China Securities Co., Ltd.: White goods profits are stabilizing, and an inflection point is approaching. The sector's valuation has room for upward adjustment.

China Securities Co., Ltd. published a research report stating that the white goods industry is currently in a critical window of profit bottoming and expectation reversal. In the first half of the year, industry profits were under pressure, primarily due to temporary factors such as foreign exchange fluctuations and raw material costs, rather than a systemic deterioration in demand and competitiveness. With external pressures easing and the low base effect gradually becoming apparent, industry profits are expected to recover seasonally in the second half of the year, and the sector's valuations have room for upward correction. The main points from China Securities Co., Ltd. are as follows: In the first half of 2026, the white goods industry is facing profit pressures, mainly due to short-term disruptions such as foreign exchange fluctuations, copper prices, and impairments. Leading companies are relatively resilient, while second-tier players are seeing a differentiation in performance, with profits accelerating towards the top tier. The industry fundamentals are showing signs of bottoming out and improving: overseas markets remain the primary source of growth, with exports outperforming domestic sales. Online production scheduling shows that air conditioning production turned positive in October. The low base in Q4 2025, combined with easing foreign exchange cost pressures, is expected to facilitate quarterly profit recovery in H2 2026. Major enterprises are advancing organizational changes and the internationalization of their brands, with a clear growth logic, indicating that the sector may experience a fundamental recovery amid stabilizing profits and optimizing market conditions. How did the white goods industry perform in the Q1 2026 semi-annual report? Industry sentiment pressure has increased, and profits have been notably constrained. Nine listed companies had total revenues of 596.9 billion yuan (-1.7%), net profit attributable to shareholders of 53.7 billion yuan (-7.2%), and net profit after deducting non-recurring gains and losses of 44.8 billion yuan (-21.5%), with a net profit margin of 9.0% (-0.5 percentage points), indicating that non-recurring performance reflects the actual stress. Analyzing by quarter, Q2 saw a significant decline in profits (net profit attributable to shareholders -9.2%, net profit after non-recurring gains and losses -28.5%), with cost and foreign exchange pressures being concentrated in Q2. What differences were observed between first-tier and second-tier white goods performance in Q2? First-tier leaders displayed relative resilience while second-tier players faced substantial pressure, resulting in accelerated profit concentration towards the first tier. Among first-tier companies, only Midea saw revenue growth (+3.5%), while Gree (-8.1%) and Haier (-2.8%) experienced revenue declines but maintained decent profit resilience; second-tier profits dropped significantly (AUX -40.8%, Changhong Meiling -86.1%, turning to losses in Q2, Hisense -20.2%). The profit share of the top three companies rose to 93.2% (+2.6 percentage points), and the revenue share to 84.2% (+0.9 percentage points), indicating a greater increase in profit concentration than in revenue, further solidifying the "double concentration" pattern of revenue and profits. What are the drivers of income in Q3? Overseas markets are the primary growth drivers. Although foreign sales have slowed, they still significantly outperform domestic sales. Domestic sales were 338.8 billion yuan (-1.0%), while foreign sales amounted to 252.1 billion yuan (+0.8%), with the overseas proportion continuing to increase to about 42%. Structurally, ice washing exports and emerging markets are highlights (Hiragro international sales +34.8%, Guangdong TCL Smart Home Appliances +16.0%, Hisense European ice washing nearly +15%, Haier Southeast Asia +17.1%). Air conditioning exports faced pressure (Gree -22.0%, AUX -20.4%), while the Middle East and South America were regions of reduced volume. Leading enterprises are accelerating their upgrade from "product exports" to "self-owned brands + localized operations" (Haier's organizational changes, Midea's OBM accounting for over 50% of B2C exports, Hisense's sports marketing +7+1 synergy, AUX's transition from ODM to OBM). How can the reasons behind the changes in profitability be broken down? The decline in profitability is not due to significant deterioration in self-management, but mainly comes from short-term disruptions caused by foreign exchange fluctuations, copper prices, and impairments. The industrys gross profit margin was 25.2% (only -0.16 percentage points) and remained relatively stable, with sales, management, and R&D expenses steady or even declining. However, the financial expense ratio significantly increased due to the appreciation of the RMB (with foreign exchange impacts of approximately 1.58 billion yuan for Haier, Midea's financial expense ratio increased by 3.6 percentage points), concentrated in Q2. How do you view the subsequent trends in domestic and foreign sales? There is a structural differentiation where "exports outperform domestic sales," with marginal improvements in domestic sales due to the low base, and H2 2026 profits are expected to gradually recover. Industry online production scheduling for September to November indicates: air conditioning total production turned positive in October (+0.7%, domestic sales +16.4%, export +6.9%), with November benefiting from low base and continued improvement due to Black Friday stocking; ice washing exports showed steady positive growth (refrigerators +4.5%, washing machines +3.4%), benefiting from demand in emerging markets and supply chain replacements due to European capacity contraction. The low base from Q4 2025 creates room for recovery in Q4 2026, with a considerable probability of sequential profit improvement from Q3 to Q4. What are the future highlights for white goods companies? For first-tier companies, focus on transformation and change, while for second-tier companies, attention is on the reversal of internationalization. Haier is looking at organizational changes (big HVAC overseas growth validated at +13%, integration of the white goods platform awaiting release, DTC efficiency improvements); Midea is focused on the second curve in the B2B sector (OBM accounting for over 50% of B2C exports, with +15%, transforming from a consumer goods company into a global technology enterprise); Hisense is exploring synergy in black and white goods for international growth (exports +4.6%, European ice washing nearly +15%, short-term pressure with medium-term resilience); AUX is looking for a turnaround after setbacks in the Middle East (with overseas revenue accounting for 57.1%, the cost-performance logic of multi-brand penetration remains intact). Risk warnings: 1) macroeconomic fluctuation risks; 2) intensifying market competition; 3) raw material price fluctuation risks; 4) foreign exchange fluctuation risks; 5) complexities in the global trade environment.