China Home Appliances_ Extension and expansion of consumer goods trade-in program in 2025

Summary of Key Points from the Conference Call Industry Overview - Industry: China Home Appliances - Research Firm: Morgan Stanley Asia Limited - Date: January 8, 2025 Core Insights - Consumer Goods Trade-In Program: The National Development and Reform Commission (NDRC) announced details for the 2025 consumer goods trade-in program, which is perceived to be better than expected due to its wider coverage and increased subsidies for air conditioning units [5][1]. - Subsidy Expansion: The program expands subsidy coverage from eight to twelve home appliance categories, adding microwave ovens, water purifiers, dishwashers, and rice cookers. Consumers can receive subsidies for up to three AC units and one item from each of the other eleven categories, capped at 20% of the retail price (maximum Rmb2,000/unit) [5][1]. - Consumer Electronics Inclusion: The program also includes three consumer electronics categories (smartphones, tablets, smartwatches) with a subsidy of up to 15% of the retail price (maximum Rmb500/unit) [5][1]. Company Preferences - Investment Preference: The report indicates a preference order for leading home appliance companies: Midea (Overweight), Gree (Overweight), and Haier (Equal Weight) [1][1]. Valuation and Price Targets - Midea Group: Valuation based on a sum of parts approach, with a target price of Rmb88/share, reflecting a 2024 estimated P/E of 16x, which is above its historical average [8][1]. - Gree Electric Appliances: Target price based on a 2025 estimated P/E of 9x, slightly below its historical average, indicating a weaker growth outlook compared to previous cycles [10][1]. - Haier Smart Home: Target price based on a 2025 estimated P/E of 13.5x, which aligns with its historical average, highlighting its strong market position in refrigerators and washing machines [15][1]. Risks and Opportunities - Upside Risks: Potential for a better-than-expected rebound in the Chinese property market, less competition from key players, and successful mergers and acquisitions [13][1][18][1]. - Downside Risks: Risks include fierce market competition, unfavorable foreign exchange movements, and execution risks related to M&A transactions [14][1][19][1]. Conclusion - The 2025 consumer goods trade-in program is expected to positively impact leading home appliance companies, with Midea, Gree, and Haier positioned favorably. The valuation methodologies and associated risks highlight the dynamic nature of the market, influenced by macroeconomic factors and competitive pressures.