As the leader of high-end liquor fast-moving consumer goods, Kweichow Moutai has a long-standing culture of national wine brands, and the moat is naturally formed. Gree Electric Appliances is a durable consumer goods manufacturing and faces a harsh market competition environment, but its shareholder returns are higher than those of Moutai and monopoly banks that make money while lying down. It can be said to be a legend in China's home appliance industry.
In 2003, Gree Electric Appliances' lowest price was 7.60 yuan, with a total share capital of 537 million shares, and a market value of 4.08 billion yuan. In 2018, Gree had a maximum price of 55.48 yuan, with a total share capital of 6.02 billion shares and a market value of 334 billion yuan. In 15 years, Gree's market value has increased by 82 times.
Gree's growth path tests the patience of value investors. On November 18, 1996, Gree Electric Appliances was listed on the Shenzhen Stock Exchange with an issue price of 2.5 yuan, 21 million shares were issued, with a total share capital of 75 million shares. The listing was in the bull market from 1996 to 1997, with an opening price of 17.5 yuan, which soared to 78 yuan, and then fluctuated back to 50 yuan. As the stock price overdrawed Gree's performance, it then showed a sideways trading for 7 years to digest the high valuation, until it stopped falling and stabilized in 2003 and ushered in a golden period. On July 28, 2003, Gree's stock price of 7.60 yuan was a milestone and was at the bottom of the valuation.
Gree's market value expansion is the result of rapid growth in net profit. In terms of profit and market value, from 2003 to 2017, the company's revenue increased from 10 billion yuan to more than 140 billion yuan, an increase of 14 times, and its net profit increased from 337 million yuan to 21 billion yuan, an increase of 62 times. In 2003, Gree's stock price was at least 7.60 yuan, net assets were 4 yuan, earnings per share was 0.63 yuan, and a total market value of 4.08 billion yuan. The corresponding PB was 1.9 times, and the PE was 12 times. In 2017, the PE was 16 times, an increase of 1.33 times. According to the calculation of " market value = net profit X price-to-earnings ratio ", 62X1.33 = 82.6 times, which is exactly consistent with the current market value expansion speed.
focuses on the large market for home appliances and air conditioners, and scientific and technological innovation leads to form a monopoly. Gree Electric is currently the world's largest air conditioner enterprise, but it was an OEM manufacturer engaged in air conditioners in the early days. Later, it insisted on building its own brand and technological research and development, and gradually completed the full industrial chain layout from upstream parts production to downstream waste product recycling. After establishing the overlord of the air-conditioning industry, Gree adjusted its strategy to diversify home appliance operations, striving to create another Gree, enter the fields of central air-conditioning, refrigerators, small home appliances, mobile phones, etc., and has added Jinghong Refrigerator, Dasong Home Appliances, Gree washing machine, air energy water heater , Gree mobile and smart home.
From the annual K-line chart, Gree Electric Appliances is a return curve of " stable-up-up-accelerated upward-upward ". Between 1996 and 2017, during the period of growth and overvalued value, Gree Electric Appliances showed a downward trend. The continued downturn in 1998, 1999, 2001 and 2002 was a repair to the overvaluation of secondary new stocks, with losses of -4.65%, -9.11%, -0.72% and -17.90% respectively; 2010 and 2011 were also adjustment years, with losses of -4.28% and -2.91%, due to the fact that the stock price was once again overvalued in 2009, and the PE exceeded 20 times. In years with large declines, the declines fell by 40.63% in 2002 and 2008 (the PE was as high as 40 times in 2007). The decline in the past two years is the best opportunity for value investors to buy tickets and get on the bus at a low valuation.
Gree’s story tells us a truth: the market for high-end manufacturing of durable consumer goods is very large, but the competition is very fierce, and leading innovation and management capabilities are required to ultimately build an irreplaceable brand moat. Even for a good company, too high valuation is not the best time to buy. What has been digested by 7 years of sideways is high valuation, but what is abandoned is youth. Not only do you need to discover gold, but you also need to have the patience to wait for gold!
