Midea Group and Gree Electric Appliances are always compared in various occasions, so I'd just put it together to analyze it.
Here, we will share the analysis and sharing of Midea Group (000333) and Gree Electric Appliances (000651). It is only used as a record and learning exchange for your own investment and growth, and does not constitute any investment advice.
1. main business, business model and industry profile
Mide's business covers four major business segments: consumer appliances, HVAC, robot and automation systems, and digital business, including consumer appliances with washing machines, refrigerators, kitchen appliances and various small household appliances as the core; HVAC business with household air conditioners, central air conditioners, heating and ventilation systems as the core (94% of the above two operating income); robot and automation system business with Kuka Group, Midea Robot Company, etc.; digital business with intelligent supply chain, industrial Internet and chips as the core.
Gree Electric Appliances is a diversified and technological global industrial group. It owns three major brands: Gree, TOSOT, and Jinghong. The industry covers four major fields: air conditioning, household appliances, high-end equipment, and communication equipment , including air conditioning fields mainly including household air conditioning, commercial air conditioning, refrigeration and refrigeration equipment, nuclear power air conditioning, rail transit air conditioning, photovoltaic air conditioning, etc. (revenue accounts for 70%); high-end equipment fields mainly include smart equipment, CNC machine tools, industrial robots, precision molds, precision casting equipment, etc.; domestic appliances mainly include kitchen appliances, health appliances, environmental appliances, washing machines, refrigerators, etc.; communication equipment fields mainly include Internet of Things equipment, mobile phones, chips, big data, etc.
From the perspective of total asset scale, Midea and Gree are comparable, but its operating income is 35% higher than Gree. Both companies account for a considerable proportion of air conditioning businesses, 43% of Midea and 40% of other consumer appliances; Gree is more dedicated, with air conditioning businesses accounting for 70%. Midea is currently focusing on manufacturing, while Gree, which focuses on air conditioning business, may not meet the ceiling of a single business segment, and has begun to explore other business segments.
2. Company financial status analysis
Through the analysis of changes in the company's financial statements and business data, we can form a preliminary understanding of the operating conditions of the two companies.
. Judging the company's strength and expansion capabilities through total assets
Mide: It can be seen that the company's total assets growth trend is good. As the company's size increases, its market share is stable and its growth basically slows down.
Gree: The basic logic is the same as that of beautiful. Comparison shows that Gree has been overtaken by Midea in recent years.
. Judging the company's debt risk by debt-to-asset ratio
Mide: The debt-to-asset ratio is relatively stable. The industry is relatively mature, and the debt ratio is basically stable at around 60%.
Gree: Gree's debt-to-asset ratio has been declining in recent years, lower than Midea.
. Judging the company's debt repayment risks
Mide: Mide Group In 2019, monetary funds increased significantly, basically had no debt repayment risks , but its long-term loans are relatively high, with 40 billion yuan and short-term loans also 5 billion yuan, so we still need to pay attention to it.
Gree: Compared with Gree's relevant indicators, monetary funds are much higher than interest-bearing liabilities, is completely unpaid for debt . It should be noted that when a company holds such a large amount of cash, the good thing is that it has strong risk resistance, and the bad thing is that it holds too much cash, which may be due to the low efficiency of investment and reproduction.
. Judging the company's industry status through "receivable and payable" and "prepaid prepayment"
Mide: From the {(payment + prepayment)-(receivable + prepayment)} indicators, Midea has always had a strong ability to occupy funds from upstream and downstream companies, and the industry dominance is obvious.
Gree: Just like the logic of Midea, it only has greater fluctuations. is significantly affected by the industry cycle.
. Judging the type of company by fixed assets
Mide: This value is below 10%, which is a light asset company.
Gree: This value is below 10%, and it is a light asset company. Both Midea and Gree are better than Haier .
. Look at investment assets and judge whether the company is not doing its business
Mide: Mide Group Investment assets are low and they are very focused on the main business. The goodwill suddenly increased in 2017, which was due to the acquisition of German industrial robot Kuka Company . Focus on the possible impairment losses caused by goodwill.
Gree: Basically the same as Midea, there is no impairment risk in terms of goodwill.
. Judging the company's industry status and growth ability based on operating income
Mide: In recent years, operating income growth has slowed down, and the industry competition pattern has become stable.
Gree: Tongmide, it is more significantly affected by the industry cycle.
. Judging the competitiveness of the company's products by gross profit margin
Mide: The company's average gross profit margin is above 25%, slightly lower than Gree and Haier .
Gree: Gree's gross profit margin has always been ahead of the three companies, but it suddenly began to decline in 2019, mainly because of price reduction and inventory reduction.
. Judging the company's cost control capabilities through the expense rate
Mide: The company's expense rate/gross profit margin is around 67%, far higher than Gree but lower than Haier , indicating that its ability to control costs needs to be further improved. 's R&D expenses have increased significantly in the past three years. shows that it will slowly transform from sales to technology-driven in the future.
Gree: Among the three companies, Gree has the best cost control capabilities, and also pays attention to R&D investment.
0. Judging the company's profitability and profit quality
Mide: The main profit margin is only about 9%, and it still needs to be improved.
