White goods in China are hot, with a growing middle class looking to add refrigerators, air conditioners and home electronics like TVs to their homes, and several listed firms are riding the buying frenzy.
And according to an official Chinese media outlet, the possibility for continued money being pumped into the economy to encourage domestic consumption, mainly in the form of home appliance vouchers and rebates, is reasonably high.
Therefore, they say that now might be an opportune time to build positions in listed domestic producers such as GD Midea Holding Co Ltd (SZA: 000527) and Qingdao Haier Co Ltd (HK: 1169; SHA: 600690) which are established names in the white goods and home electronics sectors and have the distribution channels and name recognition to penetrate deep into the fast-growing hinterland markets.
“In the first half of the year, due to the (4.5 trln yuan) economic stimulus package and the improved export environment, the home appliance and electronics sector was one of the best performers. According to the latest statistics from the Ministry of Commerce, sales in the first six months surpassed the full-year 2009 total,” said online financial daily Hexun.
This is the fastest first half growth for the sector in half a decade.
It added that on Wednesday, major domestic players Midea and Wuxi Little Swan Huayin Electricial Appliance Co Ltd (SZA: 000418) had phenomenal first halves and expected more of the same in the coming six months.
It said not only the expansion was due not only to recent strong growth in the urban property market, but also rising incomes and confidence in second and third tier cities and well as the rural hinterlands.
Little Swan Cleaning Up
Little Swan, one of the country’s biggest washing machine names, said today it fully expects to announce that its net profit in the first six months jumped by as much as 150% year-on-year to some 168 mln yuan.
This would give the Jiangsu province-based firm earning per share over the period of up to 0.31 yuan.
Meanwhile, domestic rival Midea is keeping pace, saying that it should be announcing a first half year-on-year net profit leap of between 50-100% to around 1.8 bln.
The Guangdong province-based manufacturer said the profit spike is due to strong sales of refrigerators and washing machines, thanks in large part to the economic stimulus package and a healthier export climate.
Bright Lights, Big Market
Midea was also looking to diversify its core revenue sources, and announced last week that it inked a strategic deal with the city government of Guixi in Jiangxi province to allow Midea Group unit Midea Lighting Electric to purchase Jiangxi Guiya Lighting for some 200 mln yuan.
It further cited Midea Lighting GM Zhang Wuli as saying the unit is targeting a 500 mln yuan investment in Guiya Lighting by 2015, and that parent Midea Group would continue to “focus strategically on the lighting sector over the next half decade.”
Guiya Lighting is the biggest light bulb producer in Jiangxi province with annual production capacity of 50 mln “green” energy-saving bulbs with over 280 sales outlets nationwide.
The association overseeing the lighting industry in China said the market was worth some 38 bln yuan in 2009.
Meanwhile, China’s two biggest names in the industry were not standing idly by while Midea and Little Swan serviced the market.
Retailing giant Gome Electrical Appliances Holding (HK:493) and Haier just inked a 50 bln yuan sales and supply contract stretching into 2013.
It represents the biggest ever such deal in China’s electronics and home appliances sector.
According to terms of the contract, Shandong province-based Haier will supply some 600 different appliances and goods to Gome over the next three years.
Haier will also provide Gome with ODM manufacturing while for its part, Gome will also sell on an exclusive basis Haier-distributed General Electric (GE) products in its seemingly ubiquitous retail outlets.
This marks the second such supply tieup this year, as in early 2010 the two inked a 1.7 bln yuan air-conditioner supply deal.
Established manufacturers and retailers in China’s massive home appliance and electronics market cannot afford to rest on their laurels, despite a very strong first half, as newcomers are also looking to expand.
The country’s bourse watchdog, the China Securities Regulatory Commission (CSRC), last week granted IPO approval to Ningbo Sunlight Electrical Appliance to float 20 mln new shares on the Shenzhen A-share market, which would enlarge the Zhejiang province-based manufacturer’s share capital to 80 mln shares.
Ningbo Sunlight is a major player in China’s home-use water heating appliance sector.
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