Production schedules for white goods are under short-term pressure, with exports generally performing better than domestic sales, according to a recent research note.
Orient Securities Company Limited stated that the expectation of a hot summer due to the El Niño phenomenon could serve as a positive catalyst for subsequent demand recovery. The firm forecasts that the annual production schedule for air conditioners will follow a pattern of being lower in the first half and higher in the second half. For the refrigeration and washing machine categories, the firm expects exports to remain the core support for the resilience of industry production schedules. Domestic sales of white goods are under short-term pressure due to a high base from the previous year, while export trends vary by category, with the annual pace also expected to be lower first and higher later. A related stock mentioned is Haier Smart Home Co., Ltd. (SHA: 600690).
Key Insights from the Report
Household Air Conditioner Production Under Pressure from High Base; Annual Pace Expected to be Lower First, Higher Later
According to industry data, the total planned production for household air conditioners in June was 15.15 million units, representing a year-on-year decline of 26.2% in the planned schedule and a 19.3% drop in actual production. Specifically, 1) domestic planned production was 9.36 million units, down 31.5% year-on-year in schedule and 24.0% in actual output. The short-term pressure on domestic air conditioner production schedules is attributed to factors such as demand being pulled forward by earlier policies, inventory pressure, and cost pressures, leading manufacturers to proactively reduce production to adapt to the market. 2) Export planned production was 5.79 million units, down 15.7% year-on-year in schedule and 20.8% in actual output. The decline in export production is mainly due to geopolitical disturbances, economic environment drag, and weak replacement demand for air conditioners overseas. However, the expectation of a hot summer from El Niño is anticipated to be a positive catalyst for subsequent terminal demand recovery. The firm expects the annual production rhythm for air conditioners to show a pattern of being lower first and higher later.
Refrigeration and Washing Machine Exports Outperform Domestic Sales; Overall Production Schedule Shows Resilience
Industry data shows that the total planned production for refrigerators in June was 7.83 million units, a slight year-on-year decline of 0.9% in schedule and a 4.1% drop in actual production. Specifically, 1) domestic planned production was 3.10 million units, down 7.2% year-on-year in schedule and 13.6% in actual output. The decline in domestic refrigerator production is mainly influenced by factors such as the implementation of new energy efficiency standards suppressing production and the waning effect of replacement policy stimulus. 2) Export planned production for the same period was 4.73 million units, up 3.7% year-on-year in schedule and 2.4% in actual output. The slight growth in export production is primarily due to domestic companies leveraging cost advantages to secure returning overseas orders, coupled with rigid demand from Europe and emerging markets driving export growth.
The total planned production for washing machines in June was 6.98 million units, up 3.4% year-on-year in schedule but down 1.9% in actual production. Specifically, 1) domestic planned production was 2.90 million units, up 1.0% year-on-year in schedule but down 1.4% in actual output. The domestic production schedule is mainly affected by delayed replacement demand in lower-tier markets and rising raw material costs. 2) Export planned production was 4.08 million units, up 6.8% year-on-year in schedule and 0.8% in actual output. This is mainly attributed to companies accelerating their overseas expansion, deepening the presence of their own brands in core regions, and sufficient overseas orders. Various positive factors support export production remaining at a high and stable level. For the refrigeration and washing machine categories, the firm expects exports to continue to be the core support for the resilience of industry production schedules.
Air Conditioner Inventory Remains High; Overall Channel Inventory Shows Significant Increase
As of April, the total commercial inventory in the air conditioner industry was 57.552 million units, a year-on-year increase of 12.7% and a month-on-month increase of 5.4%, indicating inventory levels remain historically high. By brand, Gree and Midea lead in air conditioner channel inventory scale, with 14.166 million units and 11.478 million units respectively, representing year-on-year changes of -2.9% and +21.2%, and month-on-month increases of 4.7% and 10.1%. Haier's air conditioner channel inventory was 7.028 million units, up 37.7% year-on-year and 4.8% month-on-month. Channel inventory for brands like TCL, Hisense, and Aux also increased. Air conditioner channel inventory in Q2 increased further on the high base of Q1. Industry shipment conditions may be better than terminal sell-through. The firm expects subsequent industry production to continue a restrained trend, with inventory levels likely to improve after major sales promotions.
Risk Factors
The report highlights risks including uncertainty regarding the continuity of old-for-new subsidy policies, potential tariff fluctuations, and volatility in raw material costs.