China’s CPI inflation steadies at 0.3% YoY in May

According to the National Bureau of Statistics, the national consumer price index (CPI) rose by 0.3% YoY in May and fell by 0.1% MoM. Excluding food and energy prices, core CPI rose by 0.6% YoY, maintaining a moderate increase. Food prices remained unchanged in May, compared to a 1.0% decrease in the previous month. Due to heavy rains in the south, a decrease in egg production during the summer, and reduction in pig production capacity, the prices of fresh fruits, eggs, and pork increased by 3.0%, 2.7%, and 1.1% MoM respectively. As the market supply was relatively sufficient, the prices of shrimps and crabs, beef and fresh vegetables fell by 4.3%, 3.6% and 2.5% MoM respectively. After the holiday, the price of air tickets, transportation rental fees and long-distance bus prices fell by 9.4%, 7.9% and 2.7% MoM respectively.

PPI fell by 1.4% YoY in May, about 1.1 ppt less than the previous month. Among that, the price of means of production fell by 1.6%, the decline had narrowed by 1.5 ppts. The price of means of livelihood fell by 0.8%, the decline had narrowed by 0.1 ppts. The prices in coal mining and washing and selected industry fell by 9.0%, while non-metallic mineral products dropped by 8.8%. The price of ferrous metal smelting and processing declined by 3.7%, and that of agricultural and sideline products processing industry was down by 3.4%. The price of computer communication and other electronic equipment manufacturers declined by 1.9%. In terms of the Hong Kong stock market, the Hang Seng Index may lack upward momentum in the near term. It is expected to fluctuate between 17,400-18,500 points.

China offers incentives to boost old equipment replacements, which support the consumption recovery. Investors can pay attention to the related industry.

Haier Smart Home (6690.HK)’s revenue in 1Q24 amounted to RMB68.9 billion and net profit reached RMB4.7 billion, a YoY increase of 6.01% and 20.16% respectively. The gross profit margin reached 29.0%, up 0.3 ppt YoY. During the reporting period, revenue grew by 8.1% YoY in China. The Company continued to gain premium market share in the China market. In 1Q24, the Company’s retail sales share in units priced above RMB 10,000 increased 2.2 ppts reaching 53.2%. Sales revenue of Casarte grew by 14% driven by enhancing product sets offerings and expanding into shopping malls. In terms of overseas market, the overseas revenue grew by 4% YoY, with a double-digit increase in operating profit. The Company implemented dual-brand strategy of Haier and New Candy and had achieved steady market share growth through product innovation and revitalization of the Candy brand. According to GfK, from January to February 2024, the Company’s sales volume share in the European market increased by 0.9 percentage points to 9.0%. It is recommended to buy at HK$27.95, target at HK$32.60, and stop loss at HK$26.85.

Hisense HA(921.HK)After growing revenue by 15% in 2023, sales rose by another 21% to RMB23.5 billion in 1Q24. Net profit amounted to RMB 840 million, up 61% YoY, far exceeding expectations. In 1Q24, the company achieved a gross profit margin of 21.63%, up 0.51 ppts YoY, with net profit margin of 4.18%, up 1.01 ppts YoY, a significant improvement despite the backdrop of rising raw material prices. The non-Hitachi home appliance segment margin has improved notably from loss-making in 2021, to 2-3% in 2023. The recent rise in copper prices might weigh on margins, but Hisense has taken initiatives to mitigate pressure by locking in sourcing costs, stocking up on copper inventory, and upgrading the product mix.

By products, sales of central AC were up HSD, split AC increased by mid-teens digit, and washing machine and fridge was up about 40%. Its overseas revenue grew faster than domestic, amid a low base, overseas channel restocking and faster-growing OBM products. Domestic growth was largely in line with industry, but exports were more robust. It is recommended to buy at HK$32.70, target at HK$38.10, and stop loss at HK$31.35.