According to the Zhitong Finance APP, china merchants released a research report stating that Trump plans to impose tariffs on chinese commodities, focusing on the air conditioner industry, with emerging markets contributing growth in recent years. The overall export proportion to the usa is relatively low and the usa has a higher reliance on china, making the industry highly resilient and not overly concerning. Currently, leading enterprises have a highly mature overseas capacity layout, with Southeast Asia becoming the main production base for many companies. It is recommended to configure leading air conditioner companies that can continue to benefit from domestic demand support and have greater space for improvement in export profitability.

Event: On November 25, President-elect Trump of the usa stated that a 25% tariff will be imposed on all products entering the usa from Mexico and Canada. Additionally, a 10% tariff will be imposed on all commodities imported from china.

The main points of China Merchants Securities are as follows:

China's production capacity holds an absolute advantage.

1) White goods: China's air conditioner market holds an absolute advantage, with a global production capacity share reaching 82% in 2023, while production capacity in North America (usa, canada, and mexico) is below 0.3%. In terms of refrigeration and washing, domestic refrigerators and washing machines account for 61% and 50% of the global production capacity, still holding an absolute majority, with North America accounting for 6% and 5% respectively.

2) In terms of the supply chain, China's advantage is even more apparent. For example, in core components, china contributes over 85% of the global production capacity for pistons and rotary compressors used in refrigerators and air conditioners; in terms of black goods, mainland panel production capacity has increased to around 70%.

In recent years, emerging markets have contributed incrementally, with the USA having a relatively low share in exports, while the USA's reliance on China is higher.

The USA has a relatively low share in exports overall. In terms of air conditioners, refrigerators, washing machines, and cooker hoods, China's dependence on the USA in 2024 (China's exports to the USA/China's exports globally) is 9%, 17%, 5%, and 10% respectively, further reduced compared to the previous round of tariffs (2017); the USA's dependence on China (USA imports from China/USA imports globally) is above 35%, with the dependence for other products significantly increasing since 2017, except for air conditioners.

In terms of televisions, Mexico has a high import ratio, and the imposition of tariffs on Mexico negatively impacts local factories. According to ITC data, in 2023, the USA imported 44 million televisions, with Mexico exporting 26.1 million units, China exporting 8.6 million units (less than 20%), Vietnam exporting 6.9 million units, and South Korea exporting under 0.5 million units.

Previously, the tariff rate on Chinese TV exports to the USA was 11.4%, and after an additional 10%, the rate became 21.4%. If Mexico's tariffs rise to 25%, it may drive production capacity back to the mainland or Southeast Asia.

Aowei Ruivo predicts that in 2024, the market share of the four major brands Samsung/TCL/hisense/LG in North America will reach 60%, while the share of channel brands will be 36%. Currently, Samsung and LG's production capacity in Mexico is at 25 million units, and hisense and TCL electronics have capacities of 8 million and 2 million units respectively. The production capacity adjustments and flexibility of domestic brands are better than those of Korean brands, while channel brands relied on domestic OEMs to complete production and now face the loss of cost and low stock price advantages due to tariffs, which may force them to move to Southeast Asia.

Leading enterprises have a highly mature overseas production capacity layout, with Southeast Asia becoming the main production base for most companies.

In terms of overseas revenue share and capacity layout, white goods (20% or less excluding Haier) < black goods (25% or less excluding Zhiyuan) < tool companies (over 60% in the USA), of which 80% of Haier's North American sales are produced locally (GEA factory), with the rest covered by capacities in Southeast Asia. Midea's overall revenue from the USA is 10%, with overseas capacity exceeding 20%. Hisense ha's revenue share in the USA is less than 5%, and the capacity in the Thai industrial park is enough to cover the needs, so there is basically no concern for white goods. For black goods, TCL electronics' capacity in the Vietnam factory has approached 10 million units since its expansion in 2019, sufficient to cover North American demand.

Among tool companies, it is estimated that giants like Hangzhou Great Star Industrial, Gree Electric Appliances, Inc. of Zhuhai, and Quan Feng, through accelerated overseas capacity construction, will be sufficient to meet the USA demand by 2025-2026, combined with short-term stocking sent to warehouses, they can adequately respond to risks.

Investment suggestion: It is recommended to allocate funds to leading home appliance companies with the continuation of domestic demand subsidies and significant improvement potential in export profits.

For white goods, recommend Gree Electric Appliances, Inc. of Zhuhai (000651.SZ), Hisense Ha (000921.SZ), Midea Group Co., Ltd (00300,000333.SZ), and recommend paying attention to Haier Smarthome (06690,600690.SH), with a short-term transportation arrangement for Nine Company-WD (689009.SH);

For black goods, recommend TCL Electronics (01070), Hisense Visual Technology (600060.SH), for small appliances recommend Zhejiang Supor (002032.SZ), Beijing Roborock Technology (688169.SH), Dechang Shares (605555.SH), and XGIMI Technology (688696.SH), tools recommend Hangzhou Great Star Industrial (002444.SZ), Techtronic Ind (00669), QuanFeng Holdings (02285), and Gree Electric Appliances, Inc. of Zhuhai (301260.SZ).

Risk warning: Trade friction escalation, significant increase in raw material prices, and domestic subsidies not meeting expectations.