Sector Research | China Home Appliance
THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
October 16, 2012 Home Appliance Cautious Buy
Cherry pick home-appliance names amid the price corrections
Investment highlights Analyst Wang Nianchun We expect home-appliance y-o-y sales volume growth to rebound moderately +755-82130407 in 4Q 2012. Based on our channel checks and data already released for Jul-Aug [email protected] S0980510120027 2012, 3Q sales volume of various sub-sectors was in line with expectations, and the profitability of the TV sub-sector slightly beat expectations. The subsidies for energy
efficient home-appliance products introduced in June are unlikely to materially boost sales until three to six months after their launch. We expect the 4Q y-o-y sales Sales Contact volume growth of air conditioners, refrigerators, washing machines and LCD TVs will be 7.5%, 5.8%, 5.0% and 0.8% respectively, representing a modest rebound from the Roger Chiman Managing Director first three quarters. +852 2248 3598 [email protected]
Divergence within the sector intensifies, and we suggest waiting for buying Chris Berney opportunities amid price pullbacks. The overall industry sentiment has been tepid Managing Director +852 2248 3568 since the beginning of 2012, but product-mix upgrade and lower material costs could lead [email protected] to an improvement in profitability this year. Based on our estimates, subsidy policies for Andrew Collier energy efficient home-appliance products will have more significant effects in 2013 than Director +852 2248 3528 this year. Some high-quality companies still enjoy clear growth prospects, although the [email protected] entire sector is under significant pressure. We suggest using price corrections to buy high-quality stocks. Joe Chan Director +852 2248 3578 [email protected] Risk factors. 1) The growth momentum of home-appliance sales volume could miss expectations, while the room for profit growth is also squeezed in 2013. 2) Home- Cancy Kong Vice President appliance consumption in rural areas could be disappointing in 1H 2013, after the +852 2248 3538 [email protected] rural home appliance subsidy programme expires at the end of 2012. Cecilia Liu Associate We maintain a “Cautious Buy” rating on the home-appliance sector, and +852 2248 3588 [email protected] believe high-quality companies are good investment choices. With divergence among companies rising, and the importance of brand image increasing compared to Gary Wong Analyst sales channels, companies enjoying advantages in terms of innovation will have +852 2248 3548 stronger pricing power, and high-quality companies with low valuations should be [email protected]
good investment choices. The key is to enter the market when stock prices fall to low Ma Ning levels. Sales Assistant +852 2248 3536 Companies trading at low valuations with clear growth prospects: Gree Electric and [email protected] Qingdao Haier; undervalued companies with improvement in financial results:
Zhejiang Supor and Rongshida Sanyo; companies with good business models and expected to enjoy steady profit growth in 2013: Hisense Electric, Robam Appliances and Homa Appliance; we also suggest to hold Shenzhen Mtc.
Exhibit 1: Earnings forecasts and ratings
Stock Price Market cap. EPS PE (x) Company Rating code (RMB) (RMB mn) 2012E 2013E 2012E 2013E 000651 Gree Electric Buy 20.390 61,330 2.20 2.61 9.2 600690 Qingdao Haier Buy 10.570 28,382 1.22 1.39 8.7 002508 Robam Appliances Cautious Buy 17.100 4,378 0.93 1.17 18.5 002032 Zhejiang Supor Cautious Buy 10.870 6,902 0.78 0.91 14.0 600060 Hisense Electric Buy 9.460 12,329 1.15 1.34 8.2 Source: Wind, Guosen Securities Economic Research Institute
For ratings definitions and other important disclosures, refer to the Information Disclosures at the end of this report. 1 Bespoke translation by Guosen Securities (HK) strictly for use by its clients only.
Home Appliance Sector October 16, 2012 | China THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
1 We expect home-appliance companies to see y-o-y sales volume growth rebound in 4Q12, but only moderately
1.1 Home-appliance stocks benefited from growing profitability and favourable government policies in 1H 2012
In retrospect, as of July 2012, except washing machine exports and LCD TV exports recorded growth of 14% and 8% respectively, all other sub-sectors witnessed negative growth in both exports and the sales volume in the domestic market during the first seven months of this year. Yet, home-appliance companies’ profit growth exceeded income growth due to the three reasons:
1. Raw material costs declined from a year earlier.
2. A shift of business focus onto profit led a number of home-appliance makers to raise selling prices for both export and domestic markets.
3. Home-appliance companies worked to upgrade their product mix.
Coupled with the following three catalysts, the home-appliance sector outperformed the broad market over Jan-May:
1. The valuations of home-appliance stocks were relatively low at the beginning of this year.
2. Results of high-growth companies met market expectations.
3. Subsidy policies for energy efficient home appliances materialised.
Exhibit 2: Comparison of home-appliance companies’ profit growth over Jan-Mar 2012 and over Jan-Jul by sub-sector
1Q 2012 2012 Jan-July Prime Prime Y-o-y Y-o-y Y-o-y Profit Y-o-y operating Profit operating growth growth growth (RMB growth revenue (RMB mn) revenue rate rate rate bn) rate (RMB bn) (RMB bn) Home electrical appliance 226.874 5.08% 9,242 24.25% 613.2 6.25% 27.8 20.75% manufacturing Home refrigerating appliances 55.28 6.44% 1,718 11.27% 146.8 6.66% 5.9 9.24% manufacturing Home air conditioner manufacturing 80.463 2.48% 4,248 38.11% 231.7 5.66% 13.1 37.06% Home kitchen appliances 30.078 5.03% 642 41.58% 76.8 6.04% 2.3 22.74% manufacturing Home cleaning appliances 23.221 7.30% 1,383 20.25% 56.7 10.86% 2.7 9.42% manufacturing Home beauty & health care appliance 5.386 17.54% 153 -17.42% 14 8.44% 0.4 -28.09% manufacturing Home appliance components 14.259 5.60% 464 1.30% 38 6.13% 1.4 -8.14% manufacturing Lighting equipment manufacturing 64.059 16.71% 3,642 19.76% 165.2 15.66% 9.1 19.30% Power supply equipment 22.522 19.66% 1,652 17.98% 55.5 21.86% 3.7 24.90% manufacturing Lighting equipment manufacturing 34.726 17.64% 1,773 27.20% 91.2 14.63% 4.7 20.03% Source: Wind, Guosen Securities Economic Research Institute
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Home Appliance Sector October 16, 2012 | China THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
1.2 3Q12 sales volume of various sub-sectors expected to be in line with expectations, while the profitability of the TV sub-sector slightly beat expectations
Based on our channel checks and data for various sub-sectors already released for Jul-Aug 2012, we believe the 3Q12 sales volume growth of various sub-sectors was in line with expectations. TV makers should have seen their domestic sales recover moderately over Jul-Sep, we believe. Given improvement in domestic sales, the profitability of TV makers should have enjoyed q-o-q increase.
