Shenwan Hongyuan Group: Valuation of the home appliance sector bottoming out, 26-year-old policy of trading in old for new continued.

Shenwan Hongyuan Group released a research report stating that entering 25H2, the high base pressure brought by the policy of replacing old appliances with new ones in 24 has gradually become apparent, leading to a weakening of white goods production, a decline in the overall valuation of the sector, but the current valuation is at the bottom in recent years, highlighting the cost-effectiveness of sector allocation. The significant effect of the policy of replacing old appliances with new ones in 24 led to a total sales volume of over 60 million units for 8 major categories of home appliances, directly driving consumption by over 260 billion yuan. In 25, consumers participated in the replacement of old appliances with new ones for over 129 million units of home appliances. As of March 15, 26, the sales of old appliances with new ones reached 17.13 million units, driving sales revenue to reach 69.44 billion yuan. The main points of Shenwan Hongyuan Group are as follows: Significant improvement in demand, valuation urgently needs rebound In the white goods sector, according to data from the industry online platform, the cumulative domestic sales of air conditioners in 25 reached 105.21 million units, a year-on-year increase of 1.0%; with the single-quarter domestic sales of air conditioners in Q1/Q2/Q3/Q4 year-on-year changes of +6.2% /+11.6% /+6.0% /-29.4%, entering 25H2, the growth rate of domestic sales of air conditioners gradually slowed down, and the pressure of base number increased. In January 26, the domestic sales of air conditioners reached 8.26 million units, a year-on-year increase of 14.5%, returning to double-digit growth, and the absolute value of monthly shipments reached a new high since 2019. In the kitchen appliances sector, according to data from AVC, in 24, the retail sales of range hoods reached 36.2 billion yuan, a year-on-year increase of 14.9%; the retail sales of gas stoves reached 20.4 billion yuan, a year-on-year increase of 15.7%; the retail sales of electric/radiant cookers reached 23.6/29.6 billion yuan, a year-on-year increase of 1.3%/8.8%. The policy of replacing traditional necessities of kitchen appliances with new ones had a significant driving effect. In 25, the retail sales of range hoods/gas stoves reached 34.91/19.45 billion yuan, a year-on-year decrease of -3.6%/-4.9%. The policy of replacing old with new in 25 continued, with some pressure from the high base number in the fourth quarter of 24, maintaining steady retail data for traditional kitchen appliances. Bottom valuation recovery, highlighting cost-effectiveness of sector allocation In 25Q1, the white goods sector achieved high performance growth driven by overseas markets, and the performance of the household appliances and white goods sectors steadily increased in the first three quarters. However, the repeated tariff policy of the United States significantly affected the North American market, with increased external shocks and uncertainties; at the same time, entering 25H2, the high base number pressure brought by the policy of replacing old appliances with new ones in 24 gradually became apparent, resulting in a weakening of white goods production and a decline in the overall valuation of the sector. However, currently, the valuation is at the bottom in recent years, highlighting the cost-effectiveness of sector allocation. Significant effect of replacing old appliances with new ones, high growth in multi-category retail In 24, the policy of replacing old appliances with new ones had a significant driving effect, with increased subsidies in 25 and continued policies in 26. At the end of July 24, the "replace old appliances with new ones" policy was implemented, and through review and comparison, it was found that compared to 2009, this time the policy had significantly increased strength, mainly reflected in: 1) covering a wider range of categories; 2) higher subsidy proportions; 3) widening subsidy price limits; 4) greater central support in subsidy funds and other aspects. In 25, the policy expanded its scope with additional categories such as water purifiers, dishwashers, rice cookers, and microwave ovens. In 26, the subsidy policy will be more focused on 6 categories of home appliances such as refrigerators, TVs, air conditioners, water heaters, and computers with Level 1 energy/water efficiency, with a subsidy standard of 15% of the final selling price, not exceeding 1,500 yuan. According to public information from the Ministry of Commerce, in 24, the central government vigorously supported the sales of more than 60 million units of 8 major categories of home appliances by replacing old appliances with new ones, directly driving consumption by over 260 billion yuan; in 25, consumers participated in the replacement of old appliances with new ones for over 129 million units of home appliances; as of March 15, 26, the sales of home appliances with new ones reached 17.13 million units, driving sales revenue to reach 69.44 billion yuan. Focus on two main investment themes 1) Dividends: Leading companies in the appliance sector have the attributes of "low valuation, high dividends, and stable growth", with high safety margins and great flexibility in stock prices. In terms of domestic sales, the effects of the policy of replacing old appliances with new ones in 25 exceeded expectations, and there is still hope for stability in 26. In terms of exports, leading major appliance companies have set up production bases in many locations around the world, effectively dealing with tariff changes and other international trade fluctuations. Additionally, long-term demand in multiple emerging markets such as Southeast Asia, South America, the Middle East, and Africa is expected to drive long-term growth in the appliance sector. Leading companies in the appliance sector are currently at their valuation bottoms, and three major companies are recommended: "HAIER SMARTHOME (600690.SH), Midea Group Co., Ltd (000333.SZ), Gree Electric Appliances, Inc. of Zhuhai (000651.SZ)" + two Hisense companies "Hisense Visual Technology (600060.SH), Hisense Home Appliances Group (000921.SZ)". 2) Technology: Some appliance companies are actively transitioning to emerging technology sectors such as Siasun Robot & Automation, data center liquid cooling, and semiconductors while deepening their core industry. Recommended companies include: Anhui Anfu Battery Technology (603031.SH): Stable cash flow from the battery business, with expansions through mergers and acquisitions and investments in developing a second core business; Suzhou Huazhijie Telecom (603400.SH): Setting high goals for incentives, with new businesses such as liquid cooling, drones, and Siasun Robot & Automation ready for scale-up; Up-shine Lighting (301362.SZ): Acquired Xiache Precision, entering the highly prosperous market of PCB drilling needles; Ugreen Group Limited (301606.SZ): A new force in consumer electronics going global, with great potential in the AI+NAS space. Risk warning Risk of exchange rate fluctuations; Risk of fluctuating raw material prices.