Gree: Gree's main business profitability and profit quality are the best among the three companies.
1. Judging the company's operating results and gold content through net profit
Mide: Net profit growth was abnormally stable year-on-year, net profit cash content is extremely high, and the company's future development is relatively certain.
Gree: Gree's net profit growth fluctuates slightly, and its cash content is also in the passing category.
2. Judging the profitability of the company's own capital by the net profit attributable to shareholders
Mide: It is still abnormally stable and has strong investment certainty.
Gree: The ROE decline has been significantly reduced in the past three years, so we need to pay attention to it.
3. Through the net cash flow generated by operating activities, judge the company's hematopoietic ability
Midi and Gree: The company's continuous hematopoietic ability is relatively stable, and there is no liquidity crisis in .
4. Judging the company's quality by dividend rate
Mide: Dividends are stable, and the annual dividend rate has been above 40% since its listing.
Gree: The dividends are not stable and continuous enough.
Financial Summary:
Both companies are light-asset companies, focusing on their main business; asset scale, growth rate, and debt ratio are similar. Of course, the company is huge and has touched the market capacity ceiling. It is normal for the growth rate to decline, but it has basically maintained double-digit growth at present. , the two companies have strong industry status, and Gree is relatively more significantly affected by the industry cycle.
The two companies have high net profits, no liquidity crisis, ROE above 20%, and gross profit margin between 25% and 30%. As manufacturing companies, they are already very excellent.
Mi's annual dividend rate is above 40%, while Gree's dividend is very unstable.
Midea has about 29 billion goodwill, which may be a hidden risk.
In comparison, both companies are excellent companies in the manufacturing industry, with their financial performances with their own advantages, and Midea is slightly better.
3. Enterprise and industry analysis
Both companies are giants in the air conditioning and consumer electrical appliance industries, and their products have penetrated into people's lives. Even if the industry's growth rate slows down, there will be relatively stable revenue for a considerable period of time. We can try to analyze what future expectations are?
We can analyze it from four aspects: the stage of the industry and market size, industry competitive landscape, enterprise moat, and enterprise risk .
1 industry stage and market size
According to data released by the National Bureau of Statistics, my country's air conditioner production and sales volume increased year by year from 2013 to 2019, but since 2017, the sales volume of air conditioners has begun to be lower than the production, and the production and sales rate of the industry has declined in the early years. In 2019, China's air conditioner production was 218.66 million units, exceeding the sales volume of 5 million units, and the production and sales rate was 97.9%. The industry has overcapacity problem.
According to data released by Aowei Cloud Network, as of 2019, the number of air conditioners in China's air conditioners market was 450 million units, and the ratio of air conditioners in China is expected to be 64.1%. The stock market has become the main driving force for China's air conditioners consumption. In the incremental market of , the number of air-conditioning households in China has increased year by year in recent years, and the pulling force in third- and fourth-tier cities has gradually weakened, and the incremental market space is limited. Therefore, my country's air conditioning industry has entered the stock market.
overcapacity, insufficient demand has caused the growth rate of China's air conditioning industry to pull back. In 2019, the market size of China's air conditioning industry was 197.9 billion yuan, a year-on-year decrease of 1.6% , showing negative growth for the first time since the growth rate declined in 2017. The imbalance in supply and demand in the air conditioning industry has increased the downward pressure on the industry.
2019 competition in China's air conditioning industry was unprecedentedly fierce, and enterprises have adopted price wars to compete to increase the company's market share. Since the end of February 2019, the prices of air conditioning products have been falling all the way, and the price of air conditioning during Double Eleven once bottomed out.
2019 has dragged down the scale of the home appliance market in further growth due to factors such as the increase in the leverage ratio of the residents' sector, the pressure of rising food prices, the continued decline in marriage and birth rates, and financing difficulties of private and small and medium-sized enterprises. In 2019, China's domestic electricity retail sales were 803.2 billion yuan, a year-on-year decrease of 2.2%.
China's traditional home appliance sales were weak in 2019, and the sales of daily small home appliances increased. According to data from the National Electrical Appliance Industry Information Center, in 2019, the sales scale of color TV products decreased by 8.7% year-on-year; the market size of air conditioning products decreased by 1.6% year-on-year; and the market size of kitchen appliances decreased by 1.4% year-on-year. As the sales of home appliances decline, the market size of small household appliances products in daily life has increased. In 2019, the sales scale of small electricity used in my country reached 125.8 billion yuan, an increase of more than 4%.
In 2019, the domestic market retail sales of home appliances reached 803.2 billion yuan, and decreased by 2.2% year-on-year. Among traditional home appliances, color TVs, air conditioners, and refrigerators have all declined; the scale of washing machines has increased slightly, and the product structure has been upgraded significantly; kitchen appliances have entered a downward range overall, but the online growth is impressive; the scale of household appliances has expanded and the growth rate has slowed down, and the personal protection is the only one.
In recent years, some emerging home appliances, such as dishwashers, beauty instruments, dry washing machines and other products have been sought after in the market. In 2019, the sales of dry cleaning machine series products increased by 49% year-on-year, ranking first among all home appliances; the sales of Meijian (personal care) series home appliances increased by 45.96% year-on-year, ranking second.
