Shenwan Hongyuan Group: Cost-effectiveness highlighted in the home appliance sector. Focus on three main investment themes: domestic sales, exports, and core components.

Huachuang Securities released a research report stating that the demand for white goods and kitchen appliances in 2024 has significantly improved, with a high year-on-year increase in retail sales and valuation rebounding from the bottom. Currently, the valuation of the sector is steadily increasing, still at the bottom of recent years, with the cost-effectiveness of sector allocation highlighted. Focus on three main investment themes: domestic sales, exports, and core components. Continuous optimism about the domestic sales of the white goods industry chain, with both quantity and price rising; continuous high demand for export orders; the Belt and Road emerging markets have broad space and are expected to contribute to export growth; at the same time, with the renminbi entering a depreciation channel, export enterprises' exchange gains are expected to drive profit recovery. The unexpectedly high demand for white goods has boosted the demand for upstream core components beyond expectations. Main views of Huachuang Securities are as follows: Significant improvement in demand, valuation rebounding from the bottom In the white goods sector, according to industry online data, the cumulative domestic sales volume of household air conditioners in 2024 was 104.15 million units, a year-on-year increase of 5%. Among them, in Q4, the domestic sales volume was 20.38 million units, a year-on-year increase of 24%, compared to a year-on-year decrease of 10% in Q3, with a significant increase in growth rate from Q3 to Q4. Since the implementation of the "trade-in old for new" policy at the end of July, including a variety of end-term retail sectors such as air conditioners have performed well. In January 25, the domestic sales volume of household air conditioners was 7.21 million units, a year-on-year decrease of 1.5%, mainly affected by factors such as the Spring Festival gap, early season, and emphasis on exports. In the kitchen appliances sector, it was included in the subsidy list for the first time in 2024, with a high year-on-year increase in retail sales. According to Oviyun.com data, the cumulative offline sales volume of range hoods in 2024 increased by 30.5% year-on-year, and the online sales increased by 8.2%. In Q4, online sales saw a double-digit growth, with offline sales up by 83.6%, a significant increase year-on-year; in January 25, online and offline sales increased by 14.2% and 2.7% respectively. In 2024, the retail sales of dishwashers increased by 32.2% year-on-year offline and 17.0% online; in Q4, online growth accelerated further by 36.8%, and offline growth rate reached 72.4%, with overall strong retail performance. Valuation repair of the sector, still has high cost-effectiveness of allocation In 2021-2022, the surge in raw material prices aggravated the cost pressure of enterprises, combined with weak terminal demand, leading to a significant fallback in the valuation of the home appliance sector. In the summer of 2023, there was strong demand for air conditioners, with the performance of the sector, represented by white goods, remaining strong. Against the backdrop of high dividends and better-than-expected production data, the valuation of the white goods sector rebounded at the beginning of 2024, with a slight decline after mid-May; with the positive policies such as trade-in old for new implemented at the end of July, the sector's valuations steadily increased, with the valuation still at the bottom of recent years, highlighting the cost-effectiveness of sector allocation. As of the fourth quarter of 2024, the total market value of the public offering fund's heavy position was 2.8975 trillion yuan, with a 4.06% stake in the home appliance stocks, down 0.30 percentage points from the third quarter of 2024, and overall the home appliance sector allocation maintained a high prosperity level. Among them, actively managed funds were over-allocated to white goods by 2.67%, under-allocated to black goods by 0.03%, under-allocated to kitchen and bathroom by 0.04%, under-allocated to small home appliances by 0.03%, over-allocated to components by 0.10%, and under-allocated to lighting by 0.04%; the allocation proportion of the white goods sector continued to increase, while the components continued to maintain an over-allocated momentum. Risk warning: Exchange rate fluctuation risk; raw material price fluctuation risk.