We remain positive on the Chinese home appliances sector; we prefer
airconditioner players as we expect further benefits from the restocking

Buy Qingdao Haier, Gree and Midea (ranked by preference)

We interacted with investors after the earnings release, key concerns
byinvestors and our takes:

    Despite PE valuations being at mean plus two standard deviations,
they remainbelow the last peak cycle seen in 2009-11. As we see the
sector entering intostructural growth, driven by consumption upgrade, in
this report we lift ourearnings by 6%~16% and argue for further
re-rating. We also provide ourviews on the key investors’ concerns post
3Q results.

    To better demonstrate how China’s white goods brands will benefit
from increases in consumer demand through penetration and upgrading
(replacement), we update our proprietary forecasts in this report. We
expect the market to post a 5.2% CAGR in sales in 2017-19. We expect key
players to gain market share by launching high-end products to cater to
consumer demand (which is driven by replacement rather than

    3Q17revenue growth decelerated to 23% YoY (vs. 1H17of
27%):management attributed the deceleration to(1) e-commerce product
pricehike that impacted volume and(2) property market slowdown. Despite
theslowdown, Robam management is confident in a rather sustainable
25-30% YoY revenue growth in 2018. We believe the 2018growth target
isachievable (DBe 28% YoY). We see signs suggesting Robam fares
betterthan our expectation amid tier-1-city property slowdown: we
estimate thatRobam delivered a high-single digit ppt YoY sales growth in
tier 1cities in3Q17, vs. over 10% decline in property transaction. The
resilience is drivenby(1) new embedded kitchen appliances and(2) market
share gain viadecorated houses, in our view.

    Property market slowdown and the high base have been investors’
mainconcerns. In general, home appliance corporates expect decelerated
salesYoY into 4Q17 but also see structural drivers to cushion the
slowdown(this is similar to our channel check). Gree likely faces the
highest base in4Q17 (4Q16 gross sales up 63% YoY), but it remains
confident on the4Q17 outlook, thanks to distributors’ strong commitment
to restocking(note advanced payment increased 141% YoY in 3Q17). Midea
forecasts adeclaration for 4Q17 sales YoY, but remains confident of
delivering doubledigitppt sales growth for both 4Q17 and 2018 (more
sustainable than ourexpectation), partly thanks to a strong air
conditioner replacement cycle.

澳门太阳集团2007,    China market to post 5.2% sales CAGR in 2017-2019E

    Gross margin declined by 5ppt YoY in 3Q17: Robam management
attributethis to wage hikes and accounting changes (Robam started in
4Q16todeduct part of its marketing-related OPEX directly from sales). We
noteRobam’s 3Q17EBIT margin expanded by 50bps YoY. More importantly,our
channel checks continue to suggest a healthy pricing environment
forRobam and Fotile (private). We thus have confidence in a mild
grossmargin uptrend for Robam in the next 3years.

    Qingdao Haier focuses on premiumization and market share

    The domestic market should remain the bread and butter of Chinese
white goods players for the next three to four years, where we expect
the industry to grow 5.2% in 2017-19. About 20% of this would come from
an increase in penetration, 30% from new housing and 50% from
replacement demand. By product, the key growth drivers are air
conditioners (39% of white goods revenue in 2017E) and small appliances
(18.5%), while refrigerators and washing machines would have lower than
industry growth.

    3Q17operating cashflow declined: according to management, the
shortfallin operating cash flow YoY can be explained by(1) change in
paymentterms by one of Robam’s major e-commerce platforms (explaining
2/3ofthe shortfall) and(2) higher raw material stock taken amid hiking
rawmaterial prices.




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