Broker's View

Air conditioner firms make hay while the sun shines

Best-known brands see spike in sales as temperatures soar across China

PUBLISHED : Wednesday, 22 June, 2016, 3:19pm
UPDATED : Wednesday, 22 June, 2016, 3:19pm

Domestic home appliance firms, especially those selling air conditioners, are making hay as the warm weather continues across much of the mainland.

Well-known brands including Shenzhen-listed Midea Group, Hong Kong-listed Haier Electronics Group and Gree Electric Appliances Inc of Zhuhai have seen their early summer sales sizzle, according to a report from Sinolink Securities.

Zhejiang Sanhua Co, which provides parts and components for air conditioners, is also being tipped to benefit from the heatwave.

Sinolink analyst Zhang Bin said air conditioner sales really started picking up in March, mainly thanks to robust transactions in the property market.

The number of completed properties being handed over to owners by developers has been increasing since June last year, Zhang said, meaning a boost in the number of units being installed.

After a lull in demand over the abnormally cold winter, Zhang expects sales to continue rising over the rest of the summer.

A hot summer will boost demand (for air conditioners), which has already been generated by brisk home sales
Sinolink analyst Zhang Bin

“Government policy, the property market and weather are the three major factors affecting sales of air conditioners,” Zhang said.

“As government policy remains unchanged, a hot summer will boost demand, which has already been generated by brisk home sales.”

During early June’s Dragon Boat Festival, air conditioner sales in Suning stores in Hunan province rose 161 per cent year on year, said a GF Securities report.

China was forecast to enjoy at least ten continuous days of hot weather starting June 19, with temperatures in the southern parts of the Yangtze River Delta lingering around 35 to 39 degrees Celsius, including Guangdong, Hunan, Zhejiang and Fujian provinces, Chongqing and Shanghai, according to the National Meteorological Center.

In some regions the mercury is expected to climb to 40 to 41 degrees.

Another note from Essence Securities said it expected the hot weather to help reduce the stock inventories of air conditioner producers, “a process which will be completed by the end of the second quarter of the year”.

GF Securities said China’s air conditioner makers are working hard to clear their inventories by trying to lower the turnover days to a normal 1-2 months per unit, compared with the current 5-6 months.

The surge in demand has seen the retail price of air conditioners rise over 20 per cent, or an average 300 yuan (HK$353.5) so far this year, Sinolink’s Zhang wrote in its report.

“In general, total sales in the air conditioner industry should be better than last year,” Zhang said.

Besides the seasonal factors, mainland home appliance makers are also diversifying their business to ensure more-sustainable growth.

Midea, for instance, offered US$5 billion for German robotics firm Kuka AG last month.

Gree said in May it was moving into making electric vehicles after acquiring Zhuhai-based auto maker

Yinlong. The firm is already on its way to developing robots and smart phones.

While Haier splashed out US$5.6 billion to acquire GE Appliances this month.

Investors in electronics retail stocks are on the hunt for companies with assured growth, SWS Research said in a report.

It highlighted Midea’s high dividend payout and low valuation as attractive, while the acquisition of Kuka brings it a new growth point, its note said.

Haier is likely to strengthen its sales channel, lower procurement costs and upgrade its ability to operate global business, SWS added.