It can be seen that the incremental market of the air conditioning industry has basically stagnated, and the stock market still has long-term competition for in the future, which is consistent with the previous estimate.The industry has hit the ceiling, and it will be difficult to maintain double-digit growth in the future. However, because the overall market is huge, revenue will remain at a high level. The product structure of the consumer electrical appliance industry has begun to differentiate, with both rising and falling. The company needs to adjust the product supply ratio according to the market supply and demand relationship in order to break through in the slow growth market.
2 Industry competition pattern
Since its establishment, Gree has developed its business with air conditioners as its core, achieving a total operating revenue of 200.51 billion yuan throughout the year, and increased by 0.24% year-on-year. Unlike Gree, Midea has developed comprehensively in many electrical appliance fields including air conditioners, washing machines, refrigerators, etc. In 2019, the company's total operating revenue was 279.38 billion yuan, and increased by 6.71% year-on-year. In terms of
business layout, Gree and Midea are both in the global layout. From the perspective of revenue structure, the two are still mainly in the domestic market. In 2019, Gree's main business domestic sales revenue accounted for 68.67% of the total annual revenue; Midea achieved operating income in the domestic market accounting for 58.02%, and its revenue structure was healthier.
Specifically speaking of the sales of air conditioners, according to industry online statistics, since 2015, Gree's air conditioner sales have always been in the leading position, but the gap between Midea's air conditioner sales and Gree has gradually narrowed in recent years. In 2019, Gree air conditioners sold 46.5 million units in the whole year, down from the previous year, while Midea air conditioners sold increased to 42.51 million units compared with the previous year.
Judging from the current development of the competitive landscape of my country's air conditioning market, although brands such as Haier and Aux have developed in recent years, there is still a gap between Gree and Gree, and the dual-oligarchical pattern in the air conditioning industry has gradually taken shape.
With the increasingly fierce competition trend in the air conditioning industry in recent years, the competition between Gree and Midea will continue . According to AVC monitoring data, in 2019, in terms of the offline retail market of my country's air conditioning industry, Mi's market share was 28.8%, and is only Gree, which ranks first in , accounting for 36.8% of . In terms of online retail, Midea's market share is 31%, ranking first, while Gree accounts for 22%, and is lower than Midea's market share. The air conditioning sector is in a trend of overtaking.
3 Enterprise moat
Midea and Gree's brand is their moat . Although consumer appliances often need to look at cost-effectiveness, brands that consumers are familiar with have an advantage in terms of familiarity and are highly recognized without advertising. As the saying goes, buy a safe place, which will bring a certain premium rate.
The second is intangible assets. Both companies have tens of thousands of invention patents, and there are more than 10,000 R&D personnel . There are multiple R&D centers around the world to ensure their leading position in home appliance technology.
The third is scale advantage (cost advantage). This is one of the two most convincing moats. Midea and Gree are already two giants in the industry, forming obvious scale effects. They have formed obvious advantages in raw material procurement, supplier management, and omni-channel supply chains, which are difficult for latecomers to invade.
4 Enterprise risk
1) Macroeconomic fluctuation risk
HVAC and air conditioners and household appliances market demand is greatly affected by the economic situation and macro-control. Affected by the novel coronavirus pneumonia, the growth of the macro economy or consumer demand may slow down, and the growth of the home appliance market will also slow down; considering the expected impact of the implementation of new energy efficiency standards, industry competition may further intensify, thus affecting product sales.
2) Risk of fluctuations in the price of production factors
Home appliance manufacturing is a labor-intensive industry, among which the main raw materials used to manufacture home appliance products are copper, steel, aluminum and plastic of various grades, and their costs account for a large proportion. If the price of raw materials fluctuates greatly, or the cost of labor, water, electricity, land and other production factors fluctuates greatly due to changes in the macroeconomic environment and policy adjustments, it will have a certain impact on the company's operating performance.
3) Market risks brought by "anti-globalization"
Affected by the novel coronavirus pneumonia, the "anti-globalization" and trade protectionism trends in some countries or regions have become increasingly prominent, and the uncertainty of the global economy has further increased, bringing new challenges to the company's overseas market expansion and there is a risk of increasing operating costs.
4) Exchange rate fluctuations cause risks and exchange losses in the export market
As overseas markets continue to expand, export revenue continues to increase. Exchange rate fluctuations may not only have adverse effects on the export of products, but may also cause exchange losses and increase financial costs.
4. Enterprise growth rate and valuation forecast
The reasonable price-to-earnings ratio of the traditional manufacturing industry is between 10-15. The two companies chose the average price-to-earnings ratio in the past five years to make reasonable estimates, and the net profit growth rate is estimated based on historical data and future industry growth rate.
The estimated price is quite different from Gree. Due to the impact of the estimated rate of return, it may have a large deviation from the actual situation. You can calculate it based on your own judgment on the development of the company.
References:
" Midea Group Co., Ltd. 2015-2019 Annual Report"
"Zhuhai Gree Electric Appliances Co., Ltd. 2015-2019 Annual Report"
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