The global market has a vast space, and domestic home appliance leaders are globally leading in efficiency, R&D, online channels, and governance mechanisms. The global growth of Chinese home appliances comes from the increase in market share of stock markets, the market growth driven by Chinese technological innovation products introduced to Europe and the United States, and the increased penetration rate of entry-level home appliances in emerging markets.
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The home appliance sector had significant excess returns in 1H24, but the industry's prosperity declined in 2H24. The short-term sector may face some adjustments. The global market has a vast space, and domestic home appliance leaders are globally leading in efficiency, R&D, online channels, and governance mechanisms. Recently, the market is concerned that the home appliance industry in the second half of the year may face risks of changes in global trade policies. The team believes that China's home appliance industry's global layout is relatively complete and can flexibly respond to trade policy changes without long-term impact. Despite the downturn in industry prosperity, the home appliance sector still has comparative advantages driven by globalization and is expected to have an increase in sector valuation in the long run.
The domestic sales market for home appliances has only increased slightly since 2019 due to consumers' purchasing power insufficiency and the real estate industry's decline. However, there is structural growth in categories such as cleaning robots and high-speed hair dryers. Currently, the home appliance market mainly relies on updated demand, and market concerns about home appliances affected by the post-cycle of the real estate industry have been proven false. As the overall competitive landscape of the home appliance industry is good, China International Capital Corporation believes that cost and price competition's impact are controllable and the market does not need to overly worry.
In the future, the valuations of white goods and HVAC leaders are expected to increase. Referring to Daikin Industries in Japan, which fluctuated between 18.2x and 35.5x TTM P/E in the past 30 years of low-interest-rate era in Japan. Compared with China's white goods and HVAC industry, with a valuation range of 10.1x-17.3x TTM P/E over the past ten years. The high-quality manufacturing and branding business model of the home appliance industry require relatively less fixed assets and have excellent cash flow in all industries. The average CAPEX/operating cash flow in the first-tier home appliance industry of the Shenwan Index from 2021 to 2023 is only 35%, ranking fifth from low to high among all industries. The dividend payout ratio of the Shenwan home appliance sector has reached 54% in 2023 and continues to increase. China International Capital Corporation believes that the future valuations of China's white goods and HVAC industry leaders are expected to increase.
Risk
Market demand fluctuations risk, overseas market policy risks.