Industrial Development and Prospect under double cycle

SMM: at the 2020 China HVAC Industry Development Summit held at the end of September, Yang Jie, chairman of Industry online, delivered an annual keynote speech, analyzing and looking forward to the situation of industrial development under the double cycle. The following is a transcript of the speech:

From the perspective of the whole industry chain, I want to find some definite directions in an uncertain environment, including the current development situation of the industry, our advantages, future trends, etc., which will be divided into three parts: panoramic overview, international cycle and domestic cycle to share with you.

Panoramic overview: short-term scale adjustment, steady recovery of the economy

According to the annual forecast based on the data from January to August 2020, the scale of the whole industry has been adjusted in the short term. The size of the refrigeration and air conditioning industry is expected to be 565.6 billion in 2020, down 9.47% from the same period last year. From this data, it can be seen that the industry is facing great adjustment pressure in 2020, and the operating status of enterprises is also facing greater challenges.

Compared with the applications of different industries, the industrial and agricultural fields show strong resilience and are relatively less affected by the epidemic. In addition, the decline in the refrigeration industry is much lower than that in the air-conditioning industry. Under the epidemic, air-conditioning products are affected by installation factors, but refrigeration products play a certain role in promoting the housing economy, such as the demand for the upgrading of refrigerators. Air conditioners are expected to decline by 16.4% in 2020. Apart from the epidemic, the weather this year is not hot, and the relative frequency of Rain Water is also an influencing factor. Prices have also been greatly reduced, brand competition is white-hot.

The core supply chain system, including compressors, heat exchangers, chips, refrigerants and so on, basically reflects the consistency with the downstream trend in terms of growth. However, due to the relatively wide application of the upstream supply chain industry, it still shows some differences, focusing on several products:

Rotor compressor and full-seal piston compressor will achieve growth in 2020, both exports are positive growth, at the same time, there are a wide range of downstream support, as well as the reasons for the expansion of large cooling market.

Refrigerant R32 is expected to achieve a growth rate of 6.82% in 2020, which also represents the trend and direction of refrigerant substitution.

IPM growth in the chip sector is expected to reach 20.5%, which is the most direct reflection of the variable frequency trend of energy efficiency upgrading.

Standing in the long period of the decade, the overall brand trend is more concentrated, but scroll compressors and refrigerants have declined. In particular, scroll compressors, ten years ago, the concentration of the TOP5 brand was basically 100%, which dropped to 89% in 2020, on the one hand, due to the rapid development of domestic brands, and on the other hand, the entry of rotor compressors.

The enterprise concentration of the whole machine product and air source heat pump has been greatly improved in the past 10 years. Household air conditioners have also undergone great changes in 2020, TOP5 brand concentration has been further enhanced, showing a further fierce competition, the whole enterprise management is facing major challenges.

From the comparison of the operation of several core listed companies in the industry, there are two typical characteristics:

First, the decline of operating net profit is much higher than that of operating income, which is due to the marginal cost of enterprise operation, and the price impact is not only limited to the whole machine, but also transmitted to the upstream equipment end. Upstream enterprises are facing greater operating pressure.

Second, the enterprises with leading strategic layout have stronger anti-risk ability under the impact of the epidemic. It is worth mentioning that Midea and Sanhua Intelligence Control, both of which had a small decline in revenue and net profit in the first half of the year. Midea's online marketing and diversified product layout support stable revenue; Sanhua not only maintains a leading edge in traditional products, but also provides sufficient support for the rapid development of new energy thermal control systems.

In terms of domestic and export patterns, there are great differences in the degree of export dependence of different products.

The export dependence of household air conditioners has reached 42.7%, and it is highly dependent on exports; commercial air conditioners and air original heat pumps take the domestic market as the main body to promote the development of the industry. Under the circumstances of the global epidemic, we have come out of a different pattern. Household air conditioning exports remained basically stable, while commercial air conditioning exports were hit hard, while air source heat pumps unexpectedly increased by 37.7% from January to August.

International Circulation: consolidate the advantage of scale and accelerate Industrial upgrading

For the topic of double cycle, let's start with the international cycle. From a global point of view, the development of manufacturing in China has the advantage of scale, but at the same time, it still faces some shortcomings that need to be improved on the basis of the advantages.

First of all, look at the export seasonal characteristics of the three products. Household air conditioners adjusted to a certain extent in January and February, and showed positive growth after March; on the contrary, commercial air conditioners grew negatively for eight months from January to August; air source heat pumps began to grow rapidly in March and grew by more than 100% since June and July.

On this basis, take a look at the layout of the three products from a global perspective.

Household air-conditioning products have very typical characteristics, that is, they are very convenient in logistics and transportation, showing a manufacturing layout of centralized production and global marketing. Compared with the three major white electricity, washing machines and refrigerator freezers still have a large number of manufacturing bases in Europe and America, while the concentration of air conditioners in Asia alone is as high as 96.6%.

The top three countries in the production of household air conditioners are China, Thailand and India, with a forecast of 140 million units and 11.43 million units and 5.71 million units respectively in 2020. China accounts for 80 per cent of the global production of household air conditioners and is far ahead in scale. This advantage supports the stable export of domestic air conditioners in China.

Commercial air conditioners, industry online preliminary statistics, the global sales market in 2019 is about 13.85 million units, the structure is very different from household air conditioners, whether sales or manufacturing base distribution is very balanced. Because the product system of commercial air conditioners is relatively diversified, and the use of each product has typical regional characteristics, such as a large number of unit machines and roof machines in the United States, and widely used online in Japan.

