Summary of the Conference Call on China Consumer Appliances Sector Industry Overview - The conference call focused on the **China Consumer Appliances Sector**, particularly the **2026 home appliances trade-in subsidies** announced by the **National Development and Reform Commission (NDRC)** and the **Ministry of Finance** on December 30, 2025 [2][3]. Key Points and Arguments 1. **Announcement Timing**: The release of the 2026 subsidy policies was slightly ahead of expectations, as the 2025 version was released on January 8, 2025. The overall content aligns with market expectations, benefiting white goods and smart home products [2][3]. 2. **Narrowed Subsidy Scope**: The 2026 subsidies will cover only **6 categories**: fridge, washing machine, TV, air conditioner, PC, and water heater. This is a reduction from the 12 categories in 2025, which included major kitchen appliances and small appliances like range hoods and microwaves. This change may negatively impact companies focused on major and small appliances [3][4]. 3. **Subsidy Structure Changes**: - The subsidy for energy-efficient products will be **15% of the sales price**, with a cap of **Rmb1,500** per category per consumer. This is a decrease from the previous **20%** for Level 1 energy-efficient products and **15%** for Level 2, with a cap of **Rmb2,000** [4]. 4. **Encouragement for Local Governments**: The policy explicitly encourages local governments to subsidize smart home products, including age-adaptive home products. Local governments will have the discretion to set specific categories and standards [5]. 5. **Estimated Total Subsidy Amount**: The total amount for the 2026 subsidies has not been officially released, but estimates suggest it could be around **Rmb250 billion**, slightly lower than the **Rmb300 billion** in 2025. This estimate is based on a recent fund of **Rmb62.5 billion** issued to support consumer goods trade-in [5]. Sector Implications - The focus on white goods is expected to benefit industry leaders such as **Midea** and **Haier**. The support for smart home products may also favor companies like **Roborock** and **Ecovacs**. However, sales for major appliances (e.g., **Robam**) and small appliances (e.g., **Supor**, **Joyoung**) may face challenges due to a high sales base [6]. Risks Identified 1. **Home Appliances Sector Risks**: - Impact of the **China property market** on demand - Elevated raw material prices - Global supply chain constraints affecting exports [9]. 2. **Robotic Vacuum Cleaner Sector Risks**: - Intensifying market competition - Raw material price increases - Foreign exchange losses due to currency fluctuations [10]. 3. **Small Appliances Sector Risks**: - Economic downturn leading to weak consumption - Price competition - Rising raw material costs eroding profitability [10]. Additional Information - The report was prepared by **UBS Securities Asia Limited**, with analysts including **Rennie Pan**, **Christine Peng**, and **Molly Huang** [7]. - The document includes disclaimers regarding the potential conflicts of interest and the nature of the research provided [11][12]. This summary encapsulates the critical insights and implications from the conference call regarding the China Consumer Appliances Sector and the upcoming subsidy policies for 2026.

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].