1.3 Sales volume growth expected to rebound moderately in 4Q12
China’s home-appliance makers need time to deal with or offload energy-inefficient work-in-process and finished products in distribution channels after the subsidy programme for energy efficient home appliances were launched in June. As such, we estimate the effects of subsidy programmes would come into full play after a 3-6 month period, during which home-appliance makers could embark on adjusting their product mix, marketing new models and realigning marketing strategies.
We forecast the sales volume growth of air conditioners, refrigerators, washing machines and LCD TV sets will be 7.5%, 5.8%, 5.0% and 0.8% respectively for 4Q, representing a modest rebound from the first three quarters. We expect China’s white-goods exports to have grown by 2-3% and LCD TV exports by about 2% in 3Q.
Exhibit 3: Y-o-y export growth of four home-appliance sub-sectors by quarter (%)
1Q 2Q 3Q forecast 4Q forecast Air conditioner -4.1% -8.1% -10.9% 7.5% Refrigerator -6.7% -12.3% -0.6% 5.8% Washing machine -6.2% -3.3% -5.5% 5.0% LCD TV -5.2% 4.4% 6.5% 0.8% Source: ChinaIOL.com, Guosen Securities Economic Research Institute
We expect China’s domestic sales volume of small home appliances would be up 5% y-o-y. Overall, various home appliance subsectors will see sales volume rebound moderately in 4Q12, in our view.
Exhibit 4: Y-o-y increase in the exports of various home-appliance products in 2012 by quarter (%)
1Q 2Q 3Q forecast 4Q forecast Air conditioner -6.8% -5.3% -4.8% 1.5% Refrigerator 0.4% 7.1% -1.3% 2.8% Washing machine 18.2% 13.6% 6.8% 2.1% LCD TV 7.9% 13.6% -3.9% 2.1% Source: ChinaIOL.com, Guosen Securities Economic Research Institute
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Home Appliance Sector October 16, 2012 | China THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
Exhibit 5: The y-o-y growth in air conditioner exports and Exhibit 6: The y-o-y growth in refrigerator exports and domestic sales volume in 2011 and 2012 by month domestic sales volume in 2011 and 2012 by month
8,000800 60% 8008,000 60% 50% 50% 7,000700 7007,000 40% 40% 6,000600 6006,000 30% 30% 5,000500 5005,000 20% 20% 4004,000 400 10% '000 units 4,000 10% 0% 3003,000 '000 units 3,000300 0% -10% 2,000200 2002,000 -20% -10% 1001,000 1,000100 -30% -20% 0 0 0 -40% 0 -30% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2011(‘0002011年 units, LHS) 2012(‘0002012年 units, LHS) 20112011(‘000年 units, LHS) 20122012(‘000年 units, LHS) Y-o-y11年同比增速 growth in 2011(RHS) Y-o-y12年同比增速 growth in 2012(RHS) 11Y-o-y年增速 growth in 2011(RHS) 12Y-o-y年增速 growth in 2012(RHS)
Source: ChinaIOL.com, Guosen Securities Economic Research Source: ChinaIOL.com, Guosen Securities Economic Research Institute Institute
Exhibit 7: The y-o-y growth in washing machine exports and Exhibit 8: The y-o-y growth in LCD TV exports and domestic domestic sales volume in 2011 and 2012 by month sales volume in 2011 and 2012 by month
4,000400 40% 6,000600 50% 350 3,500 30% 5,000500 40% 3,000300 30% 20% 4,000400 250 2,500 20% 2,000200 10% 3,000300 10% '000 units '000 units 150 2,500 0% 2,000200 1,000100 0% -10% 1,000100 50500 -10% 0 0 -20% 00 -20% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
20112011(‘000年 units, LHS) 2012(‘0002012年 units, LHS) 2011(‘0002011年 units, LHS) 20122012(‘000年 units, LHS) Y-o-y11年增速 growth in 2011(RHS) Y-o-y12年增速 growth in 2012(RHS) Y-o-y11年增速 growth in 2011(RHS) 12Y-o-y年增速 growth in 2012(RHS)
Source: ChinaIOL.com, Guosen Securities Economic Research Source: ChinaIOL.com, Guosen Securities Economic Research Institute Institute
1.4 Divergence within the sector intensifies; we suggest to wait for buying opportunities amid pullbacks
Based on our estimates, subsidy policies for energy efficient home-appliance products will have a more significant impact in 2013 than this year. However, as the industry sentiment is expected to remain tepid, we believe the upside potential for home-appliance companies’ profitability will be lower than in 2012. The rural home appliance stimulus programme is scheduled to expire at the end of 2012, but home-appliance companies don’t have high hopes and in fact have a cautious view.
Given our forecasts for the growth potential for various sub-sectors, we expect divergence among various home-appliance companies will further intensify in 4Q. Some high-quality companies still enjoy clear growth prospects, but the entire sector is under huge pressure, given relatively high valuations. We suggest to wait for opportunities to buy high-quality stocks amid price corrections.
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Home Appliance Sector October 16, 2012 | China THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
2 Innovation becomes crucial amid tepid market sentiment
2.1 Innovation in products, business models, manufacturing process, etc. has become crucial to home-appliance companies’ growth
Various types of innovation, such product innovation, business model innovation, innovations in the manufacturing process, etc, will be the key factors that will determine the landscape of the home-appliance sector in 4Q12 and beyond. On one hand, given high-base effects, it’s increasingly difficult for home-appliance companies to fuel profit growth by increasing sales volume. On the other hand, consumers replace home appliances with increasing frequency and in turn this will require faster upgrades of models. This offers a more adequate explanation for the improvement in profitability enjoyed for refrigerators this year than merely citing reduced raw material costs.
The indications are that innovative products are gaining popularity rapidly among consumers.
LED backlit LCD TVs have grown in popularity among consumers since 2010. In 2010, LED backlit LCD TVs accounted for 15% of China’s total TV sales volume. The percentage rose to 55% in 2011, and for 1H12, it surged to 84%. 3D TVs and smart TVs accounted for 49% and 42% of the sales volume of LED backlit LCD TVs respectively. The sales volume of inverter air conditioners as a share has exceeded 50% y-t-d.
