The world after 2020 is not friendly to the home appliance industry. The repeated epidemic situation and the weakness of real estate have implicated the home appliance industry into a cold winter. The Russian-Ukrainian war has added fuel to the already rising raw material prices and compressed the profits of home appliance companies that are already facing frequent price wars. At the 2021 performance report meeting, Midea Group Chairman Fang Hongbo admitted that "the cold winter for home appliance companies is coming in the next three years."
However, great companies always move against the trend and overtake when the environment slows down. Comparing the three leading brands of large appliances, Midea has a market value of 367.765 billion yuan, while Haier has a market value of 227.556 billion yuan, and Gree has a market value of only 189.654 billion yuan, which is half of Midea. Before we knew it, Midea had left Gree, the original top student, far behind. In the fierce competition, Gree, which is "scientific" in the field, failed, while Midea tells investors various balanced stories.
The detailed report of this article is found in the WeChat public account "Midea: Balance is King" of "Huazi Research". The framework diagram of this article is shown in the figure:
Balanced
Compared with the financial reports of the three companies, they have achieved remarkable growth in a pessimistic environment. In the first quarter of 2022, the sales of the domestic home appliance industry reached 154 billion yuan, a year-on-year decrease of 12.3%. All three companies have achieved double growth in revenue and profit, fully reflecting the resilience of excellent companies. Among them, Haier's revenue growth and gross profit margin are impressive, which is mainly due to its growth in overseas markets and high-end brand building. Therefore, Haier also enjoys the highest valuation among the three companies. However, in terms of sales volume, Haier still has a big gap with Midea. At the same time, Haier's management expense rate and sales expense rate are relatively high, and the persuasiveness of the product needs to be improved.
Gree's core business is still stable. In terms of management expenses and sales expenses, Gree is lower than the other two companies; in terms of accounts receivable turnover and accounts payable turnover, Gree's industrial chain bargaining power is no better than that; in terms of gross profit margin, the profitability of Gree air conditioning is still unquestionable. However, Gree 's asset turnover rate and 's inventory turnover rate are low, indicating that its shipment is weak. The significantly lower net profit growth rate also indicates that Gree's business lacks imagination space and needs to accelerate the pace of expanding its territory.
. No matter which indicator, Midea is excellent but not outstanding. However, the highest revenue and ROE prove that in the end, Midea is equilibrium.
balances in diversity and focus
Midea fan, Gree air conditioner, Haier refrigerator is the impression of the three giants in the minds of consumers. The three home appliance companies have become well-known brands by the public based on different segmented tracks. However, as the home appliance market gradually becomes saturated, the breakthrough logic focusing on the main business is no longer applicable. What is stagnant will only be the gradual erosion of the market, and product diversification is the only way. Today, Gree is still "kidnapped by air conditioners", while Midea and Haier have both embarked on the path of product diversification. In 2021, Midea's air conditioning business accounted for 41.58%, which was halfway between other consumer appliances. Midea's product layout is complete, from air conditioners, washing machines, refrigerators to kitchen appliances and small household appliances, with a complete range of products. In 2019, Midea ranked the top three in 16 home appliance categories. In this year's JD.com 618, Midea is the only company among the three that has obtained the top 3 brands in small appliances and home appliances.
Gree's air conditioning business accounts for as much as 70.11%. Dong Mingzhu herself also realized this problem and is actively transforming "good air conditioner manufacturing" into "good electrical appliance manufacturing". However, the logic of small appliances is very different from that of air conditioners, and the "Gree model" is not progressing smoothly on the road to diversification.
Mide's product diversification is not smooth sailing. In the field of personal care and massage equipment, Midea's performance is unreliable. This is due to the weak synergy between these sectors and Midea’s core business and brand.
In terms of brand diversity, Midea Learning Haier has made a matrix layout.High-end brands include COLMO, AEG, etc., and popular brands include Midea, Little Swan, Toshiba , etc., and have also launched Hualing and Cuckoo for the new generation of consumer groups. Among them, the high-end brand COLMO had a revenue of 4 billion yuan in 2021, and its market share was also increasing. According to data from Aowei Cloud Network, COLMO's air-conditioning cabinet market share in 2021 will reach 36%, hang-up and water purifier will reach 20%, and drum washing machine will reach nearly 15%. Of course, compared with Haier's high-end brand Casarti 's revenue of 12.9 billion yuan, Midea's high-endization is far from enough. This is also the reason why Midea's gross profit margin has been overwhelmed by Haier.
