Summary of Conference Call on China Consumer Appliances Sector Industry Overview - **Sector**: China Consumer Appliances - **Focus**: Transition from copper to aluminum in air conditioning (AC) units, particularly in heat exchangers [2][8] Key Points and Arguments Technological Shift to Aluminum - **Popularity**: The use of aluminum in ACs has gained traction due to a recent rally in copper prices [2] - **Standardization**: In December 2025, the Chinese Association of Refrigeration issued a standard for aluminum heat exchangers, and major manufacturers signed a convention to promote consumer acceptance [2][8] Cost Savings Potential - **Copper Content Breakdown**: A typical 1.5HP household AC contains approximately 6-7 kg of copper, with the heat exchanger accounting for 53% of this [3][10] - **Replacement Potential**: It is estimated that 50-60% of copper in ACs can be replaced by aluminum, primarily in heat exchangers [3][12] - **Cost of Goods Sold (COGS)**: Copper constitutes 25-29% of an AC's COGS, and switching to aluminum could reduce COGS by 40%, leading to overall savings of 5-7% [3][12] Adoption Challenges in China - **Efficiency Concerns**: Aluminum has lower heat conductivity than copper, which may lead to increased electricity consumption [4][14] - **Corrosion Resistance**: Aluminum is less resistant to corrosion, posing a higher risk of leakage, especially in humid regions [4][14] - **Welding Difficulties**: The complexity of welding aluminum increases post-sales costs [4][14] - **Consumer Education**: There is a need for consumer education regarding the reliability of aluminum compared to copper [4][14] Gross Margin (GM) Impact - **Projected COGS Growth**: Blended AC COGS is expected to grow by 4% in 4Q25 and 1Q26, and by 5% in 2Q26, which could lower GM by 3-4% YoY [5][15] - **Mitigation Strategies**: Recent price hikes in ACs may help mitigate the cost pressures if raw material prices remain stable [5][15] Sector Implications - **Long-term Outlook**: While the shift to aluminum could benefit the industry's GM in the long run, immediate adoption is not expected due to existing challenges [6] - **Investment Recommendations**: Favorable outlook on industry leaders like Midea and Haier due to their ability to manage cost pressures and optimize operations [6] Additional Insights - **Product Launches**: Wanbao launched an AC made from a zinc-aluminum alloy, priced at Rmb999, which is over 20% cheaper than copper-based models [8] - **Market Dynamics**: The shift to aluminum has been more successful in countries like Japan and the US, where consumer acceptance is higher [11] Conclusion The transition from copper to aluminum in the Chinese AC market presents both opportunities for cost savings and challenges related to efficiency and consumer acceptance. The industry's leaders are well-positioned to navigate these changes, but significant hurdles remain before widespread adoption can occur.

Summary of the Conference Call Transcript Industry Overview - The report focuses on the **China Consumer Appliances** industry, highlighting a significant decline in retail sales and market consolidation among leading brands [2][3][4]. Key Points and Arguments 1. **Retail Sales Decline**: - October omnichannel white goods retail sales fell by **29-36% YoY**, compared to a decline of **20-35% in September**. This decline is attributed to a high base in 2024 and fading domestic trade-in subsidies [2][3]. - The expectation is for continued double-digit YoY retail sales declines in November and December 2025 [2]. 2. **Market Share Dynamics**: - Industry leaders **Midea**, **Haier**, and **Gree** gained market share in October from tier-2 brands like **AUX** and **Hisense**, indicating ongoing industry consolidation during a downcycle [2][3]. - Midea and Haier increased their offline air conditioner (AC) value share by **1ppt** and **3ppt** YoY, respectively [3]. 3. **Price Trends**: - Offline average selling prices (ASPs) for ACs, washing machines (WMs), refrigerators, and range hoods fell by **12%**, **10%**, **12%**, and **5%** YoY, respectively. This decline is primarily due to a high base from trade-in subsidies in 2024 and increased competition [3][4]. 4. **Roborock's Performance**: - **Roborock** gained market share in robot vacuum cleaners (RVCs) and wet-dry vacuum cleaners despite an overall market decline. Its online sales for RVCs grew by **177% YoY**, while its market share increased by **21ppt** YoY to **30%** [4]. - Concerns were raised about Roborock's profitability due to high marketing investments and self-subsidies, which may negatively impact margins in Q4 2025 [4]. 5. **Small Kitchen Appliances**: - Online sales growth for small kitchen appliances decelerated to **5-10% YoY** in October 2025, with ASPs rising by **4-15% YoY** [5]. Additional Important Insights - The report indicates that the decline in retail sales is expected to persist, with industry leaders likely to continue gaining share due to brand segmentation strategies [3]. - The overall market for RVCs saw a **35% YoY** drop in online retail sales value in October, reflecting a high base from the previous year [4]. - The report emphasizes the importance of monitoring ASP trends and market share shifts as indicators of competitive dynamics within the consumer appliances sector [3][4]. Conclusion - The China Consumer Appliances industry is experiencing significant challenges with declining sales and price pressures, but leading brands are managing to consolidate their positions. Roborock's growth in a declining market highlights the potential for strategic investments to yield long-term benefits despite short-term profitability concerns.

Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the performance of various sectors in the Chinese consumer market, particularly focusing on e-commerce platforms like Tmall, Taobao, and JD. The overall growth across most sectors is described as muted, with specific categories showing significant declines in year-over-year (YoY) growth rates [1][12]. Category Performance - **Supplements/Infant Milk Formula/Dairy**: - Supplements grew by 9% YoY, Infant Milk Formula (IMF) by 2%, and Dairy by 1% [1][12]. - **Declining Categories**: - Beer saw a decline of 19%, Beauty products declined by 9%, Small kitchen appliances by 7%, Sportswear by 6%, and Sports shoes by 4% YoY [1][12]. - **Flat Performance**: - Pet foods and Women's clothing remained flat YoY [1][12]. Brand Performance - **Domestic vs. MNC Brands in Cosmetics**: - Multinational Corporations (MNCs) outperformed local brands in October, attributed to easier bases and favorable platform support. Estee Lauder and Kose led with 33% and 32% YoY growth, respectively [2][29]. - Local brands like Mao Geping and Botanee grew by 33% and 11% YoY, while Proya and Giant saw declines of 24% and 25% YoY [2][28][29]. Sportswear Insights - Niche MNC brands continued to outperform larger brands, with product cycles playing a significant role in performance disparities. For instance, Adidas showed solid momentum, while Nike did not perform as well [3]. - Weather-sensitive brands like Bosideng and Uniqlo experienced growth due to colder weather in Northern China [3]. Sales Recognition Practices - The growth rates for October may be distorted due to sales recognition practices related to pre-sales and returns during the Double-11 shopping festival. A combined analysis of October and November data is recommended for a clearer picture [7]. Notable Brand Performers - **Outperforming Brands**: Lululemon, Adidas, Roborock, Pop Mart, and Maogeping [8]. - **Underperforming Brands**: QuadHA, Nutrilon, Fancl, Carlsberg, and Comfy [8]. Additional Insights - The report highlights the importance of omni-channel strategies being executed by brands, indicating that online sales may not fully reflect overall performance due to offline sales channels [3]. - The performance of various categories is further detailed in the exhibits, showing YoY trends and market share changes for key brands in the infant milk formula and supplements sectors [19][20][22][25]. Conclusion - The overall consumer market in China is experiencing stagnant growth with significant variances across categories and brands. MNCs are generally outperforming local brands, particularly in cosmetics, while certain sectors like sportswear are seeing a bifurcation in performance based on brand strategies and external factors like weather.

