Huachuang Securities: How much will the rise in copper and aluminum prices affect the profitability of white goods enterprises?

Huachuang Securities released a research report stating that during the phase of upward movement in copper prices and a year-on-year increase in air conditioning costs, the core of profit differentiation lies in inventory buffering, cost hedging, and pricing power. From the perspective of inventory coverage and historical profit resilience, leading white goods companies have stronger resistance to risks and are more likely to digest cost pressures through inventory smoothing and price increases. On the other hand, non-leading white goods companies with thinner inventories, lower gross profit margins, and weaker pricing power are more likely to experience downward profit elasticity during cost pressures. Key points from Huachuang Securities are as follows: Rising copper and aluminum prices drive cost index upwards However, the current round of increase is lower than historical cycles, with air conditioners expected to be more impacted than refrigerators. The cost side of white goods companies is mainly driven by bulk raw materials such as copper, steel, and aluminum. Recently, influenced by the rise in copper and aluminum prices, the home appliance cost index has entered an upward range: 25Q3 air conditioners/refrigerators/washing machines cost index increased by 2%/1%/1% month-on-month; 25Q4 increased by 4%/2%/0% month-on-month, with a year-on-year increase of 3%/-1%/-3%. Entering 2026, with the addition of the low base effect from the same period in 2025 26W1-W7 average year-on-year increases in the cost index for air conditioners/refrigerators/washing machines are +10%/+2%/+0%, compared to +5%/+2%/+3% from 25W46 to 25W53. Horizontally, the current level of cost index increase is lower than the historical top three cycles, indicating relatively mild cost pressure. Structurally, due to the higher proportion of copper in upstream raw materials for air conditioners, the profit impact on the air conditioning sector during this round of raw material price increases is expected to be significantly higher than that of refrigerators and washing machines. Historical review shows: leading companies have more stable profits, with a 1 quarter lag in transmission From the perspective of gross profit margin, raw material costs are significantly negatively correlated with gross profit margin, with leading white goods companies having significantly smaller fluctuations in gross profit margin compared to other white goods companies. Looking at net profit margin, benefiting from cost control, the fluctuation in net profit margin is usually smaller than that in gross profit margin, with leading white goods companies showing more stable net profit performance and a more moderate downward trend, while the net profit margin of other white goods companies can decline by -4% to -5%. In terms of transmission mechanism, it generally takes about a quarter for price changes on the cost side to be transmitted to the gross profit side. Future outlook, the institution conducts cost impact assessments Based on the cost base of 24Q4, the institution conducts stress tests for raw material cost impacts in 2026. It should be emphasized that this assessment does not consider pricing power transmission, inventory buffering, forward locking, cost adjustments, among other factors, and is more used to describe the upper limit of cost impact rather than predicting the actual profit decline. Assuming no change in selling prices, 26Q2 is expected to be the quarter with the greatest pressure on gross profit margin. Under different assumptions of raw material prices, for example, for air conditioners, the year-on-year decline in gross profit margin in 26Q2 is expected to be in the range of 8% to 11%. In terms of pace, if copper prices remain at current levels, the profit pressure on air conditioners is expected to gradually ease after 26Q3, with the decline in gross profit margin in 26Q4 expected to converge to around 6%; if copper prices further rise, the pace of release of gross profit margin pressure will slow down, but with the rise in base, the decline in 26Q4 is expected to be within 10%. Manufacturer inventories build a defense line, price increases to address risks Enterprise inventories can effectively buffer the impact of upstream price increases on financial statements, meaning that cost pressures will not immediately reflect in current period performance. Leading white goods brands such as Gree, Haier, and Midea, with inventory coverage of 2.0-2.9 months, have built a thicker safety net compared to other white goods brands like Hisense and Meiling, with inventory coverage of 1.1-1.7 months. On the price side, the industry has already begun to actively respond. Starting from December 2025, manufacturers such as Midea and Aux have successively raised ex-factory prices by 2%-12%. Retail data shows that online average prices have already recovered: the online average prices for air conditioners have shifted from a year-on-year -6% in W1 to +1% to +2% in W3-W5. If future raw material prices remain stable, the current air conditioner price increases may be sufficient to cover prior price pressures Taking the year-on-year increase of approximately +10% in the air conditioning cost index for 26W1-W7 as an example: under the assumption of a factory gross profit margin of approximately 30%, a basic offset of the +10% year-on-year cost impact can be achieved with a rise in ex-factory delivery prices of approximately 7%; under the assumption of a distribution gross profit margin of approximately 20%, a consumer price increase of approximately 6% can maintain the profit level in the distribution channel. Risk warning: unexpected fluctuations in raw material prices (and the calculation model in this report is based on static historical weights, not fully considering the passive increase in cost proportion due to significant raw material price hikes); real estate market recovery falls short of expectations; intensified market competition; calculation errors may exist.