CITIC Construction Investment: Leading home appliance companies have the ability to withstand cyclical fluctuations

January 27, CITIC Construction Investment Research Report states that in 2026, the market will face a dual challenge of rising copper prices and RMB appreciation, but the overall impact on the profitability of leading home appliance companies is controllable. Past experience shows that passing on costs is the most effective core strategy to resolve cost pressures. The demand supported by government subsidies has stabilized, and there is a consensus on price increases after New Year’s Day. With strong terminal pricing power, a mature cost transfer mechanism, and a comprehensive exchange rate risk management system, leading companies have the capacity to navigate cyclical fluctuations and maintain a robust profit model. Currently, the sector’s valuation is at a historic low, characterized by steady growth and high dividend yields, highlighting its investment value.

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CITIC Construction Investment | Copper Price and Exchange Rate Impact Resurface, What Is the Impact on Home Appliance Companies?

In 2026, the sector will face a dual challenge of rising copper prices and RMB appreciation. We believe the overall impact on the profitability of home appliance leaders is manageable. Past experience indicates that passing on costs is the most effective core strategy to alleviate cost pressures. Demand supported by government subsidies remains stable, and there is a consensus on price increases after New Year’s Day. With strong terminal pricing power, a mature cost transfer mechanism, and a comprehensive exchange rate risk management system, leading companies are capable of weathering cyclical fluctuations and maintaining a stable profit model. Currently, the sector’s valuation is at a historic low, with characteristics of steady growth and high dividends, emphasizing its investment value.

Copper prices are once again on the rise. How will this affect home appliances? Since the second half of 2025, copper prices have rapidly increased again. Compared to previous commodity cycles, the current raw material price increase remains controllable, with a divergence pattern where metal prices rise while chemical and steel prices moderate. Fluctuations in raw material prices have a delayed impact on gross profit margins but are not the core variables determining sector valuation and stock prices. Historically, the transmission of cost pressures to gross profit has a lag of 2-3 quarters. In the capital markets, valuations are more driven by macro liquidity and terminal demand. Under the backdrop of demand recovery and monetary easing, even with rising costs, leading home appliance stocks can still achieve good performance.

How can leading home appliance companies reduce the impact of rising copper prices? They can hedge costs through three transmission methods: “seeking profits upstream, improving internal efficiency, and charging premiums at the terminal.” The pricing power of bulk commodities is highly concentrated in overseas resources, making price negotiations difficult. Leading companies can also control costs and improve efficiency to effectively buffer the impact of cost fluctuations on profits, but fundamentally, this is about smoothing the bottom line. Raising prices downstream is the most effective core strategy to resolve raw material cost pressures.

Outlook for 2026: Cost pressure assessment and price increase hedging effects. Demand remains supported, and there is a consensus on price hikes. The implementation of new national subsidies in 2026 will support demand and partially ease the trend of industry price wars in 2025. Additionally, widespread price increases from small and medium-sized enterprises to leading companies around New Year’s suggest a current industry-wide consensus on raising prices. Sensitivity analysis indicates that when copper prices are in the high range of 105,000 yuan/ton, companies can offset raw material increases with overall price hikes of 3-5%.

What is the impact of RMB appreciation on home appliance companies? RMB appreciation mainly reduces foreign sales revenue when converted and causes foreign currency asset exchange losses, squeezing profits. In 2026, with the Federal Reserve cutting interest rates and a large export surplus, the RMB faces some upward pressure. Based on past experience, the central bank will effectively manage the pace of appreciation to prevent rapid exchange rate appreciation from impacting manufacturing. Thanks to sufficient hedging by leading home appliance companies, the impact is expected to be manageable.

Investment advice: Leading companies have the capacity to navigate cyclical fluctuations and maintain a stable profit model. Currently, the sector’s valuation is at a historic low, with characteristics of steady growth and high dividends, highlighting its investment value.

1. Macroeconomic growth is below expectations; home appliances are durable consumer goods closely linked to residents’ income expectations. If macroeconomic growth slows, it could significantly impact industry sales;
2. Large fluctuations in raw material prices: Raw material costs constitute a significant portion of operating costs for home appliance companies. If bulk commodity prices rise again, sector profitability will weaken;
3. Overseas market risks: Increasing uncertainty in the overseas environment in recent years, with a high proportion of exports by leading home appliance companies, means that a decline in external demand could impact performance;
4. Intensified market competition: In a weak market environment, industry competition becomes fiercer, and some companies face risks of losing market share and being dragged down by low-price competition.

(Source: China Securities Journal · Zhongzheng Taurus)