This Chinese hot stock is about to get even better after rallying over 140 per cent in Hong Kong, thanks to record heatwaves

Hisense, a leading air-conditioner manufacturer, has surged more than 140 per cent in Hong Kong this year, boosting its market value to HK$33.8 billion (US$4.3 billion)
Heatwaves in China have fuelled air-conditioner sales, which have risen 12 per cent to 90.9 million units in the first half from a year earlier

China stock market

Jiaxing Li

Published: 11:55am, 26 Jul 2023

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China’s top air-conditioner manufacturers are having their best summer in years as sales multiply amid extreme heatwaves. That is about to make the market-beating rally in Hisense Home Appliances Group even better in the months ahead, analysts said.

Hisense, one of the largest industry players, has appreciated 141.6 per cent in Hong Kong this year through Wednesday, boosting its market value to HK$33.8 billion (US$4.3 billion), according to Bloomberg data. That has outgunned the broader market’s 2.1 per cent loss and the 60 per cent gain in PetroChina, the best performer among the Hang Seng Index’s 80 members.

Hisense is not a Hang Seng Index member. Its Shenzhen-listed stock, a member of the Shenzhen Composite Index, has risen 81.5 per cent this year. Rival Midea Group has appreciated 13 per cent while Gree has climbed 20.2 per cent this year in Shenzhen.

02:26

Record temperatures expected globally in 2023 as El Nino weather pattern returns

Overall air-conditioner sales increased by 12 per cent to 90.9 million units in the first half this year from a year earlier, outpacing the 4 per cent gain in the broader home-appliance market, according to data provider All View Cloud. Demand is likely to keep growing as heatwaves are likely to persist, it added.

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“The domestic air-conditioner market is booming this year, thanks to the hot summer and low inventory,” said Su Chen, an analyst based in Shanghai at Sinolink Securities. The momentum shows no signs of slowing down and will aid Hisense’s profitability, he wrote in a note to clients last week.

Record temperatures caused by the El Nino weather phenomenon this year are baking many mainland Chinese cities, pushing households to install more air-conditioners or replace older ones, making Hisense and rival producers like Midea, Gree and Haier the envy of producers in other sectors of the struggling Chinese economy.

Air conditioners installed outside a residential building in Kwun Tong, Hong Kong. Photo: Edmond So

Home ventilation and air-conditioners accounted for 45 to 47 per cent of Hisense annual sales over the past two years, according to its annual reports.

Cities across China are suffering extreme heatwaves of 40-plus degrees. The nation’s financial capital Shanghai saw record-equalling 40.9 degrees Celsius (105.6 Fahrenheit) on July 12, the highest since record-keeping started in 1873, authorities said.

For Foshan, Guangdong-based Hisense, the outlook is promising. Net profit is likely to increase by at least 110 per cent to 1.3 billion yuan (US$182 million) in the first-half, it said in a July 14 filing. On average, Hong Kong-listed companies and members of the CSI 300 Index are expected to report 12 to 16 per cent growth, according to data compiled by Goldman Sachs.

All 12 analysts tracked by Bloomberg recommended a buy on the stock, having boosted their average 12-month price target to a record-high of HK$23.06 per share, or 8.5 per cent higher than the current market price.

At least 46 mutual funds in mainland China have bulked up their stakes in Hisense shares listed in Shenzhen, according to data compiled by Eastmoney, lifting the stock into their top 10 holdings for the first time last quarter. They accumulated a total of 73 million A shares during the past three months.

GF Fund Management’s 259 million yuan Consumption Upgrade Equity Fund is among the biggest bulls. Co-managers Zhang Dongyi and Liu Na boosted Hisense’s share to 8.2 per cent of its net assets on June 30, the highest since the fund’s inception in 2019.

While economic recovery is faltering, many high-quality companies have solid short-term profitability, long-term growth resilience and attractive valuations, they said in the second-quarter report to clients. These stocks are worth buying and holding for the upside, they added.

Meanwhile, Beijing’s stimulus signals to the property sector this week could also give the home-appliance industry a second round of tonic, said Meng Lei, a China strategist at UBS Securities in Shanghai. Some cities could ease curbs on home purchases to shore up demand.

“The home appliance industry is somewhat linked to the real estate cycle,” Meng said during a media briefing on Wednesday. “With the gradual relaxation of property policies, there will be more demand for household appliances.”