[2] Governance optimization: Repurchase more than 500 million shares + implement employee shareholding + improve shareholder returns. According to the performance appraisal goals, the net profit attributable to shareholders in 21 and 22 years will not be less than 23.3 billion yu

2022-04-08 Hong Jiran of Everbright Securities Co., Ltd. conducted research on Gree Electric Appliances and released a research report "Investment Value Analysis Report: Down with the old and establish the new, and the value shines". This report gave Gree Electric Appliances buy rating , believing that its target price is 46.62 yuan, the current stock price is 31.85 yuan, and the expected increase is 46.37%.

Gree Electric Appliances (000651)

β: Air conditioner economic recovery and competitive landscape strengthened. From the demand side, the current economic environment has turned to "loose credit", and domestic demand for air conditioners is expected to improve significantly in 2022. Our judgment: 1) In 2022, domestic sales of air conditioners will recover moderately, with domestic sales reaching about 87 million units, with a year-on-year growth rate of +3%. 2) inflation is transmitted to the downstream, and the average retail price of air conditioners is expected to rise moderately by about 5% in 2022. From the supply side, the domestic sales of air conditioners peaked and downward in 2018, and the market cleared accordingly. The industry CR3 has risen from 71% in 2018 to 81% in 2021. The downward trend in the industry has led the capital cycle to enter a benign stage, and the pricing power of leading companies has been strengthened.

α: Channel streamlining + governance optimization + cost dividends. [1] Channel Streamline: The offline reform stage of 1.0 is basically completed (reducing the agent level), which can release 10% of the channel gross profit. For products with an average price of 3,500 yuan, it can free up room for price reduction of 350 yuan; the reform stage of 2.0 is gradually promoted, and the efficient information + logistics system is gradually taking shape. The company's online retail share has increased significantly (from 18% in 2019 to 26% in 2021), Gree attaches great importance to its strategic importance (the e-commerce company was established at the end of 2019), and price strategy is more pragmatic (the same model of products is only 350 yuan higher than Midea). [2] Governance optimization: Repurchase more than 500 million shares + implement employee shareholding + improve shareholder returns. According to the performance appraisal goals, the net profit attributable to shareholders in 21 and 22 years will not be less than 23.3 billion yuan and 25.2 billion yuan respectively. The shareholder return plan is anchored to the annual cash dividend rate of no less than 50% in 21-24 years. [3] Cost dividend: The inflation environment in 2022 is favorable to the downstream. It is expected that Gree's comprehensive gross profit margin/net profit margin attributable to shareholders will increase by 1.5pcts/0.6pcts year-on-year respectively in 2022.

Long-term thinking: How to plan Gree’s future? The steady-state level of domestic sales of air conditioners in China is about 100 million units, and there is still about 20% space in China

. The company is also exploring various possibilities for long-term high-quality growth. Many cases show that the competitive advantage of enterprises is easier to achieve and maintain in smaller geographical and product areas, maintain strategic focus or optimal solution, and product diversification can follow three principles: [1] Engage in related industries, give priority to the similar varieties of household air conditioners, central air conditioners meet the requirements, and refrigerators also belong to the category of refrigeration; [2] Entering the sub-industry that can sprint to the top two; [3] No brand extension is carried out, and the use of "Jinghong" and "Dasong" to develop refrigerators and small household appliances is the right solution. In terms of internationalization (regional diversification), cases such as Dajin show that firepower should be concentrated to break through key areas. Our quantitative model screens out Southeast Asia as Gree's overseas breakthrough.

Investment advice: Be optimistic about channel changes, bottom valuation range, and maintain a "buy" rating. In 5 years, the valuation center of PE-Band is 13.5 times. The current company's PE (TTM) is only 8.1 times, and it has a sufficient safety margin. We are optimistic about the company's channel innovation, long-term planning, and shareholder feedback mechanism, but due to the tightening of real estate policies and the sharp rise in raw material prices, the company's net profit attributable to shareholders in 2021 was downgraded to 22.73 billion yuan (downgraded by 3.6%); and given the expectation of governance improvement in Hillhouse 's investment, we are optimistic about the company's medium- and long-term development prospects, so the company's net profit attributable to shareholders in 2022-2023 was 26.27 billion yuan (upgraded by 2.9%) and 29.04 billion yuan (upgraded by 1.9%), corresponding to the PE valuation of 2021-2023, respectively, maintaining the "buy" rating. According to the absolute valuation of FCFF , the target price is 46.62 yuan.

Risk warning: air conditioning demand is downward; raw material prices rise; RMB exchange rate fluctuations.

Securities Star Data Center calculates based on the research report data released in the past three years, Guoyuan Securities Xing Hanwen's research team has conducted in-depth research on the stock, with the average prediction accuracy in the past three years as high as 90.53%. It predicts that the attributable net profit in 2021 will be a profit of 21.734 billion, and the predicted PE based on the current price conversion is 8.88.

latest profit forecast details are as follows:

A total of 8 institutions have given ratings in the stock in the past 90 days, and 7 buy ratings; the average target price of institutions in the past 90 days was 50.15. Securities Star valuation analysis tool shows that Gree Electric Appliances (000651) has a good company rating of 4 stars, a good price rating of 4 stars, and a comprehensive valuation rating of 4 stars. (Rating range: 1 ~ 5 stars, up to 5 stars)

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