities in the context of differentiation.