China's Stock Traders Seek Comfort in Appliance Makers

Updated on
Shanghai Haier
Photographer: Ariana Lindquist/Bloomberg
  • Midea outperforms benchmark index as Robam, Supor hit records
  • Property boom fueling earnings recovery, Citic analyst says

China’s investors are betting makers of home appliances will buck a slumping stock market and an economic slowdown.

Midea Group Co., China’s biggest maker of white goods such as refrigerators, has rebounded 15 percent through Friday’s close since the Shanghai Composite Index dropped to a one-year low in January, almost twice the pace of the benchmark measure. Hangzhou Robam Appliances Co. and Zhejiang Supor Cookware Co. have surged more than 25 percent in the period after touching record highs.

A property boom in China’s richest cities is boosting the earnings outlook for manufacturers of everything from kitchen ventilators to air conditioners, even as the economy grows at its slowest pace in a quarter century. While Goldman Sachs Group Inc. says government measures to cool the housing market undermines the chances for a sustained rally in such stocks, Robeco says rising domestic consumption makes the industry a bright spot in the market.

“Demand for household appliances is very strong and the industry is now entering a high-growth cycle,” said Victoria Mio, chief China investment officer for the Hong Kong unit of Robeco, which manages $305 billion globally.

China’s white goods makers recorded an average 14 percent gain in net income in the first quarter, compared with an average 2.5 percent decline for listed companies as a whole, according to Citic Securities Co. Midea reported a better-than-expected 17 percent jump in profits on increased sales of kitchen and bathroom appliances, while Zhejiang Supor’s push to expand its sales network into smaller cities helped boost revenue.

Housing Recovery

The value of homes sold in China jumped 71 percent in March to about 870 billion yuan ($134 billion), while new-home prices climbed in 62 cities, compared with 47 in February. The pick-up, fueled by cheap credit, helped economic growth to stabilize at 6.7 percent in the first quarter.

“Earnings growth for big appliance makers is expected to exceed expectations as a surge in home sales secures high-growth potential,” Jin Xing, an analyst at Citic Securities, wrote in a note dated May 3. “Small appliance makers are benefiting from rising consumption and expansion in third- and fourth-tier cities and will maintain stable growth.”

The longevity of the housing recovery is being called into question after local authorities moved to take the steam out of overheating markets such as Shanghai and Shenzhen.

Safe Haven

“The property market won’t be a huge contribution to GDP this year,” Kinger Lau, a strategist at Goldman Sachs, said in a phone interview from Hong Kong. “It remains a question mark if the good performance of the sector will be sustained.”

The rally may already be cooling. Midea slid 7.5 percent on Friday, the most in two months, while Zhejiang Supor has slumped 18 percent since its record on April 22. The stock is still up 14 percent this year, compared with a 20 percent tumble by the Shanghai Composite. Midea closed little changed on Monday, while the Shanghai gauge plunged 2.8 percent. Zhejiang Supor dropped 1.3 percent.

For Windsor Capital, China’s traders seeking a safe place to put their money have few better alternatives.

“Earnings for home-appliance makers are pretty secure over the next one to two years and these stocks are havens for investors,” said Jian Yi, chief investment officer at Windsor Capital in Beijing, whose fund has beaten 95 percent of peers over the past year. “Institutional investors are overweighting the sector.”

— With assistance by Shidong Zhang

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