【正文】 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. ? 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. ? 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. ? To achieve the aspiration of being a profitable 1 Player in China, LG needs to launch 5 strategic initiatives: (1) launch a three step regional expansion, first from Beijing to Wuhan, (2) introduce entry products to cover all price points while continuing to introduce high end products to create margins, (3) improve channel coverage by increasing the distributor work and the sales force resources, (4) increase significantly advertising spending while optimizing media mix, (5) reduce aggressively cost by leveraging economies of scale. 3 010326SH_120703_085v5i 1 , 9 0 02 , 3 0 03 , 4 0 04 , 4 0 0THE MWO MARKET IN CHINA HAS GROWN TO MILLION SETS 1997 2023 China MWO retail sales volume Thousand sets 1997 1998 1999 2023 CAGR = 32% source: Light Industry Information Center, ponent manufacturers, Galanz, LG, team analysis, SIC Team estimation based on ponent purchases minus inventory and export volume for Galanz MWO management estimation based on sales volume of Galanz’ 20 largest distributors 3,800 4 010326SH_120703_085v5i PENETRATION IS DRIVEN BY INCOME INCREASE 2023 peration rate by region RMB, percent Peration rate Percent Annual disposable ine RMB 1991 1999 SH peration rate RMB, percent Peration rate Percent Annual disposable ine RMB 010203040506070800 2 , 0 0 0 4 , 0 0 0 6 , 0 0 0 8 , 0 0 0 1 0 , 0 0 0 1 2 , 0 0 001020304050607080904000 6000 8000 10000 12023 14000Shanghai Beijing Guangdong Chongqing Source: China Statistic Yearbook 5 010326SH_120703_085v5i 4 , 4 0 05 , 4 0 06 , 4 0 07 , 5 0 08 , 6 0 09 , 8 0 0BASED ON THE EXPECTED INCOME GROWTH, 18% ANNUAL GROWTH RATE IS EXPECTED FOR TOTAL CHINA MICROWAVE OVEN MARKET IN THE NEXT 5 YEARS Key assumptions ? Increase of peration rate in urban areas from 14% in 2023 to 30% in 2023 ? Increase of urban household numbers from 99 million in 2023 to 114 million in 2023 Total China microwave oven market forecast Thousand units Source: Team analysis 2023 2023E 2023E 2023E 2023E 2023E CAGR = 18% Low estimate = 3,800 Low estimate = 8,464 6 010326SH_120703_085v5i HUA BEI (NORTHERN CHINA) REGION HAS BEEN THE LARGEST MARKET FOR MWO IN CHINA * Estimated by LG sales branches Source: SIC Total China sales volume – YYSC Thousand sets, percent ? Hua Bei and Hua Dong still account for more than 60% of the whole market ? However, sales in XiNan, Dong Bei, and Hua Chung has grown even more rapidly 100% = 652 847 760 1,032 Beijing Shanghai Guangzhou Shenyang 1997 1998 1999 2023 2023 total China sales revenue – YYSC RMB thousands, percent 8 . 3 1 1 . 11 4 . 3 1 4 . 44 0 . 03 4 . 4 3 1 . 22 4 . 53 0 . 9 3 0 . 7 3 2 . 16 . 39 . 81 2 . 51 0 . 91 1 . 74 . 66 . 97 . 35 . 43 9 . 1 %762,591 779,450 667,818 753,679 1997 1998 1999 2023 Chengdu Wuhan % Beijing Shanghai Shenyang Wuhan Chengdu Guangzhou 100% = 1,584 2023 plus selected hypermarkets* 7 010326SH_120703_085v5i 11 11 1010 102017 171932 322230 24 23655BASED ON THE INCOME DEVELOPMENT, DEMAND FORECAST ANALYSIS SHOWED THAT CENTRAL AND SOUTHERN REGION WILL HAVE THE HIGHEST GROWTH ? China total urban household number increase by 30% per annum from 2023 2023 ? Disposable ine per capita in total China urban areas increase by 6% per annum from 2023 2023 Market size forecast by region Thousand sets。t know * Part is subset of puter grill Source: AMI customer survey 20 010326SH_120703_085v5i TODAY39。 taking into consideration one shift only Source: LG, Literature search, China Light Industry Information Center, China Home Appliance Association, Galanz, team analysis, ponent manufacturer Players Galanz LG Midea Whirlpool Samsung Daewoo Panasonic/National Haier Sharp Mitsubishi Total Thousand sets 2023 capacity* 2023 domestic sales 2023 over capacity 12,000 2,400 3,000 3,000 700 1,000 100 2,000 1,000 1,000 1,000 600 550 500 22,650 5,700 6,300 1,076 900 3,800 4,400 2023 export 3,300 1,224 N/A N/A N/A 159 1,600 500 850 199 7,832 10,418 11,018 600 2,742 26 010326SH_120703_085v5i AS A RESULT, THE PRICE HAS BEEN DECLINING, TRIGGERED BY MARKET LEADER, GALANZ 03006009001 , 2 0 039。0039。9939。9839。s retail Price RMB LG39。s price to channels (excluding VAT) RMB LG39。 set 4 0 . 93 0 . 1 2 4 . 71 8 . 34 7 . 55 7 . 65 5 . 55 9 . 41 2 . 31 9 . 8 2 2 . 31 1 . 6100% = 633,191 LG 1997 1998 1999 2023 Galanz Others 847,008 774,760 1,032,198 Sensor/puter grill market share by sales volume – YYSC Percen