Exhibit 9: China’s 3D LCD TV sales volume and its share Exhibit 10: Monthly smart TV sales volume in retail stores tracked as % of total TV sales volume by All View Consulting Co. , Ltd. and its share as % of total TV sales volume
1,000100 35% 45450 30% 90900 40400 30% 25% 80800 35350 25% 70700 30300 20% 60600 20% 25250 50500 15% 15% 20200 '000 units 40400
'000 units 15150 10% 30300 10% 20200 10100 5% 5% 10100 550 0 0 0% 0 0 0% 11.02 11.04 11.06 11.08 11.10 11.12 12.02 12.04 12.06 11.01 11.03 11.05 11.07 11.09 11.11 12.01 12.03 12.05 12.07
3D LCD TV sales volume (‘000 units, LHS) Smart智能电视 TV sales volume (‘000 units, LHS) Share零售量占比 as% of… total TV sales volume (RHS) Share占比（ as%%） of total TV sales volume (RHS) Source: All View Consulting, Guosen Securities Economic Source: All View Consulting, Guosen Securities Economic Research Institute Research Institute
Across the subsectors, there is a growing trend towards faster shifts in product mix, which stands to be accelerated by the rural home appliance stimulus programme in 2H 2012. We draw this conclusion as we have observed that with the rural home appliance stimulus programme and old-for-new subsidy policies in place, the ASP of home appliances sold in rural areas tend to climb. The old-for-new subsidy programme also favours the growth in the share of innovative products in the total sales volume of home appliance products in rural areas.
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Upgraded product mixes may bring about increased ASP, while stiff competition in the industry exerts dampening effects on selling prices. A consistent tracking of ASP levels of products in an industry and of various companies would provide a glimpse into which companies have the upper hand in terms of product mix optimisation and which ones are masters of consumption trends or even trend-setters aiming to sell their products at a premium to rivals.
2.2 To identify high-quality companies with advantages in new products R&D and brand image
Comparing the performances of various home-appliance makers, we believe the following companies stand out in terms of the increase in ASP and pricing power. Meanwhile, we see considerable upside potential in several home-appliance companies.
Companies with strong pricing power: Gree Electric (000651.CH), Robam Appliances (002508.CH), Zhejiang Supor (002032.CH), Qingdao Haier (600690.CH) and Hisense Electric (600060.CH).
Companies with strong costs control: Shenzhen Mtc (002429.CH).
Companies with considerable growth potential: TCL Corporation (000100.CH), Skyworth Online (00751.HK), Zhejiang Yankon Group (600261.CH) and Rongshida Sanyo Electric (600983.CH).
3 The importance of brand image increases compared to sales channels
3.1 Branding has a greater role to play in the context of diversifying distribution channels
With both online retailers and specialty stores owned by distributors contributing a growing share of home-appliance sales, sales channels of the home-appliance industry have become highly diverse. Home-appliance companies with low-cost channels contributing a growing percentage of their sales and at the same time focusing on increasing product value will stand out, in our view. We believe such companies are well positioned to see larger growth potential compared with companies solely focusing on sales-channel expansion. Profit growth will very much depend on home-appliance companies’ ability to differentiate offerings as well as their pricing power.
To see it from another prospect, new brands could also win growing recognition from consumers through e-commerce channels by properly positioning their products. Increasingly, brand advantage would outweigh the advantage in distribution channels. We estimate it would take home-appliance makers some time to rebalance the weight of different distribution channels and solve the issue of price difference in different distribution channels, which is a trifle for high-quality companies to address.
3.2 Backed by good products, brand advantage is self-reinforcing
According to our channel checks, 360buy and Tmall were the two most popular online home-appliance retailers in 2011 and 2012. With B2C online sales channel thriving
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Home Appliance Sector October 16, 2012 | China THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
rapidly, based on our analysis, the percentage of online sales in the sales revenue of listed kitchen appliance companies has reached up to 10%, and that of white-goods companies has reached 1-2%. The addition of new channels like e-commerce not only boosts the pricing power of well-established brands that have strong presence in bricks-and-mortar outlets, but also provides newly established brands with a low-cost path to growth.
The transaction value of China’s online shopping market totaled RMB773.56 billion in 2011, representing a 67.8% surge from 2010. The share of online shopping as a percentage of China’s total retail sales rose from 2.9% in 2010 to 4.3% in 2011, and the percentage is expected to exceed 5% in 2012. The clothing, shoes, hats & bags sector and the 3C & home appliance sector capture the largest share in the total transaction value of the online shopping market. The two sectors enjoyed a 26.5% and 24.2% share respectively in 2011, representing a 3.7% and 7.5% increase from 2010.
Exhibit 11: Share in China’s online transaction market in 2011 Exhibit 12: The transaction value of China’s online shopping in terms of transaction value by sector market
3,000 10% 9% 2,500 8% 28% 2,000 7% 6% 1,500 5%
41% RMB billion 4% 1,000 3% 500 2% 1% clothing, shoes&hats,luggage 0 0% 3C products&home appliance 24% Cosmetics 2006 2008 2010 2012E 2014E 3% 5% Audio-visual products&books Transaction value (RMBbillion,LHS) Others Share as% of total retail sales value(RHS)
Source: Iresearch, Guosen Securities Economic Research Institute Source: Iresearch, Guosen Securities Economic Research Institute
3.3 Watch companies capable of quickly adapting to changes in sales channel mix
Home-appliance companies now attach more importance to new sales channels. According to our channel checks, companies already enjoying advantages in terms of sales through traditional channels are developing new competitive edges through new sales channels. In this sense, kitchen-appliance companies, including Robam Appliances and Supor, and white-goods companies, including Gree Electric Appliances, Midea Holding and Qingdao Haier, etc, are good examples. On the other hand, such changes also provide new sales platforms for companies previously focusing on export business and bring opportunities for such companies to promote domestic sales. With costs associated with sales channels declining, new brands could see their brand awareness increase, and their profitability could also continue to improve. Homa Appliance delivered satisfactory performance in terms of year-to-date sales via online retail channels.
4 3Q 2012 earnings forecasts
We expect home-appliance companies’ 3Q results to mostly come in line with expectations. Among key companies we track:
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Home Appliance Sector October 16, 2012 | China THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
We expect companies that posted more than 40% y-o-y profit growth for 3Q 2012 will include: Shenzhen Mtc, Hefei Meiling, Hisense Kelon and Changhong Electric.
Companies that generated 20%-30% y-o-y profit growth should include: Gree Electric Appliances, Robam Appliances, Hisense Electric, Hefei Rongshida Sanyo and Vatti Gas Appliance.
Zhejiang Supor, Midea Holding, Yankon Group and Zhe Jiang Kangsheng are on track to see 0%~10% y-o-y profit growth, while Little Swan, Joyoung, Hesheng Special Material and Changfa Refrigeration are likely to suffer y-o-y profit decline, in our view.
