The Zhitong Finance App learned that Open Source Securities released a research report saying that it is expected that the form and level of subsidies related to the trade-in of two-wheelers is similar to that of home appliances. Stimulated by the trade-in policy, the electric two-wheeler market may be able to recreate the outstanding performance of the home appliance industry's previous trade-in. Since March 2023, due to industry competition, demand for two-wheeler terminals has slowed down. The trend of Yadi Holdings and Emma Technology, the two leaders in the industry, is weaker than the general market. The bank is optimistic that the gradual release of the trade-in policy will drive the sector to recover.

In terms of individual stocks, the bank recommended leading companies Yadi, Emma, and No. 9, which has sufficient momentum to grow. (1) Company No. 9:2024Q1 revenue and profit exceeded expectations. It is optimistic that new categories such as all-terrain vehicles and lawnmower robots will grow rapidly under channel expansion and high profit flexibility in the next 2-3 years due to scale effects. (2) Yadi Holdings (01585): Attended the trade-in symposium. The advantages of improving quality and efficiency domestic+continuing overseas development are remarkable. (3) Emma Technology (603529.SH): Optimistic that product volume and price will continue to rise in 2024, and reissuing equity incentives shows confidence in development.

The main views of Open Source Securities are as follows:

The central government and local authorities are building joint efforts, and electric bicycles are clearly mentioned in the trade-in policy

Reviewing the “trade-in” policy in 2024, we believe that the electric two-wheeler industry may have received a high level of attention at the policy level. The policy has the following four major points: On March 13, the State Council issued a notice on issuing the “Action Plan to Promote Large-Scale Equipment Renewal and Consumer Goods Trade-In”, and a new round of trade-in was officially launched. On April 2, the National Development and Reform Commission hosted the first symposium on large-scale equipment renewal and consumer goods trade-in. Yadi Technology participated in discussions and exchanges, indicating that two-wheeled electric vehicles are a potential category of trade-in policies, and industry development is expected to be supported by the policy. On April 12, 14 departments including the Ministry of Commerce jointly issued the “Action Plan to Promote Trade-In of Consumer Goods”. The report proposes to increase fiscal policy support, adhere to the collaboration between central finance and local governments, and suggest that, with reference to practices related to the trade-in of automobiles and home appliances, relevant departments study and promote electric bicycle trade-in work, and include electric bicycles in the scope of trade-in at the level of policy announcements. On April 30, the Ministry of Industry and Information Technology, the State Administration of Market Supervision and Administration, and the State Fire and Rescue Administration jointly issued the “Electric Bicycle Industry Specification Conditions”, which put forward requirements in seven areas, including enterprise layout, process equipment, and product quality and management. Local governments have responded faster than expected. Up to now, Guangdong and Hunan have issued relevant documents and guidance documents; Jiangsu Yancheng, Tianjin and other regions have introduced preferential trade-in subsidy policies.

Trade-in or promote early release of demand, and revisions to new national standards and regulatory conditions promote increased industry concentration

The total volume or benefit of the industry is boosted. We use holdings and annual sales volume as the underlying data. It is estimated that in 2024-2025, the trade-in policy could potentially stimulate market sales of 948/7.28 million units, respectively. On the consumer side, the implementation of the new national standard and the trade-in policy complement each other, speeding up the clearance of low-quality non-regulated products. Leading compliance operation+ takes advantage of the number of products selected on the whitelist to overenjoy policy release dividends. While the trade-in policy is gradually being refined and implemented, the stricter special rectification work for non-compliant products of electric two-wheelers is progressing simultaneously, and the strengthening of supervision is expected to speed up clearance at the end of the industry. At the same time, the new national standard for electric vehicles will be revised and reviewed. We expect that the implementation level will be better implemented, driven by the trade-in policy, to better stimulate the release of demand for swaps in the market. On the enterprise side, the promulgation of the “Electric Bicycle Industry Specification Conditions” will promote the healthy development of the industry, and concentration is expected to be further concentrated on the leaders. The “Specification Conditions” clearly stipulate the automation rate, the original value of testing equipment, and the number of self-developed models, which will further impact the profitability of small and medium-sized manufacturers. We believe this will accelerate the clearance of small and medium-sized manufacturers and promote further concentration in the industry; on the other hand, it is expected that the probability of an industry price war will be further reduced.

Taking home appliances as a guide, I am optimistic that the two-wheeler sector's performance and market will soon ferment

In terms of policy direction and sector performance, we expect the form and level of subsidies related to trade-in two-wheelers to be similar to those for home appliances. From 2009 to 2011, the home appliance industry's trade-in policy achieved sales of 342 billion yuan. The market potential was successfully stimulated, and the results of policy implementation were impressive. Electric two-wheelers and household appliances are easily consumable optional consumer goods; moreover, due to the blocking of implementation of the new national standard, electric two-wheelers account for non-compliant products or higher than those in the home appliance industry. Stimulated by the trade-in policy, the electric two-wheeler market may be able to reproduce the outstanding performance of the home appliance industry's previous trade-in. In terms of sector market conditions and individual stock valuations, the upward trend in the household appliances sector during the trade-in period (2009-2011) far exceeded the 300 increase in Shanghai and Shenzhen during the same period. On the other hand, looking at the two-wheeler sector, demand for two-wheeler terminals has slowed since March 2023 due to macroeconomic fluctuations and industry competition. The trend of Yadi Holdings and Emma Technology, the two major industry leaders, is weaker than the market. We are optimistic that the gradual release of the trade-in policy will drive the sector to recover. The PE segment of Emma Technology and Yadi Holdings is only 34.89/10.20 for each year. They are all in a lower ranking, and there is still plenty of room for the valuation center to move upward.

Recommended leaders Yadi, Emma, and No. 9, which have sufficient growth momentum to enjoy policy dividends

(1) Company No. 9:2024Q1 revenue and profit exceeded expectations. It is optimistic that new categories such as all-terrain vehicles and lawnmower robots will grow rapidly under channel expansion and high profit flexibility in the next 2-3 years due to scale effects. (2) Yadi Holdings: Attending the trade-in symposium, the advantages of improving quality and efficiency domestic+continuing overseas development are remarkable. (3) Emma Technology: Optimistic that product volume and price will continue to rise in 2024, and reissuing equity incentives shows confidence in development.

Risk warning: Policy implementation falls short of expectations, industry price war risk, macroeconomic risk.