China’s largest home appliances company shows its resilience
We have owned shares in China’s largest home appliances company for many years. It has a comprehensive product portfolio that includes air conditioners, refrigerators, washing machines and small home appliances. Domestically it is ranked #1 or #2 in every major home appliance category and has benefitted from a shorter upgrade cycle and growing replacement demand.
In 2024, amid uncertainties around China’s property market and the broader economic outlook, this company reported resilient earnings results, with export demand offsetting the weakness at home.
We believe this company’s operations are highly efficient, profitable and cash-flow generative – and the management has a good track record of executing well during challenging environments. While Trump’s presidential win has raised concerns about its overseas business (due to the threat of higher tariffs), exports to the US comprised just 6% of its 2024 revenue. Moreover, its global supply chain is well diversified with around 20% of its appliance production capacity located outside of China (and a target to increase this to 30%). The company already has 22 overseas research and development (R&D) centres and 23 overseas manufacturing plants in more than ten countries. We think the company should be able to manage higher tariffs, if they materialise, by passing through the costs to consumers or by moving its production to a friendlier base country. In the long run, we believe this company is well positioned to benefit from rising income levels and the premiumisation trend in China.
Market leader, gaining share
Robust cash flow generation
Source: FactSet, company annual report, FSSA Investment Managers, as at 30 April 2025.
Operating cash flow (OCF) measures cash generated by a company's business operations.
Free cash flow (FCF) is the cash that a company generates from its business operations after subtracting capital expenditures.
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