mixed reform is implemented, Gree Electric has shifted from defense to offense, and the new cold year has exchanged price for volume. The growth rate of the air-conditioning industry has slowed down significantly, but Gree's high profit, high ROE and high share have not changed. Gree has enough space to deal with short-term market changes. Under the Matthew effect, the value of the leader will only increase.
On the evening of October 30, Gree Electric Appliances released its third-quarter financial report. In the first three quarters of 2019, the company achieved revenue of 156.7 billion yuan, a year-on-year increase of 4.4%, and its net profit attributable to shareholders of 22.1 billion yuan, a year-on-year increase of 4.7%. Among them, revenue in the third quarter was 58.3 billion yuan, a slight increase of 0.5% year-on-year, a sharp slowdown from the 10% growth rate in the second quarter, and net profit attributable to shareholders was 8.47 billion yuan, a year-on-year increase of 0.66%. The revenue growth rate in the third quarter hit the lowest in the past two years, and the performance was only tied.
Considering that the growth rate of revenue and net profit of Gree Electric Appliances in the third quarter of 2018 was as high as 38%, and the base was too high, and it is not easy for this period to be positive. For example, compared with the same period in 2017, the company's revenue growth rate in two years was 17.2%, and its net profit growth rate was 17.8%, still leading the industry.
The outside world was surprised that Gree's third quarter report was "lower than expected", but the company's stock price rose instead of falling on the 31st after the quarterly report was released. On November 1, home appliance stocks exploded collectively. Midea Group , Gree Electric Appliances , and Haier Smart Home both rose by more than 6%. Gree Electric Appliances rose by 8.65% to close at 63.78 yuan. The stock price rose above 64.4 yuan, setting a 52-week high, with a market value of more than 380 billion yuan, closely following Midea Group with a market value of 400 billion yuan.
On November 1, the transaction volume of Gree Electric Appliances reached 7.34 billion yuan. Shenzhen Stock Connect data showed that northbound funds net bought Gree Electric Appliances 1.53 billion yuan that day, surpassing the second place Midea Group 1.3 billion yuan, accounting for 31.2% of the total net inflow of slashed funds on the day. Large consumption has always been a hot topic for foreign capital. The third quarter report shows that Hong Kong Central Clearing Company's holdings of Gree Electric Appliances increased its holdings from 630 million shares in the interim report to 717 million shares, with a shareholding ratio of 11.92%, second only to the major shareholder Gree Group. From 2019 to the present, the share price of Gree Electric Appliances has increased by 86.4%, the highest increase among white goods stocks.
The market's judgment on Gree Electric Appliances has exceeded the logic of scale growth. Even if the air conditioner returns to the 5% growth rate, it is still the most certain track in the home appliance industry, and Gree is the strongest player on this track. Judging from the company's scale, profitability, industrial chain integrity and channel layout, the dual oligopoly pattern of air conditioners is almost impossible to be shaken.
This is the reason why Hillhouse and Houpu spent 40 billion yuan to compete for Gree. On the evening of October 28, Gree Electric Appliances issued an announcement stating that Hillhouse Capital's Zhuhai Mingjun became the final transfer of Gree Electric Appliances 415% equity. According to the announcement, the company will announce the cooperation plan between the transferee and the management within 10 working days. The plan is very likely to involve equity incentives, which is the key to Gree's transformation of the mechanism and releasing vitality. The uncertainty around the Gree Electric Appliances has been eliminated and the certainty has been continuously amplified. The road to return to valuation of Gree Electric Appliances has begun.
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In the first half of the year, Midea air conditioners made a big attack on the price reduction, and its share rose rapidly. The industry is paying close attention to how Gree responds. With the orderly advancement of mixed-ownership reform in the second half of the year, Gree finally took action. In June, Gree reported Aux , bringing market attention back to quality from price, and then launching a price cut to gain market share. Judging from the gross profit margin, Gree still has room to continue to reduce its price in the fourth quarter.
According to the monitoring data of Aowei Cloud Network, the average offline price of Gree air conditioners has been declining since July, with an average price of 4,323 yuan in September, a year-on-year decrease of 6.8%. The price difference with Midea narrowed from 700 yuan in July to 400 yuan, and its market share rose to 45%, an increase of 2 percentage points year-on-year, 19 percentage points ahead of Midea. The online decline was even greater. The average online price in September was 3,645 yuan, a year-on-year decrease of 10.3%, with a share of 22.6%, surpassing Oaks for three consecutive months to rank second, but the average price is still significantly higher than Midea and Oaks.
