China’s National Development and Reform Commission (NDRC) has announced details of the new energy-saving subsidy on home appliances. China’s State Council proposed an RMB26.5 billion ($4.1B) subsidy to promote energy-saving home appliances for one year, mainly covering five home appliance categories: TVs, refrigerators, air conditioners, washing machines and water heaters.
The new energy subsidy program will be take effect on June 1st and last for one year. Industry sources estimate that more than 25 million LCD and plasma TVs will be covered, and that approximately RMB6 billion of the total 26.5 billion will be for TVs. The subsidy program is based upon a special energy saving index which assigns subsidies to different screen size ranges as follows:
China Energy Saving Subsidy (Unit: RMB)
|Energy Saving Index||≧1.7||≧1.9||≧1.4||≧1.7|
|19” to 31”||100||150||-||-|
|32” to 41”||250||300||250||300|
|42” and above||350||400||350||400|
We see the following potential impacts of this program on the TV supply chain:
l Sales of FPD TVs could be boosted by about 9-10% Y/Y in 2012. In particular, LED-backlit LCD TV is expected to benefit, while CCFL-backlit sets may decline much faster as they will not typically qualify for the Energy Saving Subsidy program.
l LCD and PDP TV makers might try to promote sales of energy-saving products in the second half of 2012 through a 5-20% reduction in retail prices. The smallest size or the cheapest LCD TV models in each size category (19’’-31’’, 32’’-41’’ and 42” and larger) may have higher reductions. We expect that 32’’ might have the highest price reduction (perhaps 15-20%), followed by 19’’ and 42’’.
l As Chinese panel makers are focusing on production of 32”W and smaller TV panels, the subsidy program could benefit Chinese panel makers.
l Currently, no CCFL-backlit LCD TV models meet the efficiency standard, which means there will be no subsidy for them. However, not all LED-backlit LCD TVs can benefit either, as only about 60% can achieve an energy saving index of 1.7, and less than 20% can achieve an index of 1.9.
l About 50% of current plasma TV models can achieve energy saving index 1.4 to qualify for a subsidy.
l Any FPD TVs that do not meet the energy saving index will become excess inventory. Chinese TV makers will have to cut prices over the next few months, which could result in a price war at retail.
l Some entry level and lower end LED-backlit panel modules from Taiwanese and Chinese makers will not meet the Energy Saving Index (our understanding is that most Korea LCD modules will qualify). Thus panel and module makers will have to re-design backlights, such as by adding brightness enhancement films, to improve energy performance in the near term. This could stimulate optical film demand, but also increase backlight unit costs.
l For FPD TVs that qualify, the subsidy will roughly be equivalent to a 10% price cut and could therefore boost sales and production. At the company level, beneficiaries should include Skyworth, Hisense, TCL, Haier, Changhong, Konka, and major TV stores such as Gome, Suning, and Wuxing.
Overall, this program could result in about 2 million additional TV purchases in China in 2012, and is likely to accelerate replacement of CCFL-backlit LCD TVs by LED-backlit sets.