Event: On May 29th, US time, the US Department of Commerce announced that the preliminary ruling on anti-dumping of Chinese imported mattresses was “affirmative” and would impose a tax rate of 38.56% to 1731.75% on Chinese imported mattresses. The final result of the Ministry of Commerce is expected to be announced on October 11, 2019. Except for Dream Lily and Xiamen Zinus, the remaining enterprises will be retroactively pursued for anti-dumping duties within 90 days prior to the preliminary ruling.

The marginal impact of anti-dumping duties is limited, and there are still opportunities for appeal reduction. Under the current Sino-US trade friction, the US has imposed a 25% tariff on Chinese export mattresses. On this basis, the marginal impact of additional anti-dumping duties has been very limited. At the same time, this round of ruling is only the preliminary results of the US Department of Commerce. There will be two rounds of final ruling by the US Department of Commerce and the US Trade Commission. The company still has the opportunity to continue to appeal for relief.

The initial tax rate of Dream Lily is 38.56%, which is the lowest in the industry and has obvious comparative advantages. Dream Lily (Hengkang) has a preliminary tax rate of 38.56%. All companies that have filed a complaint will be subject to a special tax rate of 74.65%. All remaining SMEs will be subject to a huge anti-dumping duty of 1731.75%. SMEs lack the ability to deploy overseas. The anti-dumping tax levy will cause a devastating blow to a large number of SMEs that make a living from ODM exports. The concentration of the industry will increase rapidly, and the leading position of the company's overseas business will be more stable in the medium and long term. In addition, the company is the only company in the anti-dumping ruling to be levied at the lowest rate, which reflects that the company's product quality is unanimously recognized by customers and the industry. Exports to the US rely on superior product strength and long-term stable supply capacity instead of Rely on low price dumping.

Overseas production capacity has been smoothly connected, and products within the scope of anti-dumping taxation have been basically transferred overseas. Anti-dumping and trade friction have less impact on the company. In 2018, the company's North American income was 1.5 billion yuan, accounting for about 50% of the total revenue. However, the production capacity of overseas factories such as Serbia, Vietnam and Thailand was relatively smooth, the output value was close to 900 million yuan, and the export exposure to the United States continued to decrease. The anti-dumping investigation covers a wide range of adult and children's mattresses and their protective covers (upholstery & ticking), but does not include mattresses/thin pads (mattresstoppers) with a thickness of 4 inches (about 10 cm). At present, the company's thick pad products have been basically transferred to the Serbian factory for production. The remaining important products, including thin pads and electric beds, are not within the scope of the ruling and are not affected by anti-dumping rulings. Overall, the anti-dumping of mattresses will not have an additional impact on the company, and the trade friction shock will continue to ease with the release of overseas production capacity.

SMEs have cleared up in large numbers, and demand for MDI/TDI prices will continue to fall. At present, domestic MDI/TDI demand is weak. After the price increase of leading chemical raw materials manufacturers such as Wanhua Chemical, MDI/TDI/polyether fell by 23%/26%/8% after May 1st. The latest TDI/polymeric MDI (PM200) prices are 12,650/13,800 yuan/ton. According to UNComtrade data, China’s mattress products exported to the United States exceeded US$1 billion in 2018, accounting for about 50% of China’s export mattresses. The United States is an important customer of China’s mattress manufacturing enterprises, so anti-dumping duties will lead to the production of China’s mattress manufacturing industry. Sharply reduced, demand for TDI/MDI may shrink further, and raw material prices will continue to weaken.

Long-term optimistic about domestic sales flexibility and the growth of independent brands. The company's domestic sales continued to improve, the number of channels expanded and the quality improvement progressed simultaneously, and the domestic sales management reform may enter the harvest period in 19 years. At the same time, the company's own brand has formed a brand matrix of “MLily Dream Lily” as the main brand, such as raccoon, CR, MAXCLCHON, etc., and the proportion of independent brands has increased year by year. The company's original “Zero Pressure Room” channel has made great contributions to the company's brand awareness and reputation. Experiential marketing has opened up products and customers, and the word-of-mouth effect is expected to become an important driving force for the company's brand promotion. In the long run, memory foam mattresses have entered a period of rapid growth, and the company continues to deepen consumer education and will lead the industry.