Investment Rating - The report maintains a consistent sector preference, favoring sports brands, diversified retailers, dairy, beverages, and restaurants, while being less favorable towards apparel/footwear OEM, furniture, projectors, discretionary small kitchen appliances, jewelry, and non-super-premium spirits [11]. Core Insights - Consumption in China has shown signs of recovery, with retail sales growth improving to +4.6% year-over-year in 1Q25, and companies in the coverage reporting an average growth of 14% compared to 12% in 4Q24 [1]. - Despite the positive growth, companies remain cautious about the outlook due to ongoing volatility and external factors such as US-China tariff developments impacting consumer confidence [2][1]. - Margin performance in 1Q25 was mixed, with some companies benefiting from favorable raw material prices and cost control, while others faced risks from marketing investments and competition [1]. - Companies are generally maintaining disciplined pricing strategies and healthier inventory levels, although some categories like spirits and sportswear are experiencing challenges due to demand pressures [1]. - The impact of tariffs on earnings and consumer sentiment is significant, with companies cautious about the second half of 2025 amid uncertainties [2]. Summary by Sections Key Findings from 1Q25 Results - Retail sales growth improved to +4.6% year-over-year, with coverage companies reporting an average growth of 14% [1]. - Labor Day consumption growth accelerated, indicating a potential rebound in consumer spending [1]. Expectations for 2Q25 - Companies are cautious about the outlook for 2H25 due to tariff uncertainties, although those with market share gain opportunities may be more resilient [2]. Sector/Stock Preferences - Preferred sectors include sports brands, diversified retailers, dairy, beverages, and restaurants, while least preferred sectors include apparel/footwear OEM and furniture [11]. Macro Data Points - The report notes that macroeconomic data points are solid, but ongoing tariff developments and policy support need to be monitored [11]. Valuation Methodology - The report emphasizes the importance of understanding the valuation methodology and the potential risks associated with it [11].

Market Overview - Oman's air conditioner market was valued at US$ 447.55 million in 2024 and is projected to reach US$ 747.95 million by 2033, growing at a CAGR of 5.98% from 2025 to 2033 [2] - The market is driven by extreme heat, technological innovations, and regulatory advancements focusing on energy efficiency and smart solutions [1] Climate Impact - Oman experienced its hottest summer on record in 2023, with temperatures in Muscat reaching 49.6°C, leading to increased air conditioner usage [3] - The average Omani household now operates their AC units for 18 hours a day during peak summer months, up from 14 hours in 2020 [3] - The number of days with temperatures above 45°C increased to 37 in 2023, compared to an average of 23 days per year in the previous decade [3] Consumer Behavior - 68% of Omani households now view air conditioning as essential, up from 52% in 2020 [4] - There has been a 22% increase in air conditioner sales in Nizwa due to extreme temperatures [4] - 72% of Omani households prioritize energy efficiency when purchasing AC units, a rise from 53% in 2020 [11] Technological Innovations - Smart air conditioning systems are gaining traction, with 42% of new installations featuring IoT connectivity in 2023, up from 18% in 2021 [7] - Solar-powered AC units have seen a 35% year-on-year growth in sales, particularly in rural areas [8] - The introduction of magnetic cooling systems, which are 30% more energy-efficient than conventional units, is expected to capture 5% of the market by 2026 [8] Regulatory Landscape - New Minimum Energy Performance Standards (MEPS) were implemented in 2023, requiring an energy efficiency ratio (EER) of at least 11.5, a 15% increase from the previous standard [9] - 78% of AC models in Oman now meet or exceed these standards, compared to 45% in 2021 [9] - The National Energy Efficiency Program (NEEP) launched in 2022 offers rebates of up to 25% for high-efficiency AC units, leading to a 40% increase in sales of these models in 2023 [10] Economic Impact - The AC sector accounted for 3.2% of Oman's non-oil GDP in 2023, a 0.5 percentage point increase from 2020 [14] - The industry employs over 25,000 people, with a 15% year-on-year growth in jobs related to AC manufacturing, installation, and maintenance [14] - Local production now meets 35% of Oman's AC demand, up from 22% in 2020, reducing reliance on imports [14] Future Outlook - The market faces challenges such as increasing electricity demand from AC usage, which accounts for up to 70% of peak demand during summer [15] - The government aims to reduce energy consumption per capita by 30% by 2030, presenting opportunities for innovation in energy-efficient cooling solutions [15] - The market for eco-friendly refrigerants is projected to double by 2027, and solar-powered AC installations are expected to grow by 40% annually over the next five years [15][16]