China Consumer Durables_ White goods_ Consumer Discretionary Tour Takeaways_ Distributor meeting shows encouraging trade-in i...

Summary of Key Points from the Conference Call Industry Overview - Industry: China Consumer Durables, specifically focusing on white goods and consumer discretionary products Core Insights 1. Trade-in Policy Impact: The trade-in policy has significantly boosted revenue, with a notable increase in retail sales at the Casarte store in Shenzhen, reaching Rmb4 million from September 6-16, compared to monthly sales of Rmb1.5-2 million in earlier months. This is attributed to provincial subsidies during June-August [1][5] 2. Product Performance: Air conditioners, washing machines, and refrigerators are outperforming due to national subsidies, while categories like dry-cleaning machines are excluded in some provinces [1][5] 3. Sales Growth: Retail sales in offline key account channels grew approximately 25% year-over-year from September 6-26 in Shenzhen, with specific stores like Five Star and Suning showing over 100% growth [2][5] 4. Average Selling Price (ASP) Increase: The ASP of Casarte products increased to Rmb700 post-implementation of the trade-in policy, compared to around Rmb5,000 prior to the policy [2][5] 5. Subsidy Mechanism: Customers receive direct price reductions when purchasing appliances, with subsidies processed by distributors after government review, which can take 3-6 months [5] 6. Inventory Management: Inventory levels peaked in May at Rmb40-50 million year-over-year but have since been reduced by Rmb30 million month-over-month, returning to a healthy level by July [5] 7. Customer Demographics: The majority of customers utilizing the trade-in policy are purchasing for new homes, with efforts to penetrate older communities to stimulate replacement demand [5] Company-Specific Insights 1. Hisense Home Appliances Group: Rated as a "Buy" due to high earnings growth visibility, attractive dividend yield, and undemanding valuation, trading at an average of 8x 2024E-25E P/E with ~20% profit growth expected [6][9] 2. Haier Smart Home: Also rated as a "Buy," benefiting from resilient domestic growth, market share gains, and improving overseas demand. The company is expected to deliver better-than-industry growth through product expansion [9][10] 3. Gree Electric Appliances: Rated as a "Buy," with a focus on stable growth outlook and attractive risk/reward profile, expected to grow in line with the overall AC market [13][14] Valuation and Risks 1. Target Prices: - Hisense: 12-month target price of Rmb40/HK$34 based on 17x/12x 2026E P/Es [6] - Haier: 12-month target price of Rmb33/HKD33 based on a discounted P/E approach [10] - Gree: 12-month target price of Rmb49 based on a 10x exit multiple applied to 2026E EPS [14] 2. Key Risks: - Disruption in white goods demand due to weaker macroeconomic conditions - Rising raw material costs impacting margins - Challenges in marketing effectiveness and integration of acquisitions [10][14] Additional Considerations - The conference highlighted the importance of government subsidies in driving consumer behavior and sales in the consumer durables sector, particularly in the context of trade-in policies [1][5] - The ongoing focus on premiumization and product mix improvements is expected to enhance margins and overall company performance in the competitive landscape [9][10]