Affected by the price reduction, Gree Electric Appliances 's gross profit margin in the third quarter fell by 1.6 percentage points year-on-year to 28.7%, and the gross profit margin in the first three quarters was 30.2%, basically the same year-on-year. From January to September, the net profit margin of Gree Electric Appliances is still 14.3%, which is first-class not only in the white goods industry, but also in the entire manufacturing industry.
At the end of the third quarter, the company's operating cash flow was 32.7 billion yuan, an increase of 117% year-on-year. The ratio of cash flow to net profit reached 1.48, and the net profit was full of gold. In the first three quarters, the cash received by Gree Electric Appliances in sales of goods and services was 145.6 billion yuan, a year-on-year increase of 70%, far higher than the revenue growth rate of 4%. The company's cash is king during the winter period of the industry and pursues healthy operating quality.
At the end of the third quarter, the company's cash and other current assets totaled 156.7 billion yuan, of which 136.2 billion yuan was cash. Strong financial strength is the basis for Gree Electric to promote diversified and multi-party mergers and acquisitions. After acquiring Jinghong Refrigerator and investing in Anshi Semiconductor, Gree Electric acquired Huaxin Nonferrous Metals in 2019 and continued to lay out the upstream industrial chain.
According to the previous 10% guaranteed growth in Dong Mingzhu , the revenue of Gree Electric Appliances will reach 220 billion yuan in 2019, which means that the revenue target in the fourth quarter is 63 billion yuan, a year-on-year growth rate of 26%, and it has returned to the high growth track. In the current market environment, it is quite difficult to achieve this goal.
Will Gree Electric Appliances take the old method of suppressing goods? Judging from the data disclosed in the third quarter report, this possibility is very small. At the end of September, the company's accounts receivable, receivable financing and notes totaled 51.9 billion yuan, a year-on-year decrease of 8.6%, and prepaid accounts receivable 11.4 billion yuan, a year-on-year decrease of 16%. The company is consciously controlling the pace of shipment. At the end of the third quarter, the inventory of Gree Electric Appliances was 19.5 billion yuan, a decrease of 660 million yuan month-on-month, a year-on-year increase of 67%, and is still at a relatively high level.
html At the end of September, the company's notes payable and payable are 78.7 billion yuan, a decrease of 500 million yuan from the interim report month-on-month, and advance payments of 3.9 billion yuan, a month-on-month increase of 500 million yuan. During the market downward period, the company increased its financial support for upstream and downstream. Gree is also increasing efforts to cash out rebates, with other current liabilities reaching 62.3 billion yuan at the end of September, a decrease of 1.4 billion yuan from the end of June.02
third quarter report shows that Hillhouse Capital currently holds 40.72% of the equity of Gree Electric Appliances, making it the eighth largest shareholder. Midea Group released the third quarter report at the same time shows that Hillhouse Capital has withdrawn from the top ten shareholders of Midea Group . Hillhouse Capital has invested in Gree and Midea for more than ten years, and has a sufficient understanding of the home appliance industry and a relatively good understanding of the transformation process of Midea Group . Knowing yourself and your enemy, you will never be defeated in a hundred battles. This may also be one of the reasons why Gree chose Hillhouse.
In addition to home appliances, Hillhouse Capital has previously invested in both the Internet and the industry, including Tencent , JD , Meituan Dianping and Didi, as well as Belle, BeiGene and Blue Moon. It has already had successful cases in empowering the manufacturing industry in the Internet, which is exactly what Gree needs. Unlike Baoneng and Ping An, Hillhouse has never interfered in the company's operations much, respects the company's management and is very important to partner with Dong Mingzhu.
So far, Dong Mingzhu, who has always been quick-witted, has not expressed any comments on Hillhouse Capital's acquisition of Gree Electric Appliances . What methods will the new major shareholder and the management of Gree Electric Appliances cooperate? Will the investment platform previously established by Dong Mingzhu and the executive team invest in Zhuhai Mingjun? The company's announcement is still waiting for answers.
On October 30, Gree Electric Appliances announced that it plans to amend the company's articles of association, clarifying that the company can repurchase shares for employee stock ownership plans and equity incentives, which means that the long-awaited equity incentive in the industry will be launched soon. Except for a few senior executives such as Dong Mingzhu who obtained equity in the last round of equity split reform, most middle-level managers and backbone employees of Gree Electric have not been able to obtain equity incentives. When the partnership system is spread throughout the home appliance circle today, Gree Electric Appliances filling this shortcoming will stimulate vitality and promote the company to expand into new areas.