Exhibit 13: EPS forecasts for key home-appliance companies (RMB, %)
EPS in 2011 by quarter EPS in 2012 by quarter y-o-y EPS growth in 2012 by Full-year EPS y-o-y EPS y-o-y (RMB) (RMB) quarter EPS growth in growth in 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2011 2012 2012 1H 2012 Gree Electric 0.31 0.42 0.52 0.49 0.39 0.56 0.63 0.62 26% 33% 21% 27% 1.74 2.20 27% 30% Qingdao Haier 0.22 0.35 0.27 0.16 0.23 0.46 0.32 0.21 6% 30% 18% 30% 1.01 1.22 21% 20% Robam Appliances 0.12 0.19 0.17 0.25 0.17 0.25 0.21 0.30 34% 32% 25% 20% 0.73 0.93 27% 33% Zhejiang Supor 0.22 0.14 0.19 0.19 0.20 0.14 0.20 0.23 -9% 2% 5% 19% 0.75 0.78 4% -5% Hisense Electric 0.20 0.20 0.28 0.62 0.24 0.20 0.34 0.37 20% 1% 20% -40% 1.30 1.15 -11% 11% Shenzhen MTC 0.09 0.12 0.16 0.20 0.15 0.17 0.23 0.27 58% 46% 43% 34% 0.58 0.82 43% 51% Guangdong Homa 0.15 0.24 0.17 0.33 0.31 0.26 16% 33% 0.88 1.07 22% 27% Guangdong Midea 0.21 0.37 0.27 0.24 0.26 0.36 0.27 0.23 22% -4% 1% -5% 1.09 1.12 2% 6% Zhejiang Sanhua 0.17 0.18 0.15 0.13 0.14 0.18 0.16 0.20 -19% 1% 10% 60% 0.62 0.67 10% -9% Zhejiang Yankon 0.07 0.04 0.16 0.07 0.09 0.05 0.18 0.11 24% 17% 9% 55% 0.35 0.43 22% 22% Guangdong Vanward 0.29 0.31 0.24 0.18 0.30 0.34 0.28 0.26 3% 9% 16% 42% 1.02 1.17 15% 6% Wuxi Little Swan 0.21 0.23 0.22 0.05 0.19 0.15 0.15 0.18 -12% -33% -33% 267% 0.72 0.67 -6% -23% Hefei Rongshida Sanyo 0.17 0.16 0.15 0.12 0.17 0.13 0.19 0.18 0% -19% 24% 50% 0.60 0.67 11% -9% Zhongshan Vatti 0.07 0.16 0.13 0.21 0.07 0.19 0.15 0.25 -4% 21% 20% 17% 0.57 0.66 16% 13% Zhejiang Meida 0.09 0.10 0.11 0.08 0.11 0.13 23% -20% 0.40 0.43 7% 0% Joyoung 0.16 0.20 0.23 0.07 0.17 0.18 0.21 0.13 3% -10% -9% 94% 0.66 0.69 4% -4% Zhejiang Dongfang 0.15 0.15 0.15 0.11 0.17 0.14 0.17 0.15 14% -7% 14% 42% 0.55 0.63 14% 3% Suzhou Hesheng 0.10 0.12 0.10 -0.04 0.07 0.06 0.05 0.04 -29% -52% -52% -- 0.29 0.22 -25% -42% Hefei Meiling 0.06 0.14 0.01 -0.04 0.05 0.12 0.04 0.05 -9% -13% 424% -- 0.17 0.26 58% -12% Hisense Kelon 0.08 0.13 0.03 -0.07 0.09 0.19 0.05 0.04 19% 41% 59% -- 0.17 0.37 121% 33% Sichuan Changhong 0.02 0.03 0.01 0.03 0.02 0.01 0.02 0.04 2% -68% 114% 40% 0.09 0.09 4% -36% TCL Corporation 0.03 0.04 0.03 0.02 0.00 0.03 0.04 0.05 -83% -23% 18% 126% 0.12 0.12 3% -48% Konka Group -0.06 -0.10 0.03 0.16 0.01 0.00 0.02 0.04 -- -- 17% -75% 0.02 0.08 283% Zhejiang Kangsheng 0.07 0.11 0.09 0.06 0.08 0.13 0.10 0.07 4% 10% 3% 10% 0.34 0.37 7% 8% Jiangsu Changfa 0.10 0.16 0.12 0.05 0.06 0.08 0.07 0.04 -38% -49% -40% -25% 0.44 0.26 -41% -45% Source: Wind, Guosen Securities Economic Research Institute
5 2012 interim results review: divergence among companies increased
5.1 Revenue declined amid weak market sentiment; profit growth outpaced revenue growth due to product-mix upgrade
For the first six months of 2012, the home-appliance industry’s revenue fell by 4.9% y-o-y to RMB263 billion, profit increased by 9.3% y-o-y to RMB11.37 billion, while the net profit margin rose by 0.57% to 4.35%. The y-o-y decline in revenue indicates demand for home appliance products fell in 1H12. Based on our observations, the y-o-y decline in revenue actually lagged that in sales volume in 1H12, which we believe is due to home-appliance companies’ efforts to increase sales income from medium and high-end products.
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Home Appliance Sector October 16, 2012 | China THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
According to our channel checks, home-appliance consumption in tier-three and tier-four markets has also declined since the beginning of 2012. As such, shows that outperforming of listed home-appliance companies owed more of their superior results in 1H 2012 to enhanced profitability from innovative products and optimised product mixes, increased market share and gains from higher export prices than to expanded sales in tier-three and tier-four cities.
Sentiment on the home-appliance sector started to deteriorate significantly since 4Q11, and the y-o-y revenue growth continued to be lacklustre. The improvement in profitability was reflected in changes in home-appliance companies’ net profit margins and the phenomenon that profit growth outpaced revenue growth. In 2Q12, the overall net profit margin of the home-appliance sector was 4.65%, the highest level since 2011. The sector’s y-o-y profit growth reached 9.4% and 9.9% respectively for 1Q12 and 2Q12, both of which outpaced its y-o-y revenue growth.
Exhibit 14: Results of the home-appliance sector and various sub-sectors for 1H 2012 (RMB bn, %)
Small Upstream Home White-goods Lighting TV sub-sector appliance components appliance sub-sector sub-sector sub-sector sub-sector sector Operating revenue from core businesses 152.2 74 14.3 2.4 20.1 263 Net profit 7.81 1.25 1.14 0.23 0.98 11.43 Net profit margin 5.13% 1.69% 8.00% 9.35% 4.91% 4.35% Operating profit margin 6.56% 1.02% 9.86% 8.50% 6.18% 5.17% Gross margin 22.76% 16.28% 32.06% 22.54% 16.81% 20.98% Revenue growth -10.01% 5.73% 1.40% 4.15% -4.19% -4.89% Profit growth 17.20% 0.31% -4.58% 15.76% -13.83% 9.34% ROE 12.01% 3.26% 5.35% 4.12% 4.68% 7.55% Operating cycle(day) 9 11.6 13.6 25.3 15 13.7 Net cash flow from operating 6.78% 6.12% -1.11% 8.37% 4.16% 3.53% activities/income (average) Source: Company data, Guosen Securities Economic Research Institute
Exhibit 15: Results of the home-appliance sector by quarter over 2011-1H12 (RMB bn, %)
1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Operating revenue from core businesses 127.5 146.6 133.8 119.1 118.9 141.8 Net profit 4.19 6 5.43 5.03 4.6 6.6 Net profit margin 3.28% 4.09% 4.06% 4.22% 3.85% 4.65% Operating profit margin 3.38% 4.79% 4.72% 4.56% 4.86% 5.32% Gross margin 17.31% 18.76% 19.57% 20.63% 20.46% 21.26% Revenue growth 41.04% 29.50% 16.45% 1.92% -6.81% -3.26% Profit growth 42.03% 30.68% 18.69% 7.35% 9.43% 9.94% Source: Company data, Guosen Securities Economic Research Institute
5.2 The y-o-y profit growth of 11 A-share listed home-appliance companies exceeded 20% in 1H 2012
Eight companies enjoyed more than 30% y-o-y profit growth for 1H 2012, including Gree Electric Appliances (30%), Hisense Kelon (33%), Aucma (140%), Shenzhen Mtc (51%), Konka Group (106%), Xiamen Overseas Chinese Electronic (50%), Robam Appliances (33%) and Huayi Compressor (195%).
