【正文】 acity 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。9739。9839。9939。0039。01JanSingle function Industry CAGR = 18% 03006009001 , 2 0 01 , 5 0 039。9739。9839。9939。0039。01JanMechanical grill Industry CAGR = 17% 03006009001 , 2 0 01 , 5 0 01 , 8 0 02 , 1 0 039。9739。9839。9939。0039。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 retail Price RMB LG39。s price to channels (excluding VAT) RMB LG39。s variable cost** 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 price to channels (excluding VAT) RMB LG39。s variable cost** RMB LG39。s marginal profit Percent 5 years from now Single function 335 288 288 335 Mechanical grill 438 379 379 438 Computer grill*** 496 433 433 496 286 351 419 1 15 7 20 3 16 28 010326SH_120703_085v5i TODAY39。s DISCUSSION 182。The Microwave oven market in China will continue its strong growth and should reach million units in 2023. Primary regions will be Central China, followed by South and Southwest China. Other regions should develop as ine grows. Computer grill and mechanical grill should further increase their share as prices decline. 182。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。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。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。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. 29 010326SH_120703_085v5i 272 279368476LG HAS BEEN EXPANDING RAPIDLY SINCE ESTABLISHMENT . . . Sales revenue RMB millions 1997 1998 1999 2023 source: LG 2593464686971997 1998 1999 2023 Sales volume Thousand sets CAGR = 21% CAGR = 39% 30 010326SH_120703_085v5i LG IS CATCHING UP ON THE MARKET SHARE, AND HAS BECOME SECOND LARGEST PLAYER IN CHINA Overall market share by sales volume – YYSC Percent。 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 Percent。 set 5 1 . 13 5 . 0 2 8 . 71 7 . 03 2 . 04 9 . 25 1 . 16 1 . 51 5 . 8 2 0 . 2 2 1 . 51 6 . 9100% = 79,505 LG 1997 1998 1999 2023 Galanz Others 204,976 208,410 318,576 Mechanical grill market share sales volume – YYSC Percent。 set 6 2 . 24 1 . 02 0 . 21 3 . 73 7 . 85 0 . 25 4 . 5 6 1 . 52 5 . 3 2 4 . 88 . 80 . 0100% = 55,551 LG 1997 1998 1999 2023 Galanz Others 103,335 236,302 361,983 Single function market share by sales volume – YYSC Percent。 set 3 6 . 82 6 . 1 2 5 . 3 2 4 . 15 1 . 16 2 . 2 5 9 . 15 5 . 41 1 . 7 1 5 . 62 0 . 51 2 . 1100% = 498,134 LG 1997 1998 1999 2023 Galanz Others 538,697 330,048 351,679 31 010326SH_120703_085v5i HOWEVER, LG STILL LAGS BEHIND THE MARKET LEADER GALANZ BY A SIGNIFICANT MARGIN, AND MIDEA IS ATTACKING AGGRESSIVELY * Assuming total market size 3,800K ~