China Galaxy Securities: National subsidies decline, retail sales drop, air conditioning exports continue to adjust

According to the Zhitong Finance APP, China Galaxy Securities released a research report stating that starting in September, air conditioning retail will face a high year-on-year base due to national subsidies in 2024, as well as the current impact of subsidy reductions. The air conditioning industry has some expectations; data from the industry online shows that the domestic production of air conditioners in September, October, and November is expected to be -6.3%/-23.4%/-17.6% compared to the same period last year, reflecting the industry's cautious attitude. In terms of exports, according to industry online data, the export production of household air conditioners in September, October, and November is expected to be -16.6%/-7.8%/-9.1% compared to the same period last year, continuing to reflect the expectation of US orders shifting overseas and a high year-on-year base for exports.

The main points of China Galaxy Securities are as follows:

With the reduction of national subsidies, air conditioning retail significantly cools down in September

According to industry online data, the domestic shipment volume of air conditioners in August was 7.737 million units, a year-on-year increase of 1.2%, better than the previous production expectation (-11.9%), mainly driven by sustained high temperatures in many parts of the country. Due to the high temperatures in August 2024 leading to good retail growth, this data is considered relatively good.

Starting in September, air conditioning retail will face a high year-on-year base due to national subsidies in 2024, as well as the current impact of subsidy reductions. The air conditioning industry has some expectations; data from the industry online shows that the domestic production of air conditioners in September, October, and November is expected to be -6.3%/-23.4%/-17.6% compared to the same period last year, reflecting the industry's cautious attitude.

The weakening of national subsidy funding in the second half of the year has a certain impact, with various provinces showing phenomena of controlling the speed of subsidy expenditure, mainly reflected in daily subsidy flow restrictions, reducing the categories of products eligible for subsidies, and suspensions. According to AVC weekly data, the online retail sales of air conditioners during weeks 36 (September 1-7) and 37 (September 8-14) were year-on-year +33.9% and -34.8%, while offline retail sales were year-on-year -37.1% and -26.9%; compared to the same period in 2023, online retail sales of air conditioners were +34.3% and +61.2%, while offline retail sales were -36.3% and +27.9%.

Air conditioning exports continue to adjust

According to industry online data, the export shipment volume of air conditioners in August was 5.287 million units, a year-on-year decrease of 4.2%, with the decline narrowing compared to earlier periods, better than the previous production expectation (-14.7%), still affected by US tariffs and the high year-on-year base in 2024. According to industry online data, the export production of household air conditioners in September, October, and November is expected to be -16.6%/-7.8%/-9.1% compared to the same period last year, continuing to reflect the expectation of US orders shifting overseas and a high year-on-year base for exports. Emerging market countries and European regions have low air conditioning penetration rates; due to high temperatures globally for many years, air conditioning exports have seen high growth over the years, especially in 2024, and there is currently a certain inventory reduction in channels. However, the trend of increasing penetration rates and global warming remains unchanged.

The most intense price war during the 618 period has ended, and prices are rebounding

The average retail price in the offline market continued to decline from April to July, with the average price in August rebounding to 4,132 yuan/unit, a month-on-month increase of 3.9%, and continuing to rise to 4,301 yuan/unit in the second week of September; the average retail price in the online market has been declining month by month since the beginning of the year, improving after the 618 period, with average prices in July and August increasing month-on-month by 8.3% and 2.4%, respectively, and continuing to rise to 2,859 yuan/unit in the second week of September The current round of price declines is due to Midea leveraging the Hualing brand to increase market share, but competitive pressure has significantly eased after the 618 shopping festival. In the second week of September, the online retail average price of Hualing reached 2,290 yuan per unit, an increase of 11.5% compared to the average price in June, with other brands also showing varying degrees of improvement in online retail average prices.

Xiaomi officially announces "10 years free warranty" for air conditioners, sparking a wave of "quality competition" in the industry

On September 19, the Mijia air conditioner upgraded its "6 years free warranty" to "10 years free warranty," covering air conditioners installed for the first time from January 1, 2025. Looking back at the history of service upgrades in the air conditioning industry, before 2005, the warranty period for air conditioners in China was generally 1 year, in accordance with the minimum requirements of the national three guarantees policy; in 2005, GREE was the first to introduce "6 years free warranty," which was gradually adopted by mainstream brands in the industry; in 2021, GREE again took the lead in proposing "10 years free warranty," after which companies like Changhong and TCL followed suit with some high-end models. This upgrade in service by Xiaomi will alleviate some consumers' concerns about the quality of Xiaomi air conditioners. The air conditioning industry is shifting from a "price war" to a "quality war," and the extension of service periods places higher demands on the product quality and overall strength of companies.

Investment Recommendations

The current market is active, but traditional home appliance leaders lack imagination and are relatively stagnant, while technology consumer-related companies have performed better. Recommended are cleaning appliance company ECOVACS (603486.SH), Stone Technology (688169.SH); black appliance leader TCL Electronics (01070), Hisense Visual (600060.SH); recommend Midea Group (000333.SZ) and Haier Smart Home (600690.SH), which have low valuations, high dividend rates, and have completed the digital transformation of offline channels; recommend Sanhua Intelligent Control (002050.SZ) and DUN'AN ENVIRONMENT (002011.SZ), which are cross-industry; pay attention to Ousheng Electric (301187.SZ), Rongtai Health (603579.SH), and Yingshi Innovation (688775.SH) for new product innovations and promotions.

Risk Warning

Risks of policy effects falling short of expectations; risks of U.S. tariffs; risks of intensified market competition