The exemption sends the signal of marginal improvement of the policy. However, due to the small number of finished furniture products involved, the direct impact on the performance of the export sector may be relatively limited. On March 23, 2022, the office of the U.S. trade representative said that it would resume the tariff exemption for some goods imported from China. The tariff exemption involves 352 of the previous 549 pending products. This provision will apply to goods imported from China between October 12, 2021 and December 31, 2022. In the exemption list, home products are less involved and mostly furniture components. We believe that the exemption will upload and deliver a positive signal of marginal improvement of trade policy to a certain extent. However, due to the small overlap between the categories listed in the exemption list and the main product categories of home export companies, the direct impact on performance improvement will be relatively limited.
Under the background of trade policy uncertainty, we are optimistic about leading enterprises with overseas high-quality production capacity for a long time. The Sino US trade war has objectively accelerated the pace of “going global” of Chinese enterprises. Since 2018, leading enterprises have successively arranged overseas production capacity through self construction or acquisition in Vietnam, Thailand, Mexico, Eastern Europe and other countries and regions. Vietnam has the advantages of “two exemptions and four reductions by half” of income tax and tariff. In the long run, assuming that the trade situation eases, Vietnam still has the advantage of labor cost. Mexico is close to the US market and delivery efficiency is higher. We believe that the leading enterprises that give priority to the construction of overseas factories are expected to use their tax advantages to win more customer orders, improve market share, and gradually build channel barriers by taking advantage of the advantages of production and manufacturing.
On the income side, there is structural differentiation among categories, and attention is paid to the subdivision track of maintaining high prosperity of terminal demand after the epidemic. The year-on-year growth rate of office chairs in a single month has been lower than that of the furniture industry since September 21, which may be due to the decline of home subsidies in Europe and the United States, the long replacement cycle of durable consumer goods and the decline of terminal demand; The monthly year-on-year growth rate of PVC flooring has been higher than that of the industry since August 21, and the cumulative growth rate from January to February of 22 years is better than that of the industry; The overall export volume of sofa is large, and the cumulative year-on-year growth rate is basically consistent with the industry level. It is suggested to pay attention to the subdivided categories with high demand after the epidemic.
For the improvement of performance in the past 22 years, attention should be paid to sea freight, raw materials and exchange rate:
1) sea freight: high freight and tight transport capacity slow down the pace of placing orders, and the demand for replenishment may be released gradually after the decline. Freight has risen rapidly since June 21, and the transportation capacity was once tight. Under FOB mode, although freight has little direct impact on revenue and profit, it still leads to the delay of revenue recognition, and the capital occupation of all links of the supply chain affects the short-term cash flow of the enterprise. We believe that the short-term freight rate may remain high. In the long run, after the freight rate gradually drops, the demand for replenishment from downstream customers may be gradually released.
2) raw materials: the pressure on the cost side accelerates the clearing of small and medium-sized production capacity, further optimizes the industry pattern, and pays attention to the subject matter of loss of profits in 21 years due to the high proportion of raw materials and large increase. The export targets of light industry are mostly ODM OEM enterprises. We believe that although export leading enterprises have certain bargaining power, it is more difficult to negotiate price increase when downstream customers bear high ocean freight. The bargaining power of small and medium-sized enterprises is weaker than that of leading enterprises. We believe that under the background of general pressure in the industry, leading enterprises with better corporate governance can also alleviate the pressure of raw materials to a certain extent through internal cost reduction and efficiency increase, lean production, large-scale centralized purchase and other measures, so as to continuously obtain the market share after the withdrawal of small and medium-sized production capacity. In addition, with the gradual implementation of early price increase, There is profit margin at the repair end.
3) exchange rate: RMB appreciation affects income and causes exchange loss. On the one hand, exchange rate fluctuations affect income, on the other hand, they are reflected in exchange losses. As of 21h1, the absolute amount of exchange losses of some enterprises exceeded 10 million. Under the pressure of profit side, the proportion of exchange losses in profits is more significant.
After the epidemic, the demand as a whole or tends to be stable, with structural differentiation in sub categories. Affected by shipping, raw materials and exchange rate, the export is under pressure in the short term, and is optimistic about the improvement of supply side concentration and the further strengthening of leading competitive advantage in the long term. From the perspective of supply and demand pattern: (1) supply side: in the first half of the year, the income of listed export enterprises increased significantly and the profit was under pressure. In the second half of the year, they were still limited by the shortage of shipping capacity, the pressure of raw materials and the pressure of RMB appreciation. The growth rate of subdivided industries in the export sector gradually decreased. Under the long-term high pressure of the industry, it is not ruled out that some small and medium-sized production capacity may be cleared, and the industry concentration may be further improved; (2) Demand side: the global epidemic broke out in 20 years, and the demand for overseas durable consumer goods continued to increase. Since the second half of 21 years, with the improvement of the epidemic and other effects, overseas production capacity has gradually recovered, and the demand may tend to grow steadily. In the long run, (1) industry level: China has a stable position in the global supply chain and complete supporting facilities for relevant industries, (2) company level: Home export leaders have strong anti risk ability, take the lead in the layout of overseas production capacity, have strong stability of production and supply, and further strengthen the competitive advantage in overseas markets. It is suggested to pay attention to the household leaders [Minhua holdings], [ Jason Furniture (Hangzhou) Co.Ltd(603816) ], the sub track leaders [ Cocreation Grass Co Ltd(605099) ], and the [ Hhc Changzhou Corp(301061) ] [ Zhejiang Natural Outdoor Goods Inc(605080) ], [ Keeson Technology Corporation Limited(603610) ], [ Changzhou Kaidi Electrical Inc(605288) ].
Risk tips: the epidemic prevention and control is not as expected, exchange rate fluctuations, raw material price fluctuations, sea freight remains high for a long time, and international trade policy uncertainty.