Three companies posted 20%-30% y-o-y profit growth for 1H 2012, including Qingdao Haier (21%), Homa Appliance (27%) and Yankon Group (22%);
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Four companies reported 10%-20% y-o-y profit growth for 1H 2012, including Hisense Electric (11%), Vatti Gas Appliance (13%), Dun'An Artificial Environment (12%) and Foshan Electrical and Lighting (14%).
Seven companies witnessed 0%-10% y-o-y profit growth for 1H12, including Midea Holding (6%), Canature Environmental Products (9%), Vanward New Electric (6%), Haers Vacuum Containers (0%), Sunrain Solar Energy (7%), Zhe Jiang Kangsheng (8%), and Dongfang Electric Heating Technology (3%).
Among the 26 home-appliance companies that reported y-o-y profit decline, Elecpro Electric Appliance was the only company reporting 1H loss, and it suffered RMB5.78 loss for 1H 2012. 13 out of the 26 companies witnessed over 30% y-o-y profit decline.
According to our analysis based on previous market expectations for various companies’ 1H results, and their financial results breakdown, Gree Electric Appliances, Shenzhen Mtc and Robam Appliances stood out in 1H12, Homa Appliance and Qingdao Haier delivered satisfactory financial performances, while the profitability of Hisense Kelon and Aucma recovered in the first half.
5.3 White-goods sub-sector outperformed, while upstream components sub-sectors underperformed
Among the 10 A-share listed white-goods companies, Gree Electric Appliances and Qingdao Haier were the top two companies in terms of 1H results. The white-goods sub-sector’s revenue slid down by 10% y-o-y for 1H 2012, while the profit grew by 17.2% y-o-y. Gree Electric, Midea Holding and Qingdao Haier contributed 36.75%、26.73% and 23.71% of the subsector’s profit respectively. Gree Electric saw its profit increase by 30% y-o-y in 1H 2012, contributing 11% in the white good subsector’s y-o-y profit growth. Among the 10 companies, four reported y-o-y profit decline, and it’s obvious that companies attaching importance to product innovations delivered better financial performances.
Exhibit 16: Results of the white-goods sub-sector by quarter over 2011-1H12 (RMB bn, %)
White goods 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Operating revenue from core businesses 77.5 91.6 74.3 55.9 67.4 84.8 Net profit 2.56 4.11 3.48 2.71 3.07 4.74 Net profit margin 3.30% 4.48% 4.68% 4.84% 4.56% 5.59% Operating profit margin 3.24% 5.36% 5.41% 5.84% 6.07% 6.95% Gross margin 17.58% 19.23% 21.54% 21.89% 22.15% 23.24% Revenue growth 64.50% 34.65% 15.32% -8.69% -13.08% -7.41% Profit growth 34.23% 26.80% 13.26% 1.05% 20.09% 15.40% Source: Company data, Guosen Securities Economic Research Institute
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Exhibit 17: Key operating data of A-share listed white-goods companies for 1H 2012 (RMB bn, %)
Net cash Operating flow from revenue from Net Operating Net profit Gross Operating operating Revenue Profit core profit profit ROE margin cycle (day) activities/ growth growth businesses (RMB mn) margin margin income (RMB bn) (average) Gree Electric 48.303 2871 5.94% 6.76% 22.86% 12.93% 84 32.68% 20.04% 30.06% Guangdong Midea 38.99 2089 5.36% 7.33% 21.19% 10.22% 100 1.38% -37.15% 5.73% Qingdao Haier 40.47 1852 4.58% 6.84% 24.59% 19.03% 47 8.37% 6.31% 21.26% Wuxi Little Swan 3.101 216 6.97% 8.15% 20.88% 6.12% 108 29.32% -54.04% -22.87% Hefei Meiling 5.313 111 2.09% 2.38% 23.88% 3.81% 101 -4.90% -2.97% -12.13% Hefei Rongshida Sanyo 1.737 160 9.19% 10.24% 32.93% 11.07% 132 17.95% -3.43% -9.09% Hisense Kelon 9.968 380 3.81% 4.02% 19.92% 32.00% 67 0.32% -7.15% 32.90% Jiangsu Chunlan 0.376 2 0.43% -2.81% 21.33% 0.09% 736 -7.48% -3.50% -42.55% Guangdong Homa 1.824 83 4.54% 5.11% 19.88% 7.58% 98 -13.24% 10.27% 26.83% Aucma 2.152 51 2.35% 2.89% 22.08% 7.75% 73 3.43% 2.43% 140.12% CHIGO 5.481 17 0.31% 3.58% 13.81% 0.66% -1.33% -- Total 152.234 7814 5.13% 6.56% 22.76% 12.01% 90 6.78% -10.01% 17.20% Source: Company data, Guosen Securities Economic Research Institute
5.4 Air conditioner sub-sector: key companies’ export business showed strong momentum
According to Chinese home appliance consulting services provider chinaiol.com, the sales volume of air conditioners in the domestic market declined by 8% y-o-y over Jan-Jul 2012, while air conditioner exports also fell by 5.3%. Key companies basically reported rosy export data, while the divergence among air conditioner companies in terms of their domestic sales further increased.
For 1H 2012, various air conditioner companies hiked their export prices. Factoring out the price hikes, these companies’ export business still enjoyed strong momentum. This indicates an expanding market share of China’s air conditioner makers in the global air conditioner market.
Gree Electric’s export sales remained flat from a year earlier to RMB9.3 billion in 1H 2012. The gross profit margin of its export business rose by 6.21 percent from only 4.8% in 1H 2011 to 11% in 1H 2012.
Midea Holding’s export sales basically kept flat from a year earlier to RMB16.6 billion in 1H 2012. The gross profit margin of its export business rose by 7.74 percent to 17.58% in 1H 2012.
Hisense Kelon’s air conditioner business also turned to profit in 1H 2012.
Chigo Holding recorded export sales of RMB2.7 billion, equivalent to a y-o-y increase of 17%.
