According to the Securities Times app, Galaxy Securities of China released a research report stating that the current furniture category national subsidy funds account for approximately 3-5% of the overall old-for-new subsidy funds. Calculated with a leverage factor of 5, it is expected to drive home consumption by 22.5-37.5 billion yuan, accounting for 15-25% of the 2023 furniture social retail sales. Most listed home furnishing companies cooperated with the government's old-for-new policy to introduce additional subsidy policies in September-October, combined with around 15% national subsidies and e-commerce platform discounts during Singles' Day, resulting in an overall discount rate of around 30%. It is expected that the national subsidy activities will have a positive catalytic effect on the Q4 performance of listed companies.

China Galaxy Securities' main points are as follows:

At the regional level: the subsidised categories continue to expand, with the participating merchants subject to tax threshold restrictions.

Currently, nearly 30 provincial governments in China have specific subsidy implementation plans for home furnishing old-for-new policies. From the policies of various provinces and cities, the subsidy amounts are relatively consistent, generally ranging from 15-20% of the selling price. There are certain differences in the subsidized categories and the qualifications for consumers/merchants to participate.

Currently, regions such as Guangdong, Hainan, Zhejiang, Hunan, and Hubei cover relatively comprehensive categories including finished and custom furniture, smart home and elderly-friendly renovation products. Guangdong and Zhejiang regions also include home decoration categories. Most areas restrict subsidies to local consumers only, while furniture subsidies in Guangdong and kitchen and bathroom product subsidies in Hubei can be used nationwide. Most regions set tax thresholds for enterprises, requiring tax-unified businesses with annual sales exceeding 5 million yuan, currently only Sichuan does not have a tax threshold for merchants, and has introduced policies to help micro, small, and medium-sized enterprises qualify for participation in the activities.

The current furniture category national subsidy funds account for approximately 3-5% of the overall old-for-new subsidy funds. The actual leverage ratio for driving consumption ranges from 4 to 6 times. Based on the calculation with 150 billion yuan of old-for-new subsidy funds, the national subsidy funds for the home industry old-for-new program are estimated to be between 4.5-7.5 billion yuan, with a leverage ratio of 5, expected to drive home consumption by 22.5-37.5 billion yuan, accounting for 15-25% of the 2023 furniture social retail sales.

Company level: Q4 demand is expected to improve, industry consolidation may accelerate.

Most home furnishing listed companies launched additional subsidy policies in September-October to coincide with the government's old-for-new policy, combined with around 15% government subsidy and e-commerce platform discounts during Singles' Day, with an overall discount rate of around 30%. It is expected that the government subsidy activities will have a positive catalytic effect on the Q4 performance of listed companies. At the same time, government subsidies may accelerate industry consolidation by imposing restrictions on merchants' qualifications, favoring companies with strong dealer and channel control capabilities, and a national presence.

Review: Considering the historical impact of the 'Home Appliances to the Countryside' policy on the home furnishing industry, by reviewing the evolution and significant catalytic effects on revenue and valuation of the home appliance sector during the 2007-2012 'Home Appliances to the Countryside' policy, it is expected that this 'old-for-new' policy will significantly catalyze Q4 home furnishing demand, potentially leading to a turning point in demand.

Q3 institutional holdings data: industry holdings are at a low level, with room for additional positions.

In Q3 24, all institutions' holdings in the light industry sector accounted for 0.69% of the stock market value, a decrease of 0.04pct from Q2, ranking 25th among 31 sub-industries. Among them, public fund ownership ratio was 0.55%, down 0.25pct from Q2. In Q3 24, papermaking, packaging, housewares, and entertainment supplies all had institutional holdings percentages of 0.1%, 0.1%, 0.4%, and 0.1% respectively, all slightly decreasing year-on-year.

Investment advice: For the home furnishing sector, bullish on the catalytic effect of the 'old-for-new' policies in various regions on companies' Q4 performance.

Recommend focusing on custom home furnishing companies Oppein Home Group Inc. (603833.SH), Suofeiya Home Collection (002572.SZ), Zbom Home Collection (603801.SH), Golden Home Group Inc. (603180.SH), Guangzhou Shangpin Home Collection (300616.SZ); soft home furnishing Jason Furniture (603816.SH), Musikei Co., Ltd. (001323.SZ), Xilinmen Furniture (603008.SH); civil electrical leader Gongniu Group (603195.SH); accelerated pace of packaging industry resource integration, recommend paying attention to Shenzhen Yuto Packaging Technology (002831.SZ), Org Technology (002701.SZ), and Shanghai Ailu (301062.SZ).

Risk warning: Risks of real estate market not meeting expectations; risks of household consumption recovery falling short of expectations; risks of significant increase in raw material prices; risks of intensified industry competition.