China Galaxy Securities: Rationally looking at the scale down of home appliance subsidies, the clean appliance retail market still has the potential to maintain growth.

China Galaxy Securities released a research report stating that currently, overall retail sales of large household appliances have generally declined compared to September, and retail sales of cleaning appliances have dropped significantly since October, but they are still significantly higher compared to the same period in 2023. The industry has long anticipated this, as indicated by industry online data, where the domestic sales production of air conditioners in October/November/December compared to the same period last year decreased by -11.5%/-8.4%/-9.9%, reflecting the industry's cautious attitude. It is expected that the main demand for large household appliances will be for replacement, with short-term impacts from subsidy overdraft; the penetration rate of cleaning appliances is continuing to increase, and the retail market is still expected to maintain growth by 2026. Main points from China Galaxy Securities: Reduction in government subsidies, how to view the high year-on-year base of household appliances According to statistics from the National Bureau of Statistics, retail sales of social consumer goods in September increased by 3.0% year-on-year, a decrease in growth rate of 0.34 percentage points compared to the previous month, continuously slowing down since June. Among them, in September, retail sales of household appliances and audio-visual equipment increased by 3.3% year-on-year. Looking back at the subsidies in 2024, retail sales of household appliances and audio-visual equipment in September, October, November, and December of 2024 increased by +20.5%/+39.2%/+22.2%/+39.3% year-on-year, with large household appliances taking the lead in September, and clean household appliances were not part of the eight major categories, only starting to enjoy subsidies at the end of September, with a strong outbreak in October. In September, October, November, and December of 2024, online retail sales increased by +23.7%/+129.6%/+38.3%/+103.3% year-on-year, with the initial weeks being influenced by prior purchase orders, leading to multiple growth. Currently, overall retail sales of large household appliances have generally declined since September, and retail sales of cleaning appliances have decreased significantly since October, but they are still significantly higher compared to the same period in 2023. The industry has long anticipated this, as indicated by industry online data, where the domestic sales production of air conditioners in October/November/December compared to the same period last year decreased by -11.5%/-8.4%/-9.9%, reflecting the industry's cautious attitude. It is expected that the main demand for large household appliances will be for replacement, with short-term impacts from subsidy overdraft; the penetration rate of cleaning appliances is continuing to increase, and the retail market is still expected to maintain growth by 2026. The market competition is fierce, especially in the technology consumer market On September 19, Xiaomi announced that their air conditioners would now come with "10 years free maintenance" instead of the previous "6 years free maintenance," covering all Mi air conditioners installed from January 1, 2025. Currently, the retail sales share of Xiaomi air conditioners has remained stable compared to previous months, and has not declined due to negative publicity surrounding Xiaomi automobiles, as the 10-year maintenance policy has helped blunt the negative publicity. The smart lawnmower market has good prospects, with many companies actively entering the market, making it buzzing with excitement but fiercely competitive. In September 2025, at the IFA, Beijing Roborock Technology released a lawnmower product, marking the entry of the three major floor sweeping machine leaders into this market. In the action camera market, DJI is taking market initiatives, noticeably reducing prices of action cameras, drones, and continuously launching new products. This is expected to be DJI's response to the entry of Impact's drones into the market. Ugreen Group Limited has benefited from the trend of updates following safety incidents related to power banks, with operating income in Q3 2025 reaching 25.1 billion yuan, an increase of 60.4% year-on-year. Export manufacturing capacity continues to shift overseas, with a bright spot in the recovery of heat pump exports On October 10, US President Trump announced that starting from November 1, an additional 100% tariff would be imposed on all imports from China. Due to the significant increase in tariffs since April, leading consumer companies were already mentally prepared and started to accelerate the global deployment of production capacity. For example, on September 16, Midea's air conditioning factory in Thailand was named a "Supply Chain Resilience Lighthouse Factory" by the World Economic Forum, making it the first overseas "lighthouse factory" in the Chinese home appliance industry. Industry online data shows that starting in the second half of 2024, European and American heat pumps have gradually emerged from the downward trend and shown significant growth. Due to the lower base number, heat pump exports increased by 22.5% year-on-year from January to August 2025. Looking ahead, with recent increases in sanctions against Russian natural gas by European and American countries, and the likelihood of a cold winter due to the La Nia effect in the Northern Hemisphere, the heating season in Europe is approaching, and it is expected that with the restart of some European countries' subsidies, heat pump exports will continue to improve. Targets Investment recommendation: With the current active market, traditional household appliance leaders lack room for imagination and are relatively stagnant, while companies related to technology consumption have better growth rates. Recommended companies include technology consumption Beijing Roborock Technology (688169.SH), Ecovacs Robotics (603486.SH), Ugreen Group Limited (301606.SZ); leading companies in domestic appliances TCL ELECTRONICS (01070), Hisense Visual Technology (600060.SH); recommended undervalued, high dividend rate companies that have completed digital transformation of offline channels Midea Group Co., Ltd (000333.SZ), HAIER SMARTHOME (600690.SH); recommended companies that cross industry chains Zhejiang Sanhua Intelligent Controls(002050.SZ), Zhejiang Dun'an Artificial Environment(002011.SZ), Ningbo Deye Technology(605117.SH). Risk Warning Risks of policy effects falling short of expectations; risks of US tariff increases; risks of intensified market competition.