China's commercial air conditioners account for about 30% of global manufacturing. According to the breakdown of products, multi-on-line, centrifuges and screw machines account for about 30%; modular machines account for more, reaching 73%; and unit machines account for only 27% of global manufacturing. Under this decentralized layout, commercial air conditioning exports continued to decline in the first eight months of this year, mainly in Asia.

Compared with the previous two products, the volume of air source heat pump is very limited. According to the preliminary statistics of the industry online, the global demand for air-source heat pumps in 2019 is 3.65 million. A very typical reason is that the main applications of air source heat pumps are Scald and heating, both of which can be provided by many products, such as electric heating, heating, and wall-mounted stoves. For example, commercial boilers are more used for heating in North America.

Overseas demand for air-source heat pumps is mainly concentrated in Japan in Europe and Asia, with China's exports to France, Australia, Germany and Belgium all growing by 50% in the first eight months of 2020. Mainly because the housing economy under the epidemic has promoted the local demand for family swimming pools, thus promoting the growth of air source heat pump exports, the sustainability of this short-term high growth remains to be seen.

Next, take the compressor as the representative to take a look at the layout of the entire global supply chain. The two products of rotor compressor and scroll compressor show the characteristics of convergence with downstream applications.

First of all, the convergence of scale, the total number of rotor compressors has reached 230 million, which matches the overall demand of household air conditioners, and has a wide range of applications in household central air conditioners, so the demand is more than household air conditioners.

The second is structural convergence. The global share of Chinese rotor compressors is 91%, which is higher than 80% of household air conditioners, and the advantage of Chinese-made in the supply chain is even more significant. The proportion of scroll compressors in the United States has reached 45%, which is very similar to the structure of the entire commercial air conditioner and matches the demand of unit units in the United States.

There is also a very obvious technical development direction of the compressor, which is to develop to a large cooling capacity. More than ten rotor compressors are widely used, and the cooling capacity of scroll compressors is also increasing.

In short, the sales scale and manufacturing scale of our entire industry as well as the foundation of the supply chain are very strong, but there are also obvious shortcomings, mainly reflected in the following aspects:

The first is the lack of high-end manufacturing equipment, many smart factories are being built rapidly, but the core equipment in the factory is still imported from abroad.

Second, the proportion of private brands is low, so they have little say. The country now proposes a strong foundation project because there are still many gaps in the research of the core foundation. In terms of chips, according to the application of MCU and IPM in the three major white electricity, the domestic proportion of DC fans for household air conditioners is only 0.2%.

Therefore, on the basis of our scale advantage, there are still many directions that need to be improved and technological innovation.

Domestic cycle: big market support, two-wheel drive to grasp the direction

In terms of domestic circulation, we have the support of a big market. Let's take a look at the development direction of the three products under two-wheel drive. On the demand side, compared with the proportion of domestic demand of the three major products in the global structure, the proportion of commercial air conditioners is relatively low. China accounts for 28.6% of the global market, household air conditioners basically reach 46%, and air source heat pumps are 64.8%.

Judging from the seasonal characteristics of the three products from January to August, they show a different trend from exports. It declined sharply in the first quarter, and commercial air conditioners maintained sustained and steady growth after the second quarter; household air conditioners began to recover in June, and then grew steadily; the growth of air source heat pumps only started in July and August, and grew slightly.

The different growth performance of these three products is due to the different driving factors behind them.

First of all, let's look at investment. The total investment in fixed assets has been growing for five months, and the cumulative increase from January to August has reached-0.3%. With the exception of January-March, the growth of investment has promoted the development of commercial air conditioners. The direction of investment, including e-commerce and new infrastructure, has become the strongest support for the growth of commercial air conditioners.

Secondly, look at consumption. The nominal growth rate of the total amount of consumer goods from January to August is-8.6%, and the actual growth rate is even lower. When it was announced in August that it became a regular employee for the first time, it also refers to the nominal growth rate. In addition, we should also consider the structure. The main growth rate comes from basic demand. For example, grain, oil and medical supplies are growing positively, but household appliances are declining.

Therefore, air conditioners in two-wheel drive mainly come from investment, which is the core driving force of the short-term market, while consumption growth is a long-term process. To pay attention to the trend of long-term change, there are three core trends:

The first is the acceleration of frequency conversion, and the upgrading of energy efficiency plays a positive role in promoting the development of frequency conversion as a whole. Judging from the frequency conversion trend of the three major white electricity, the frequency conversion has been increased by more than 20% when the refrigerator energy efficiency standard is implemented; when the washing machine policy is implemented, it has increased by about 10%. How much improvement will there be after the implementation of the new energy efficiency standards for air conditioners? we now expect the frequency conversion structure to be 61% in 2020.

The second is the development of integration. With the development of smart home and fine decoration, integration and intelligence are the development direction of future products. At present, the integration of the whole cold and warm products under the comfortable home system needs systematic attention.

The third is the transformation of data. The rapid development of digitization has changed the rhythm of the whole life and production, and the epidemic situation has accelerated the development of the whole digitalization, from the extensive use of health functions, the full series of digital marketing, and then to the tracking of the whole process of product digital system. are the embodiment of digital acceleration. The traditional model is only a single direction from the starting point to the end point. After the introduction of digitization, in fact, any node can form its own link, and each link point has a possible starting point, which makes it possible for all channel changes to be implemented.

In short, the whole industry is facing some adjustment in the short term, but we firmly believe that the basic market has not changed. From the perspective of double cycle, the advantage of made in China is very stable in the international market, and export is a very important support for household air conditioners; the domestic market needs to pay attention to the impact of the whole two-wheel drive on different industries, in the long run, we should pay attention to the development direction of frequency conversion, digitization and integration.