Guosen: Household appliance consumption is expected to pass through the darkest moment, pay close attention to technological transformation.

Guosen released a research report stating that the period from the second half of 2025 to the first half of 2026 will be a pressure range for household appliances under the high base of national subsidies, combined with the pressure of rising raw material prices and the appreciation of the Renminbi, leading to multiple negative impacts on the income and profits of household appliance companies. Looking forward to the second half of 2026 to 2027, the high base brought by national subsidies is expected to significantly ease, with domestic sales expected to return to a stable track; while exports are also expected to see steady growth after the reconstruction of supply chains due to US tariffs and inventory reductions in overseas emerging markets. Currently, leading household appliance companies are generally in a state of "short-term pressure, but with reasonable valuations and considerable dividends." Therefore, after the industry fundamentals reach bottom, leading household appliance companies are expected to experience a dual recovery in both fundamental expectations and valuations. Guosen's main views are as follows: White goods: Domestic sales may pass through the most difficult period, with steady growth in overseas refrigeration and air conditioning rebounding after pressure Fundamentals: Currently similar to the fourth quarter of 2012, with weakening subsidy intensity, declining industry sales, and fluctuations in leading performance, following quarters will still be under pressure but with marginal improvement; from a valuation perspective, when industry margins decline, valuations are most pressured, but currently the industry has reached its bottom, and fundamentals are expected to improve marginally, so the bottom valuation level is worth noting; recommendations: Midea Group Co., Ltd, Guangdong TCL Smart Home Appliances, HAIER SMARTHOME, Gree Electric Appliances, Inc. of Zhuhai, Hisense Home Appliances Group. Black goods: Domestic leading brands' market share continues to rise, structural upgrades lead to profit improvement In recent years, black goods have continued to expand their exports, with domestic leading brands' overseas market share steadily increasing. Along with the upgrade of product structure, profit levels have also improved in recent years; recommendations: industry leaders TCL ELECTRONICS and Hisense Visual Technology. Technological transformation: Focus on M&A and business synergy M&A: Typical examples such as Up-shine Lighting, Anhui Anfu Battery Technology, entering into prosperous areas such as PCB drills and 3.2T optical modules through M&A, with the main business providing stable cash flow, and the technological new business sectors showing upward momentum and acquisition targets having competitive advantages in segmented sectors; Business synergy: Typical examples such as Zhejiang Dayuan Pumps Industry, Zhejiang Tongxing Technology, based on their core component R&D and production advantages, entering into fields such as AIDC liquid cooling, Siasun Robot & Automation thermal management, leveraging their synergies in R&D, supply chain, production manufacturing, and client side, enabling more efficient entry into new sectors and establishing barriers to entry. Risk warning: Fluctuations in domestic and foreign demand, weaker-than-expected policy strength, intensifying industry competition, slower-than-expected expansion into new sectors, tariff risks, significant fluctuations in raw materials and exchange rates.