【正文】 except premium buyers, are highly pricesensitive, thus skewing market demand towards lowend products. At the same time, reliable performance, ease of use, and good afterservice are important across segments. 182。 percent 100% = 1997 2023E 2023 CAGR Percent Key assumptions Source: Team analysis, China Statistic Yearbook Beijing Shanghai Guangzhou Shenyang Wuhan Chengdu 1,930 9,800 4,400 18 17 12 23 19 34 20 HIGH ESTIMATE 8 010326SH_120703_085v5i Market size of each region Thousand sets BEIJING, SHANGHAI AND WUHAN WILL BE THE LARGEST MARKETS IN 2023 465 1,028 2023 2023 Chengdu region 453 1,983 2023 2023 Wuhan region 236 561 2023 2023 Shenyang region 1,055 2,233 2023 2023 Beijing region 754 1,853 2023 2023 Guangzhou region 1,399 2,177 2023 2023 Shanghai region HIGH ESTIMATE 9 010326SH_120703_085v5i ALTHOUGH REGIONS OTHER THAN BEIJING ONLY ACCOUNT FOR SMALL SHARE CURRENTLY, TREMENDOUS GROWTH AND HEALTHIER MARGIN ARE EXPECTED THERE 5101520253035404520 25 30 35 40 452023 2023 growth potential CAGR Profitability LG 2023 gross margin percent Market size today Shanghai Beijing Guangzhou Chengdu Shenyang Wuhan HIGH ESTIMATE Source: LG, team analysis 10 010326SH_120703_085v5i SALES FROM SINGLE FUNCTION PRODUCTS HAS SHIFTED TOWARDS MECHANICAL GRILL PRODUCTS * Estimated by LG sales branches Source: SIC Total China sales – YYSC Thousand sets, percent 796443 4091231 3423 22 2312410% 3100% = 633 847 775 1,032 Sensor Computer grill Mechanical grill Single 1997 1998 1999 2023 Sales revenue – YYSC RMB thousands, percent 70553826912283732 283121610% 6100% = 629,680 728,891 592,880 707,582 Sensor Computer grill Mechanical grill Single function 1997 1998 1999 2023 1,584 2023 plus selected hypermarkets* 11 010326SH_120703_085v5i RECENT BUYERS TEND TO BUY MORE MECHANICAL GRILL PRODUCTS THAN BEFORE Type of MWO bought Percent Single function Mechanical grill Computer grill Temperature** control Don39。Four customer segments are found from market research: Premium buyers, basic brand buyers, rational technophile, and generic buyers. All segments, except premium buyers, are highly pricesensitive, thus skewing market demand towards lowend products. At the same time, reliable performance, ease of use, and good afterservice are important across segments. 182。t know * Part is subset of puter grill Source: AMI customer survey 20 010326SH_120703_085v5i TODAY39。The petition in China is already intense and will continue to increase, as Galanz and Midea have huge ambitions in the market. In addition, the severe overcapacity (about 45%) will continue to force prices downwards thus threatening profitability for all but the lowest cost players. 182。 equity Earnings before tax GOGS Gross margin Gross margin/sales SM GMA Exchange loss Operating profit Other expense (ine) Earnings before tax/sales Collection problem due to loading channels ? Has been financing fixed asset acquisition by short term loans ? D/A ratio almost 80% in 2023 Profitability impacted by fierce petition Does not fully reflect the financing cost of shortterm loans 921 997 1,227 26 26 47 135 184 450 8 26 102 1,090 1,233 1,826 823 838 1,428 8 0 0 258 395 398 1,090 1,233 1,826 1,840 2,905 5,582 1,494 2,399 4,716 346 506 866 19% 17% 16% 79 152 242 46 72 90 49 22 53 172 260 481 7 (2) 21 165 262 460 9% 9% 8% Source: 2023 Galanz unaudited financial statements 24 010326SH_120703_085v5i MIDEA HAS GROWN RAPIDLY SINCE ESTABLISHMENT Source: SIC 300 330 389 6891 , 9 9 31 5 , 0 1 07 , 1 4 66 , 7 2 86 , 4 4 93 , 4 9 20 . 5 0 . 6 0 . 41 . 02 . 54 . 46 . 47 . 3 7 . 28 . 7Midea sales volume in YYSC Sets 2023 2023 Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2023 2023 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Midea market share in YYSC Sets 25 010326SH_120703_085v5i THE HIGH OVERCAPACITY WILL CONTINUE TO INCREASE PRICE PRESSURE * Already excluding down time。9939。9839。9739。01JanComputer grill Industry CAGR = 18% ? Single function product price has reached the variable cost of Galanz plus 10% channel markup ? Mechanical grill and puter grill product price are expected to follow suit and thus increase share and reduce profitability at the same time Average retail price in YYSC RMB Industry Galanz LG Galanz 2023 variable cost plus 10% channel markup Source: SIC, LG, team analysis 27 010326SH_120703_085v5i WE EXPECT THE PRICE DROP TO CONTINUE IN THE FUTURE * 2023 Jan price in YYSC, 2023 LG cost structure ** Including material cost, utilities, gifts, logistics, rebate, and 10% of GA *** Including sensor for LG’s cost structure ***** RMB 449 on SINOMR Source: SIC, LG, team analysis Product type Galanz retail Price RMB LG39。s marginal profit Percent Today* Single function 419 429**** 375 362 Mechanical grill 597 646 544 469 Computer grill*** 736 1,007 848 617 Product type Galanz full cost RMB Galanz variable Cost RMB LG39。s DISCUSSION 182。LG has built a successful platform for growth, being 2 in China, although far behind Galanz, by focusing on premium products and in the Beijing area. Faced with the issue of further growth and improving profitability, LG now needs to choose between a high growth strategy, with the objective of being the leading player and to reach breakeven in 2023, or to remain a premium niche player for the foreseeable future. 182。 set 6 2 . 24 1 . 02 0 . 21 3 . 73 7