Contents
Investment Case............................................................................................................................................................. 3
Industry Demand Drivers – Secular vs. Cyclical.......................................................................................................... 4
Secular Drivers....................................................................................................................................................................................4
Cyclical Drivers ...................................................................................................................................................................................5
Seasonal Drivers.................................................................................................................................................................................7
Key Debate #1: Which White Good Will See Largest Upside? ................................................................................... 8
Air Conditioners Have the Lowest Household Penetration Among White Goods in China...................................................................8
Air Conditioners Are Entering a Replacement Boom ...........................................................................................................................9
Upgrade to High-Energy-Efficiency and Inverter Aircon Models ........................................................................................................10
Key Debate # 2: Timing of Export Recovery .............................................................................................................. 12
Why is the Export Recovery Important? ............................................................................................................................................12
Global Bottoming Is Impacting Appliance Exports… ..........................................................................................................................12
… With No Clear Sign of Recovery ...................................................................................................................................................14
Key Debate #3: Who Will Benefit the Most from the Rural Subsidy?...................................................................... 16
TV to Benefit the Most, Aircons the Least .........................................................................................................................................16
Likely Beneficiaries ...........................................................................................................................................................................17
Proprietary Analysis: Industry Demand Model .......................................................................................................... 18
Urban New Demand..........................................................................................................................................................................18
Rural New Demand...........................................................................................................................................................................18
Replacement Demand.......................................................................................................................................................................18
Exports ..............................................................................................................................................................................................18
Proprietary Analysis: Supply-Side .............................................................................................................................. 20
Capacity Utilization Likely to Decline in 2009....................................................................................................................................20
Inventory: Air Conditioners Low, Refrigerators High ..........................................................................................................................21
Impact on Margins of Changes in Raw Materials Prices........................................................................................... 23
Competitive Landscape............................................................................................................................................... 27
Air Conditioners – Duopoly Market....................................................................................................................................................27
Refrigerators and Washing Machines: Haier Leads ...........................................................................................................................27
Distribution Channels.................................................................................................................................................. 34
Retail Channels.................................................................................................................................................................................34
Distribution Models............................................................................................................................................................................35
Appendix 1: Value Chain of White Goods .................................................................................................................. 38
Appendix 2: White Goods Technology Transition in China ..................................................................................... 41
Appendix 3: Rural Home Appliance Subsidy .............................................................................................................44