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Trade-in Stimulus Took Effect,Focus on Two Key Themes ConsumerDiscretionaryOVERWEIGHT(Maintain)HouseholdApplianceOVERWEIGHT(Maintain) Huatai Research 15 May 2025│China (Mainland) Themes Trade-in boosts in 2024, tariff pressures in 1Q25In 2024, the Shenwan home appliance sector rose c. 25.4%, ranking among the top-performing industries and significantly outperforming the SSE Composite andCSI 300 indices. Benefiting from the domestic trade-in stimulus policy and exportrestocking, the sector's aggregate revenue/attributable NP grew 5.6/7.1% yoy in2024, demonstrating solid profitability. During 4M25, home appliance upgradescontinued to drive domestic demand, while exports faced tariff-related headwinds,resulting in a sector decline of c. 1.6%.Looking ahead to 2Q25, given sustainedpolicy support and underlying domestic demand strength, along with the easing ofhigh base effects, we anticipate a structural recovery in the sector. Opportunitiesshould mainly come from a rebound in domestic demand and improving exportexpectations. AnalystFAN JunhaoSAC No. S0570524050001SFC No. BDO986fanjunhao@htsc.com+(852) 3658 6000 AnalystWANG SenquanSAC No. S0570518120001SFC No. BPX070wangsenquan@htsc.com+(86) 755 2398 7489 White goods: industry leaders showed structural advantageIn 2024, revenue from the air conditioner (AC)/refrigerator & washing machine segments grew 4/7% yoy. Policy-driven replacement demand further strengthenedthe position of top-tier players, who used pricing strategies and product mixupgrades to enhance profitability; attributable NP increased 13/7% yoy. In 1Q25,upgrade demand remained strong, with revenue from ACs/refrigerators & washingmachines up 17/14% yoy and attributable NP up 33/33% yoy, backed by improvedpolicy support and cost control. Looking to 2Q25, considering a lower base fordomestic sales, stockpiling demand for the 618shopping festival, and ongoingpolicy incentives, we expect white goods to remain the segment with the strongestbeta potential within the home appliance sector. Source: Wind,Huatai Research Black goods: Mini LEDs ledgrowth, global expansion continuesIn 2024 and 1Q25, black goods revenue grew moderately (both at 8% yoy), while profitability improved on the back of accelerating Mini LED penetration and costoptimization, with 1Q25 attributable NP up 17% yoy. Structural upgrades continuedin the domestic TV market in early 2025. For 2Q25, we expect black goodsearnings to continue improving, particularly for high-end Mini LED products andAI+ scenario-based solutions driven by domestic demand, which are likely tofurtherraiseretailASPs.Withsolidoverseasdeploymentandstrongvalue-for-money advantages, we believe Chinese brands are poised to continuegaining global share. Small cleaning appliances: revenue stellar, margin recovery insipidCleaning appliances (eg, robot vacuums, vacuum cleaners) posted sector-leading revenue growth for 2024/1Q25(+17/+27% yoy), fueled by trade-in initiatives andproductinnovation.Companiesfocusedonproductstrengthandchannelpenetration tolower-tier cities, with room for further market expansion. However,these efforts also increased expense ratios and weighed on gross profit margins(GPMs)combinedwithfiercecompetition,limitingattributableNPgrowthin2024/1Q25(+6.4/+1.9%yoy).Lookingaheadto2Q25,supportedbypolicytailwinds and consumption upgrades, we expect the segment to remain buoyant,though NP recovery may take more time. Small kitchen appliances: export momentum strong, profitstillweakIn 2024, small kitchen appliance revenue rose 6% yoy, mainly driven by export sales. Meanwhile, higher-margin domestic sales were under pressure, resulting ina modest 1.8% yoy gain in attributable NP. In 1Q25, trade-in subsidies furtherexpanded to include various small kitchen appliance categories, with some of themshowing early signs of shipment recovery. Segment revenue/attributable NP grew8/6.1% yoy in 1Q25.For2Q25, we anticipate a further recovery in domestic salesbacked by trade-in stimulus, while exports may face short-term challenges. Upgrade trend in full swing, focus on export recovery potentialThe home appliance sector is currently trading at a reasonable valuation, with attractive investment value for medium-term positioning. We recommend focusingon two key themes: 1) Structural opportunities brought by domestic trade-ininitiatives:Withcontinuedpolicyrolloutandimprovingconsumersentiment,categoriesundersubsidycoverage(whitegoods,blackgoods,cleaningappliances) remainhighly buoyant. We pick Haier SmartHome(A/H), GreeElectric Appliances, TCL Electronics, RoborockandEZVIZ Network; 2) Exportrecoverypotentialafternear-termpressure:Werecommendleadingexport-oriented companies with strong supply chain competitiveness and overseaspartnerships that have corrected significantly in prior rounds, including Ugreen,KingClean Electricand Shenzhen MTC. Industryrisks:domestictrade-indemandfallingshortofourexpectations;substantial export tariff pressures; adverse fluctuations