Leaders' margin contraction risk is priced in but US re-opening progress is not

Following the appliance sector's 7% YTD underperformance against the CSI 300, wethink investors have over-reacted to appliance companies' margin contraction risks,caused by the commodity price rally since H220. We think leaders' net margins arelikely to remain steady in 2021, underpinned by their proven pricing power and costcontrolcapability in the last two commodity upcycles (2009-11 and 2016-18), inaddition to cost savings from channel streamlining since 2018. We expect appliancefirms' profitability to rise in 2022, with potential margin expansion opportunities as rawmaterial prices start falling. We also do not think investors have fully priced in theprogress of the US consumption rebound. The capacity for US consumers to spend isvast and growing: The UBS US consumer team estimates US$2trn+ of incrementalfunds for US households in FY21 (link). Consumer intentions to spend are also turninghigher, especially for home improvement (including appliances), as revealed by therecent UBS Evidence Lab US re-opening survey (> Access Dataset).