In the air conditioning market, Gree's round of price cuts has achieved significant results. In terms of refrigerators, washing and small appliances, can Gree, which has less profit pressure, strategically rely on aggressive prices? Gree has done this in small appliances. With its cost-effectiveness and brand strength, Gree fans are currently ranked among the top three online, but the dominance of "US and Su Jiu" in the rice cooker market is too strong. The same problem is also true in the refrigerator and wash market. To break out of the gap under the two strong structures of , Haier, and Midea, Gree needs new channels and new ways of playing.
Gree Electric Appliances will hit the target of 600 billion, and the most likely increase is refrigerators and wash and household appliances. The total market size of the refrigerator and wash market is 200 billion, and the market share of 10% is 20 billion. Home appliances include high-growth categories such as vacuum cleaners, dishwashers, and integrated stoves. The double-digit growth rate is much higher than that of the three major white goods. Gree's own dishwasher production line is about to be put into production, the number of kitchen appliances is lower than that of air conditioners, channel changes are being carried out rapidly, and Gree still has opportunities in the sinking market.
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According to industry online data, after domestic sales reached nearly 100 million in 2018, the total domestic sales volume in 2019 was 91.54 million units, a year-on-year decrease of 6%. As Gree and Haier began to lower prices, the sales of air conditioners turned from negative to positive in August, and 6.67 million units were sold in September, with the year-on-year growth rate recovering to 8%. The industry expects that the domestic sales of air conditioners in 2020 will be around 5%, and the growth of leading companies will be higher than this growth rate. First-tier brands are snatching share by exchanging prices for volume, while second-tier brands are further squeezed.
2019, as users' demand for air conditioners shifts from energy saving and reliability to health, personality and intelligence, the technological update of air conditioners has been significantly accelerated, and windless sensation, ventilation and purification, WIFI voice and intelligence have been implemented one after another. While product evolution, air conditioning channels are also facing changes, from distributing goods to flattening, reducing hierarchical price increases and benefiting consumers. In a wider market, there are still new increments for air conditioners to explore.
Home appliance companies are good at manufacturing and weaker than retail. They have good products but are not good at selling and are difficult to make money. Enterprises objectively need agents and distributors. Channel changes are not about agents or online approval, but about promoting agents to transform into service operators, from earning the difference in purchase and sales to collecting service commissions. Nearly 80% of the sales of
air conditioners rely on offline sales, and Gree's proportion is higher. How can we help offline get rid of the negative growth dilemma and improve profitability? Hillhouse's digital transformation of Belle's store has provided an example for Gree. The main premise of channel change is to establish new mechanisms, deepen interest bundling, and turn 40,000 offline outlets into traffic entrances. This is Gree's new bargaining chip in the era of channel integration.
is restricted by offline channels, and currently Gree's online sales account for far lower than Midea. It is worth noting that in the company's articles of association amendment announced on the 30th, Gree Electric Appliances removed e-commerce from its business scope, only half a year after e-commerce was included in the company's business scope in April this year. It seems that Gree’s e-commerce strategy has changed again. Will it set up a new platform to operate e-commerce, or will it increase efforts to open it to agents? It is not yet known.
The Chinese market is too big. Agent distribution, online packaging, e-commerce and manufacturer direct sales have their own living space. The only thing that can bridge multiple channels is not the products but the brands. This is Gree’s biggest advantage. No matter what channel or who sells goods, the core of the business is always goods rather than others. Gree's brand image is deeply rooted in people's hearts, and the moat accumulated over the years cannot be subverted by other brands in a short period of time.
Currently, the mainstream of China's home appliance market is two "one-thirds", and one-third is online channels. Online contributes all the increase in the home appliance market, and all offline categories have comprehensively negative growth. One-third of online users are born in the 1990s and 1995s. Their values and behaviors determine the consumption hotspots of the whole society. Therefore, cost-effective products are popular, and appearance has become an important factor affecting purchase. "Two Micros and One Dou" is the most popular marketing main battlefield.
Can Gree’s moat extend to the younger generation, five or ten years later? Gree is not only internet celebrity Dong Mingzhu, but also the traffic responsibility of China's manufacturing. Against the backdrop of the current return of the national trend, Gree’s brand has huge imagination space, not only China, but also the overseas market that Gree has not yet made efforts. Neither the air conditioner nor Gree have reached the ceiling. In 2019, the road to returning to the value of Gree Electric Appliances has just begun.
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