Zhongtong Finance and Economics App learned that Tianfeng Securities has released a research report stating that the household appliance income in the first half of 2024 has steadily increased, and the profitability has continued to improve, highlighting the resilience of leading performance. Recently, the central government has implemented the policy of replacing old with new, with subsidy intensity comparable to that of small appliances going to the countryside. The domestic sales are meeting the peak of the renewal cycle, and the policy is expected to be flexible, with the expectation of a turnaround in domestic sales, combined with the export boom, low valuation, and high stock dividends, maintaining an industry "stronger than the broader market" rating, and continuously recommending Midea Group Co., Ltd (000333.SZ), Gree Electric Appliances, Inc. of Zhuhai (000651.SZ), Haier Smarthome (600690.SH), Hisense Home Appliances (000921.SZ), Vatti Corporation (002035.SZ) and other targets.

Tianfeng Securities' main points are as follows:

In the first half of 2024, the household appliance income increased by +6.75% year-on-year to 769.6 billion yuan, with Q1/Q2 increasing by +8.56% / +5.21% respectively; the net profit attributable to the mother of the sector in the first half of the year increased by +11.32% year-on-year to 64.1 billion yuan, with Q1/Q2 increasing by +14.80% / +8.88% respectively. Steady revenue growth, continuous improvement in profitability under the background of rising costs, and strong momentum.

White Goods: Domestic sales rhythm is high and then low, with continued export growth.

In the first half of 2024, the income of the white goods sector increased by +6.65% year-on-year, with Q1/Q2 increasing by +8.88% / +4.77% respectively, showing a slight slowdown on a month-on-month basis, still within a stable range; the net profit attributable to the mother increased by +14.42% year-on-year in the first half of the year, with Q1/Q2 increasing by +16.12% / +13.27% respectively, continuing double-digit growth. Both domestic and foreign sales continued the previous growth trend during the period, with the first half of the year seeing a high-then-low pace of domestic sales, and a relatively flat Q2. Against the backdrop of rising costs, the leading gross margin has risen against the trend, with contributions from business/product structure and OBM; operational efficiency has been realized, and profitability continues to improve, with the prospect of maintaining rapid growth.

Black Goods: Foreign sales are better than domestic sales, with short-term fluctuations in profitability.

In 2024H1, the revenue of the black household appliances sector increased by +7.62% year-on-year, with Q1/Q2 increasing by +5.93% and +9.16% respectively. It is expected that the overseas growth rate in Q2 will be better than the domestic growth rate driven by sporting events. The net profit attributable to the mother of the black household appliances sector in 2024H1 decreased by -3.66% year-on-year, with Q1/Q2 decreasing by -3.39% and -3.96% respectively. It is expected that the increase in panel prices and pressure from the high-end domestic market will drag down the overall performance. Subsequent trends in product upgrades at home and abroad may continue, and the year-on-year increase in panel prices has significantly narrowed, with prices of certain panel sizes already showing a year-on-year decline, indicating that the competitive advantage of leading Chinese color TV companies may be demonstrated in the second half of the year.

Smart Home: Under pressure from the business environment, profitability has improved slightly.

In 2024H1, the revenue growth of the smart home sector increased by +8.03% year-on-year, with Q1/Q2 increasing by +15.69% and +2.06% respectively. The Q2 domestic sales promotion is under pressure compared to the previous year, and the growth rate of exports has also narrowed. The net profit attributable to the mother of the sector in 2024H1 increased by +13.65% year-on-year, with Q1/Q2 net profit attributable to the mother increasing by +29.15% and +3.73% respectively. Profitability has slightly improved, mainly due to the significant reduction in costs and marketing efficiency of two leading clean companies, and the increased contribution of exports. The strategy of "branding overseas + quality and price ratio" is still the industry's best choice. It is expected that there is a high probability of stable demand and improved profitability in the second half of the year.

Late-cycle Sector: Significant pressure on operation due to significant drag from the real estate sector.

In 2024H1, the revenue of the real estate late-cycle sector increased by +0.96% year-on-year, with Q1/Q2 increasing by +8.06% and -4.63% respectively. The decline in revenue is mainly due to the pressure from the real estate sector, with demand for mature categories supporting the decline. The revenue from the kitchen appliances/large electrical appliances and electrical lighting in Q2 increased by +2% and +1% respectively, while the revenue from integrated stoves, which are mainly for new demand, decreased by -49%. The net profit attributable to the mother in 2024H1 decreased by -1.94% year-on-year, with Q1/Q2 net profit attributable to the mother increasing by +12.66% and decreasing by -11.14% respectively. The gross margin rate/expense ratio/attribution net margin rate in Q2 decreased by -1.18/+1.76/-1.30pct. It is worth looking forward to the improvement in demand for the sector as the subsequent policies are expected to stimulate demand.

Small Appliances: Slower growth in domestic sales and accelerated growth in exports, overall profitability under pressure.

In 2024H1, the revenue of the kitchen small appliances sector increased by +8.78% year-on-year, with Q1/Q2 increasing by +8.12% and +9.41%; among them, the revenue of export-oriented companies in Q1/Q2 increased by +13% and +19% respectively, while that of domestic sales-oriented companies increased by +4% and +1% respectively. Since 2023Q2, exports have maintained strong growth, while domestic sales have weakened season by season. The net profit attributable to the mother in the first half of the year decreased by -1.88% year-on-year, with Q1/Q2 net profit attributable to the mother increasing by +9.20% and decreasing by -12.15% respectively; the net profit rate of Q2 decreased by -1.62pct; the gross margin rate decreased by -1.11pct, mainly due to intensified competition in the domestic market; the expense ratio increased by +2.44pct, mainly due to the high base of exchange gains.

Risk Warning: Policy implementation falls short of expectations; tariff expectations cause fluctuations in export pace; significant increase in raw material costs.