Exhibit 18: Revenue comparison among air conditioner companies (RMB mn)
2009 2010 2011 1H 2012 1H 2011 Gree 38,329 55,110 74,785 42,826 37,228 Guangdong Midea 30,039 45,300 63,791 30,977 42,516 Qingdao Haier 8,685 11,396 12,101 9,181 8,247 CHIGO 6,005 8,496 9,364 5481 5555 Hisense Kelon 4,090 5,980 6,517 3,757 4,270 Source: Company data, Guosen Securities Economic Research Institute
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5.5 Refrigerator sub-sector: profit margin mostly increased
Refrigerator sales have been under mounting pressure after the rural home appliance subsidy programme ended in 2011. However, based on refrigerator companies’ 1H12 results, except for Midea Holding, almost all these companies saw their profitability improve in 1H12, thanks to a modest decline in raw material costs and more importantly, an increased share of value-added products in their product mix.
Exhibit 19: Comparison of various refrigerator companies in terms of sales (RMB mn)
2009 2010 2011 1H 2012 1H 2011 Hefei Meiling 4,660 5,969 5,991 3,525 3,540 Guangdong Midea 6,313 9,939 11,406 2,855 8,228 Qingdao Haier 18,902 22,811 25,048 13,883 14,215 Hisense Kelon 6,563 7,989 8,246 4,266 4,395 Guangdong Homa 2,193 2,828 3,191 1,823 1,654 Aucma 1,853 2,509 2,703 1451 1440 Source: Company data, Guosen Securities Economic Research Institute
Exhibit 20: Comparison among various washing machine companies in terms of sales (RMB mn)
2009 2010 2011 1H 2012 1H 2011 Hefei Rongshida 1,866 2,761 3,555 1,476 1,663 Sanyo Wuxi Little Swan 3,831 9,814 9,635 2,805 5,889 Qingdao Haier 7,807 11,535 12,215 5,523 5,161 Source: Company data, Guosen Securities Economic Research Institute
5.6 TV sub-sector: profitability slightly fell
The revenue of the TV sub-sector grew by 5.7% y-o-y in 1H 2012, profit basically kept flat, while the net profit margin slightly fell. Smart TV products didn’t significantly outperform other TV products, and this partly explains why the profitability of TV makers slightly declined so far this year.
Exhibit 21: Results of the TV sub-sector by quarter over 2011-1H12 (RMB bn, %)
TV 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Operating revenue from core 33.6 36.4 43.1 47.3 35.6 38.4 businesses (RMB bn) Net profit (RMB mn) 590 660 850 1450 580 670 Net profit margin 1.74% 1.82% 1.98% 3.06% 1.63% 1.76% Operating profit margin 1.90% 1.70% 1.76% 2.51% 1.47% 1.63% Gross margin 15.59% 13.99% 12.66% 12.25% 16.40% 12.98% Revenue growth 5.71% 17.90% 19.08% 16.79% 6.11% 5.39% Profit growth 81.54% 82.01% 98.98% 55.44% -1.00% 1.47% Source: Company data, Guosen Securities Economic Research Institute
Over Jan-Aug, the domestic sales and exports of Skyworth’s flat screen TV products reached 4.26 million and 1.02 million units, representing y-o-y growth of 10% and 11% respectively. Over Apr-Aug, the sales volume and sales value of the company’s flat screen TV products grew by 18% and 14% respectively. At present, Skyworth doesn’t sell CRT TV products in the domestic market any more, but still exports some CRT TVs to overseas markets. The company exported 310,000 units of CRT TVs over Jan-Aug, equivalent to a y-o-y decline of 65%.
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TCL saw the domestic sales volume of its LCD TVs increased by 36% y-o-y to 4.78 million units over Jan-Aug, and the exports surged by 80% y-o-y to 4.18 million units. Out of the 4.18 million units of LCD TVs, 2.54 million units were sold to emerging markets, equivalent to a y-o-y growth of 80%, and accounting for a 61% share in its total exports. Compared with Hisense and Skyworth, TCL produces a large number of CRT TVs. However, the domestic sales and exports of its CRT TVs tumbled by 49% y-o-y to 1.51 million units.
Although Skyworth’s 1H detailed operating data are still not available, according to sales data already disclosed by various TV companies, among major Chinese TV brands, TCL’s profit improved the most in 1H 2012 due to low base effect and a return to profitability of its overseas business.
Exhibit 22: Results of the TV sub-sector by company over 2011-1H12
Prime Net cash Operating flow from operating Net profit Net profit Gross Operating Revenue Profit profit ROE operating revenue (RMB mn) margin margin cycle (day) growth growth margin activities/ (RMB bn) income Hisense Electric 10.066 575 5.71% 6.64% 17.84% 7.42% 62 20.80% 2.72% 11.03% Shenzhen MTC 2.449 228 9.31% 10.87% 13.64% 7.57% 120 8.07% 56.32% 51.18% TCL Corporation 29.809 283 0.95% -0.19% 15.98% 2.53% 101 5.06% 8.97% -47.50% Sichuan Changhong 23.216 147 0.63% -0.40% 15.81% 1.10% 145 0.69% 0.99% -36.37% Konka Grou 7.039 11 0.16% -0.45% 18.70% 0.29% 142 15.85% 2.53% 105.88% Xiamen Overseas 1.411 9 0.65% 0.23% 11.46% 0.00% 125 -13.74% 0.54% 49.64% Chinese Electronic TCL Multimedia 13.698 355 2.59% 4.07% 16.55% 10.95 24.70% 231.78% Total 73.99 1254 1.69% 1.02% 16.28% 3.26% 116 6.12% 5.73% 0.31% Source: Company data, Guosen Securities Economic Research Institute
Exhibit 23: Domestic sales of Skyworth’s flat screen TVs Exhibit 24: Domestic sales of TCL’s LCD TVs
120 80% 120 200% 60% 100 100 150% 40% 80 80 100% 20% 60 60
'000 units 0% 50% 40 '000 units 40 -20% 20 0% 20 -40% 0 -60% 0 -50% Jan1月 Feb2月 Mar3月 Apr4月 May5月 6Jun月 7Jul月 Aug8月 Sep9月 10Oct月 11Nov月 12 Dec月 Jan1月 Feb2月 Mar3月 Apr4月 May5月 Jun6月 7Jul月 Aug8月 Sep9月 10Oct月 11Nov月 12Dec月
Sales11年销量 volume in 2011(‘000 units, LHS) 2011(‘0002011年 units, LHS) 2012(‘0002012年 units, LHS) Sales12年销量 volume in 2012(‘000 units, LHS) Sales volume growth in 2011(RHS) Y-o-y11同比增速 growth in 2011(RHS) Y-o-y12同比增速 growth in 2012(RHS) 11年销量增速 Sales12年销量增速 volume growth in 2012(RHS) Source: Company data, Guosen Securities Economic Research Source: Company data, Guosen Securities Economic Research Institute Institute
5.7 Robam Appliances (002508.CH) was the only company having reported over 30% profit growth for 1H 2012 in the small-appliance market
In 1H 2012, a number of small appliance sub-sectors suffered over 10% decline in sales volume.
