Exports partly offset lackluster domestic shipment.

　　China IOL released air conditioner (AC) shipment data for May 2016 on 20June. Production volume dropped by 10% yoy to 10.65m units, continuing onthe declining trend seen since 1Q15. Total sales (sell-in) decreased by 11.8%yoy to 10.54m units. By market, domestic sales (50% of total sales) declined30.9% yoy to 5.27m units, mainly due to the output constraint from channelinventory and weak domestic demand on the rainy weather in Southern China.

　　This was partly offset by a 21.9% yoy increase in export sales, driven by theeconomic recovery in Europe and high temperatures and droughts in Africa,according to China IOL.

　　For Jan-May, total sales of AC declined by 25%/28%/15% yoy for Gree, Mideaand Haier, respectively, while Chigo and TCL outperformed (+5%/+22% yoy) asthey are export-oriented.

　　Deutsche Bank comment.

　　May data is generally in line with our estimation that the AC output constraintwill continue till the end of this year. We believe a price war is unlikely thisyear. On the contrary, we have seen some price increases stemming from newproduct launches. According to Soufun, property sales momentum sloweddown in May at +18% yoy, vs. +62% in April, due to tightening measures. Theupside/downside risk this summer is hot/rainy weather. The ChinaMeteorological Administration expects accumulated rainfall in the next tendays (20-29 June) to exceed average levels by 60%-100% in Sichuan, theYangtze River area and the Huai River area.