Chinese Home Appliances Players to Chalk Up Double-Digit Earnings Growth Over the Next Five Years

Date: 2015-09-23

• Strong growth driven by evolution. China’s leading home appliances companies are transforming into large and well-established smart appliances players, dominating the market with a hardware+services business model, rather than solely relying on hardware sales. The three companies under our coverage – Skyworth, TCL Multimedia and Haier Electronics – will gain greater market share (currently at 18%, 16% and 17-27% respectively) in China from regional companies and foreign players, given their advantages in local know-how, deeper cooperation with cross-industry elites and better cost control. Their average expense ratio is 10ppt less than other manufacturers. 

• Focus on penetration-rate potential. In China, the ownerships of some home appliances are far below that of developed countries (eg 125 TVs per 100 households in China, >100% upside compared with that in the US). There is also a gap between the penetration rates of major home appliances in urban and rural areas in China, at an average of 115% and 70% respectively. Furthermore, we believe demand should also be supported by the continuous urbanisation and an expected steady real estate market in the next few years.

• A shorter replacement cycle for home appliances. With customers paying more attention to energy standards and modern functionalities, we expect faster upgrades of appliances (eg replacement cycle for TV to drop from 13 years to 6-8 years in the near future). As such, home appliances players with up-to-date technologies could unlock growth opportunities via the frequent launches of new products.

• More sales from online channels. Online sales are gaining acceptance quickly due to the much larger stock keeping unit (SKU), quick updates and more transparent prices. Hence, we anticipate leading players to invest more in their e-commerce business, as well as making more alliances with Internet marketplace operators. 

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