The induction cooker sub-sector witnessed a y-o-y decline of 10.4% in sales volume and a y-o-y decline of 3.9% in sales value during the first six months of this year.
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The sales volume of the food processor subsector slid down by 24% y-o-y in 1H. At present, soy milk makers, juice extractors and meat grinders account for 66.4%, 12.9% and 20.5% of the sales volume.
The retail sales of electric pressure cooker recorded y-o-y decline of 13% over Jan-Jun.
Only a few sub-sectors enjoyed y-o-y sales growth. E.g. the retail sales of water purification devices slightly increased by 4.9% y-o-y during the first half.
Exhibit 25: The y-o-y growth in the retail sales of various small appliance products over Jan-Jun 2012 (%)
11Q2 11Q3 11Q4 12Q1 12Q2 Cooker hood 4.8% 6.9% -2.3% -7.9% -5.4% Gas-cooker 1.0% 6.8% -5.0% -9.4% -3.5% Electric rice cooker 11.9% 14.9% 6.0% 0.3% -1.2% Induction cooker -2.6% 4.3% -5.7% -9.8% -8.6% Food processor -29.8% -11.5% -24.6% -24.7% -25.4% Electric pressure cooker 15.5% 16.8% 2.7% -13.6% -12.1% Electric kettle 13.7% 16.9% 7.5% -1.4% -4.7% Source: China Market Monitor, Guosen Securities Economic Research Institute
In general, listed small appliance companies suffered y-o-y profit decline for four consecutive months since 3Q 2011.
Robam Appliances posted over 30% y-o-y profit growth in 1H 2012, and Vatti Gas Appliance enjoyed 13% y-o-y profit growth. Out of the 15 listed small appliance companies, eight companies reported y-o-y profit decline, and the y-o-y profit growth of five companies was less than 10%.
Exhibit 26: Results of the small appliance sub-sector by quarter over 2011-1H12 (RMB bn, %)
Small home appliance 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Operating revenue from core businesses 6.2 6.4 6.8 6.6 6.1 6.5 Net profit 0.47 0.54 0.55 0.46 0.44 0.51 Net profit margin 7.57% 8.39% 8.15% 6.91% 7.12% 7.83% Operating profit margin 8.21% 10.14% 10.04% 7.16% 9.05% 9.65% Gross margin 26.68% 30.18% 28.86% 30.80% 31.28% 31.94% Revenue growth 55.94% 34.51% 9.41% 4.32% -1.03% 1.34% Profit growth 65.66% 40.25% -1.56% -14.87% -6.93% -5.36% Source: Company data, Guosen Securities Economic Research Institute
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Exhibit 27: Key operating data of A-share listed small-appliance companies for 1H 2012 (RMB bn, %)
Operating Net cash revenue Operating flow from Net profit Net profit Gross Operating Revenue Profit from core profit ROE operating margin margin cycle (day) growth growth businesses (RMB mn) margin activities/i (RMB mn) ncome Supor 3338 220 6.59% 8.77% 28.90% 7.83% 103 10.55% -4.04% -4.81% Joyoung 2479 263 10.62% 15.01% 34.37% 9.89% 68 3.15% -4.51% -4.33% ZHEJIANG AISHIDA 872 17 1.90% 2.01% 33.49% 1.05% 256 10.10% -15.01% -48.89% Shanghai Canature 106 20 19.03% 23.09% 45.97% 4.54% 166 8.13% 8.99% 8.68% Robam 859 106 12.40% 13.71% 53.74% 6.80% 161 21.89% 20.63% 32.68% Guangdong Vanward 1454 127 8.71% 10.54% 28.60% 5.70% 106 6.12% 8.62% 6.28% Zhongshan Vatti 1176 63 5.35% 6.17% 34.42% 11.23% 39 16.05% 29.73% 13.11% Zhejiang Meida 154 38 24.49% 25.64% 51.87% 4.64% 82 -32.47% 3.70% 0.33% Jiangsu Sunrain 1660 205 12.35% 14.21% 35.43% 6.00% 33 16.22% 11.69% 7.36% Anhui Saunaking 95 12 13.11% 11.15% 49.61% 2.24% 289 -35.87% 10.91% -34.90% Xiamen Comfort 756 5 0.62% 0.19% 17.20% 0.24% 161 -9.20% 1.35% -86.97% Zhejiang Haers 230 23 10.19% 12.30% 30.80% 4.32% 149 -5.35% -0.46% 0.28% Shenzhen Fenda 362 37 10.12% 11.38% 23.65% 4.29% 140 8.51% 2.68% -4.52% Guangdong Chant 455 18 3.94% 3.13% 19.53% 1.73% 151 -22.11% -13.58% -39.52% Guangdong Elecpro 262 -6 -2.21% -2.63% 15.59% -1.87% 141 -12.43% -20.64% -175.19% Total 14255 1148 8.05% 9.92% 32.06% 5.38% 136 -1.11% 1.40% -3.94% Source: Company data, Guosen Securities Economic Research Institute
5.8 The profit of upstream components & parts sectors slumped the most in 1H 2012
The pricing power of upstream components & parts vendors is weakened by tepid industry demand. The profit growth of upstream components & parts sectors significantly lagged behind revenue growth in 1H 2012, as shown by the 3.7% decline in 1H2012 revenue and the 14.6% slump in 1H2012 profit.
Exhibit 28: Results of the home-appliance components & parts sub-sector by quarter over 2011-1H12 (RMB bn, %)
Upstream components 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Operating revenue from core businesses 8.2 9.7 7.3 7.3 7.9 9.9 Net profit 0.47 0.62 0.34 0.3 0.41 0.58 Net profit margin 5.75% 6.41% 4.69% 4.14% 5.11% 5.81% Operating profit margin 6.95% 8.03% 6.12% 3.30% 6.81% 6.53% Gross margin 15.78% 17.50% 17.61% 16.24% 17.13% 17.84% Revenue growth 41.71% 28.91% 16.80% 5.53% -7.80% -2.13% Profit growth 27.75% 25.07% -9.71% -31.06% -18.59% -14.17% Source: Company data, Guosen Securities Economic Research Institute
5.9 The 1H12 performance of the lighting sub-sector was in line with expectations
For 1H 2012, the revenue of the lighting sub-sector slightly grew by 4.2% y-o-y, while the profit increased by 15.8% y-o-y. Selling prices of various energy-efficient light products rose noticeably compared to last year, when the industry sentiment was negatively affected by fluctuations in rare earth material prices.
