Good macroeconomic development, good home appliance industry profit growth

China’s overall macroeconomic growth has not changed, but the growth rate has dropped but is in line with expectations. This downturn is benign in the current environment, effectively promoting the transformation of economic development patterns and structural adjustment, stabilizing inflation expectations, and consolidating the sound momentum of stable and relatively rapid development of the national economy.

The per capita disposable income of urban residents increased by 10.2% over the same period of last year. After deducting price factors, the actual growth was 7.5%; the per capita cash income of rural residents increased by 12.6%, and the real increase of 9.5% after deducting price factors. After deducting price factors, the per capita consumption expenditure of urban residents increased by 7.2%, and the average cash expenditure per capita of rural residents increased by 8.5%.

As the income of urban and rural residents increases, the consumption demand and willingness to consume of the major household durable consumer goods appliances are increasing, and the sales growth of home appliances is still higher than the growth rate of total social retail sales. In June 2010, retail sales of household appliances and audio-visual equipment increased by 23.40% compared with the same period of last year, a decrease of 2.72 percentage points from the previous period.

The policy of expanding “home appliances to the countryside” stimulated the consumption of rural household appliances. From January to July 2010, a total of 326.68 million home appliances were sold to the countryside, and the sales amount reached 83.82 billion yuan, an increase of 1.8 times and 2.4 times year-on-year.

The "renewal of old" policy has accelerated the upgrading of household appliances. As of May 31, 2010, 9 pilot provinces and cities have recycled 14.79 million units of old home appliances, sold 14,090,300 units of new home appliances, and sold 59.38 billion yuan. Starting from June 1, 2010, the implementation of home appliance replacement and replacement work will be initiated in batches nationwide. The deadline is tentatively set at the end of 2011.

"Energy-saving products benefit the people" project has obvious effects. Before 2008, the market share of high-efficiency and energy-saving air conditioners with energy efficiency grades of 1 and 2 in China has been hovering around 5%, and over 70% of them are non-energy-saving five-level air conditioners. Driven by financial subsidies, the sales of highly efficient and energy-saving air conditioners have risen sharply, and the market share has rapidly increased. This year it has reached more than 80%.

The domestic sales of air-conditioners, refrigerators, washing machines, and color TVs in major home appliance products all experienced year-on-year growth. From January to July 2010, domestic sales of refrigerators grew fastest, up 32.01% year-on-year; air-conditioners increased by 31.94% year-on-year; and TVs sold domestically. It also increased by 16.66% year-on-year, which was mainly due to the sales of LCD TVs reaching 17.695 million units, a year-on-year increase of 54.68%.

After the home appliance export market experienced the international financial crisis in 2009, the recovery was obvious. The scale of home appliance exports increased significantly, and the export volume of major home appliance products showed varying degrees of growth. From January to July 2010, air-conditioner export volume increased the most, which was a year-on-year increase of 46.47%. Color TV set exports increased by 38.71% year-on-year, mainly due to the July-July LCD TV exports of 25.637 million units, a year-on-year increase of 41.92%.

The income and total profit of the home appliance industry grew steadily. From January to May 2010, China’s home appliance industry realized revenue of RMB 349.374 billion, an increase of 31.29% year-on-year, and realized a total profit of RMB 14.429 billion, a year-on-year increase of 39.26%. From January to May of 2010, due to factors such as rising prices of raw materials, the gross profit margin of China's household appliances industry was 15.24%, which was a year-on-year decrease of 0.22 percentage points. Thanks to the improvement of the operating efficiency of the industry, the cost rate during the period decreased by 0.51 percentage point year-on-year; the sales profit rate reached 4.08%, an increase of 0.19 percentage points year-on-year.

As of August 30, 2010, the household appliance industry index fell 5.36% this year, outperforming the CSI 300 Index (down 17.54%). The current average price-earnings ratio of the appliance industry is 19.87 times, which is higher than the average price-earnings ratio of the CSI 300, which is 13.71 times. However, compared with other industries, it is still at a relatively low valuation level.