| HONG KONG
HONG KONG May 22 Chinese home appliance makers
like Qingdao Haier Co Ltd and Midea Group
are on track to deliver stellar growth this year
thanks to rising wages and the country's urbanisation drive.
Appliance manufacturers are expected to outshine China's
home appliance retailers as they are largely immune to the
fiercely competitive online market, unlike companies such as
GOME Electrical Appliances Holding Ltd and Suning
Commerce Group Co Ltd, which have struggled with
The country's home appliances market is expected to reach
738.1 billion yuan ($118.40 billion) by 2016 in terms of retail
value, up from an estimated 603.5 billion yuan this year and
547.5 billion yuan in 2013, according to data from consumer
research firm Euromonitor.
"There is a bit of concern that the property slowdown (will
affect) sales of home appliances, but I think the replacement
demand is still very strong," said Kelvin Wong, an equity
research analyst at Julius Baer in Hong Kong.
China's consumer discretionary sector, which also includes
Wuxi Little Swan Co Ltd and Gree
Electric Appliances Inc of Zhuhai, is expected to
see overall profit grow 42 percent this year to a four-year high
and up from 26 percent growth last year.
Rising wages across China have spurred a growing middle
class eager to improve their quality of life in line with
Beijing's push to shift to a consumer-driven economy from one
more reliant on exports.
The latest batch of earnings from home appliance makers show
strong growth so far this year, with Qingdao Haier, a unit of
the world's largest appliances maker, Haier Group, posting a
20.3 percent year on year rise in first-quarter net profit to
867.5 million yuan.
Mainland rival Midea Group said its net profit for the first
quarter surged 148.5 percent to 2.54 billion yuan, with analysts
expecting its full-year earnings to rise 77.5 percent, the
fastest pace since the group listed in 2013.
Wuxi Little Swan and Gree Electric also posted first-quarter
profit growth of more than 50 percent. Little Swan's 2014 profit
is expected to grow by 36.7 percent, the strongest since 2010,
while Gree's is forecast to rise 22.4 percent, according to
RETAILERS BATTLE ONLINE
While the outlook for home appliance makers is positive, the
outlook for retailers is overshadowed by the fiercely
competitive online market.
GOME Electrical Appliances, which is backed by private
equity fund Bain Capital, is expanding its business to online
retailing from traditional stores. It said this week
first-quarter profit surged 252.6 percent to 268 million yuan.
Analysts expect GOME's e-commerce net loss to narrow this
year compared to an e-commerce net loss of 540 million yuan in
Its larger rival, Suning Commerce Group, China's top home
appliance retailer by market value, reported a 433.5 million
yuan loss for the first quarter, against a 492.8 million yuan
profit a year earlier. Its e-commerce sales fell 26.7 percent to
3.3 billion yuan.
The benefits for companies who get their online strategy
right are clear.
E-commerce transactions in China are projected to hit $540
billion by 2015, or approximately 10 percent of total retail
transactions, according to KPMG's global China practice.
"I've bought almost all the things you can think of online.
I just bought a toaster from Taobao last month," said Cherie
Zhang, an administrative assistant for an education institute in
Shanghai, referring to the Alibaba-owned online shopping site
similar to eBay.
($1 = 6.2337 Chinese yuan)
(Additional reporting by Donny Kwok in HONG KONG and Patturaja
Murugaboopathy in BANGALORE; Editing by Anne Marie Roantree and