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Exhibit 29: Results of the lighting sub-sector by quarter over 2011-1H12 (RMB bn, %)
Lighting 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Operating revenue from core businesses 1.1 1.3 1.4 1.3 1.2 1.3 Net profit 0.12 0.08 0.21 0.13 0.12 0.11 Net profit margin 10.91% 6.26% 15.41% 9.36% 10.26% 8.52% Operating profit margin 9.62% 6.88% 12.29% 10.47% 7.91% 9.04% Gross margin 21.70% 20.85% 24.03% 31.66% 21.97% 23.07% Revenue growth 25.51% 17.82% 20.66% -3.18% 7.55% 1.21% Profit growth 52.65% -27.52% 60.22% -8.30% 1.12% 37.83% Source: Company data, Guosen Securities Economic Research Institute
Exhibit 30: List of A-share listed home-appliance companies
Small-home Upstream White goods Ticker TV Ticker Ticker Lighting Ticker Ticker appliance components Gree Electric 000651 Hisense Electric 600060 Supor 002032 Zhejiang 600261 Zhejiang Sanhua 002050 Yankon Guangdong 000527 Shenzhen MTC 002429 ZHEJIANG 002403 Foshan 000541 Zhejiang Dun'an 002011 Midea AISHIDA Electrical and Lighting Qingdao Haier 600690 TCL Corporation 000100 Joyoung 002242 Cnlight 002076 Jiangsu Changfa 002413 Wuxi Little 000418 Sichuan 600839 Shanghai Canature 300272 Zhejiang 002418 Swan Changhong Kangsheng
Hefei 600983 Konka Group 000016 Robam 002508 Zhejiang Dongfang 300217 Rongshida Sanyo Guangdong 002668 Xiamen Overseas 600870 Guangdong 002543 GuangDong 002670 Homa Chinese Vanward HuaSheng Electronic Hefei Meiling 000521 Zhongshan Vatti 002035 Huayi Compressor 000404 Hisense Kelon 000921 Zhejiang Meida 002677 Shanghai Highly 600619 Aucma 600336 Anhui Saunaking 300247 SICHUAN DANFU002366 Jiangsu 600584 Xiamen Comfort 002614 Guangzhou Echom 002420 Chunlan Zhejiang Haers 002615 Qingdao Haili Metal 002537 Shenzhen Fenda 002681 SZ Victory Precision 002426 Guangdong Chant 002616 Zhongshan 002249 Broad-Ocean Guangdong Elecpro 002260 NB Sunlight 002473 Jiangsu Sunrain 603366 Guangdong Sunwill 002676 Source: Company data, Guosen Securities Economic Research Institute
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Exhibit 31: Earnings forecasts and valuations for key companies
Stock Closing price EPS (RMB) PE (x) PB (x) Company name Rating code (RMB) 2011 2012E 2013E 2011 2012E 2013E 2011 000651 Gree Electric Buy 20.390 1.74 2.20 2.61 11.7 9.2 8.1 3.48 600690 Qingdao Haier Buy 10.570 1.00 1.22 1.39 10.6 8.7 7.6 3.40 002508 Robam Cautious Buy 17.100 0.73 0.93 1.17 23.5 18.5 14.6 2.90 002032 Supor Cautious Buy 10.870 0.75 0.78 0.91 14.5 14.0 11.9 2.49 600060 Hisense Electric Buy 9.460 1.29 1.15 1.34 7.3 8.2 7.0 1.72 600983 Rongshida Sanyo Cautious Buy 6.930 0.60 0.67 0.77 11.5 10.3 9.0 2.81 002668 Homa Appliance N/A 11.400 0.88 1.07 1.27 12.9 10.7 9.0 3.18 000527 Midea Holding Buy 9.180 1.09 1.12 1.30 8.4 8.2 7.1 1.55 002429 Shenzhen MTC Buy 12.200 0.58 0.82 1.06 21.2 14.8 11.5 2.96 002050 Zhejiang Sanhua Cautious Buy 8.080 0.61 0.67 0.79 13.2 12.0 10.2 1.76 600261 Zhejiang Yankon Cautious Buy 8.940 0.34 0.43 0.53 26.2 20.9 16.7 4.44 002543 Vanward New Electric Cautious Buy 17.200 1.03 1.17 1.36 16.8 14.7 12.7 1.60 000418 Little Swan Cautious Buy 7.260 0.72 0.67 0.76 10.1 10.8 9.6 1.33 002035 Vatti Gas Appliance Cautious Buy 7.300 0.54 0.66 0.77 13.5 11.1 9.4 3.31 603366 Jiangsu Sunrain Cautious Buy 15.580 0.93 1.01 1.15 16.8 15.4 13.5 5.27 002242 Joyoung Cautious Buy 6.820 0.66 0.69 0.78 10.4 9.9 8.8 2.08 300217 Zhejiang Dongfang Cautious Buy 9.790 0.63 0.63 0.76 15.5 15.6 12.9 2.06 002290 Suzhou Hesheng Neutral 8.730 0.29 0.22 0.24 29.7 39.6 36.1 1.93 000521 Hefei Meiling Neutral 3.580 0.17 0.26 0.30 20.7 13.6 11.8 0.81 000921 Hisense Kelon Neutral 3.760 0.19 0.37 0.41 19.6 10.1 9.3 6.32 600839 Sichuan Changhong Neutral 1.940 0.13 0.09 0.12 15.4 21.1 15.7 0.68 000100 TCL Corporation Cautious Buy 1.860 0.13 0.12 0.15 14.1 15.1 12.8 1.39 000016 Konka Group Neutral 3.190 0.02 0.08 0.12 153.8 40.1 27.4 0.96 002418 Zhejiang Kangsheng Neutral 6.440 0.34 0.37 0.41 18.9 17.6 15.8 1.32 002413 Jiangsu Changfa Neutral 6.700 0.44 0.26 0.32 15.4 26.0 21.1 1.27 Source: Wind, Guosen Securities Economic Research Institute
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Home Appliance Sector October 16, 2012 | China THIS IS THE TRANSLATION OF A REPORT ORIGINALLY PUBLISHED IN CHINESE BY GUOSEN SECURITIES CO., LTD ON SEPTEMBER 24, 2012
Information Disclosures
Stock ratings, sector ratings and related definitions Stock Ratings: Buy: Indicates that the analyst expects the stock to outperform the Benchmark by 20% or more over the next six months. Cautious Buy: Indicates that the analyst expects the stock to outperform the Benchmark by 10% or more but less than 20% over the next six months. Neutral: Indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 10% over the next six months. Reduce: Indicates that the analyst expects the stock to underperform the Benchmark by 10% or more over the next six months.
Sector Ratings: Buy: Indicates that the analyst expects the sector to outperform the Benchmark by 10% or more over the next six months. Cautious Buy: Indicates that the analyst expects the sector to outperform the Benchmark by 5% or more but less than 10% over the next six months. Neutral: Indicates that the analyst expects the sector to either outperform or underperform the Benchmark by less than 5% over the next six months. Reduce: Indicates that the analyst expects the sector to underperform the Benchmark by 5% or more over the next six months
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