The difference between Haier is that Midea's brand diversity has always been centered on Midea's own brand, while Haier seems to be gradually "scattered" by Casarti. Gree's brand diversification is obviously insufficient. The products of its Dasong (small appliances) and Jinghong (refrigerator) have a high overlap with Gree, and its brand positioning is not clear.
Although Midea's products and brands are diverse, they are not complicated. In the face of the "home appliance winter in the next three years", Midea decisively announced layoffs of 1/3 of its employees. The main parts have been laid off with weak relationships with core business and low gross profit margin. In contrast, Gree, which announced that it would never lay off employees and that "our mobile phones are not worse than Apple ", seems a bit too optimistic. When the environment is good, you know how to expand your career map, and when dealing with crises, you can lose weight in time and focus on the core. Between the expansion and expansion, it is Mei’s grasp of diversity and focus.
balanced
wants to continue to grow against the trend, penetrating overseas markets is an inevitable choice for home appliance companies. Haier is undoubtedly the one who is the most advanced in going overseas. Judging from the proportion of domestic and foreign revenue, Haier accounts for more than half of the overseas revenue, the highest among the three companies.
Haier adopts the method of acquiring local brands + independent brand creation to explore overseas markets. Among its sub-brands, GE is mainly aimed at the United States, Candy is aimed at Europe, AQUA is aimed at Japan, and Fisher Parker is aimed at Australia and New Zealand. In terms of going overseas, Midea Learning Haier has made a dual-line brand layout. Among the overseas brands acquired by Midea, Comfee is aimed at Europe and the United States, and Toshiba is aimed at Japan and South Korea. In the United States, Midea focuses on Midea's brand and cooperates with Eureka in the United States, and has special brands in each field; in Southeast Asia, Toshiba and Midea's brands are mainly used in combination with Comfee; in Europe, Midea, Toshiba and Comfee are three brands. It can be seen that Midea focuses on its own brands in both developed and emerging markets. Going back to the sales and management expenses in the financial statements, when there is little difference between digitalization and internationalization, Midea's expense management is significantly better than Haier. Perhaps it is because Midea's independent brand revenue accounts for a larger proportion, so the communication and management costs are low.
In addition to overseas net income, the structure of overseas markets is also important. Midea's advantageous areas of going overseas are in Southeast Asia, , Brazil, and Japan, and its performance in Australia, New Zealand and North America is significantly inferior to Haier.
From the distribution of production bases, it can be seen that Midea pays great attention to emerging markets. In 2022, based on the existing 18 major overseas production bases, the production base of Midea's newly built refrigerators, washing machines and water heaters in Egypt will be put into production. After production, it will cover Middle East and Africa; the trial production of the new air conditioner base in Thailand will further improve the manufacturing layout in Southeast Asia; in addition, the construction of a new manufacturing base will be launched in Brazil to cover multiple key categories.
's hands-on actions in emerging markets are similar to Gree's Southeast Asia and Brazil; acquisitions and mergers in developed international markets are consistent with Haier's performance in Europe, America, Japan and South Korea. This kind of overseas market structure and strategy grasp cannot be said to be without deep thought.
balanced in the preservation and breakthroughs
The home appliance industry is inevitably lacking in imagination, and transformation is imminent. Haier still chooses to focus on home appliances as its main business, but it has transformed from simply selling products to selling scenarios and solutions. To put it bluntly, it is transforming to services. Midea and Gree chose to explore the upstream of the industrial chain. The two are completely different in terms of expansion methods. From the perspective of business choice, Midea focuses on starting from small things, while Gree is ready to kill everyone as soon as it comes.Taking the field of new energy vehicles as an example, Midea makes important automotive parts, such as motors, reducers, etc.; while Gree wants to build a complete vehicle without saying a word. Automotive parts and home appliance parts coordinate with each other in certain processes, respond to industry changes more flexibly, and invest relatively small. Gree is indeed very ambitious to build a complete vehicle, but investment is by no means emotional. The logic that breaks out has increased risks to itself for no reason. The same is true for
's layout in the field of smart buildings. Midea acquired Lingwang Elevator to leverage the building system from the breakthrough point of elevator, while Gree started to develop Gree's building management platform, network control engine, and electrical information collector. We have sorted out the collection, processing and integration of smart building information, lacking highlights and breakthroughs.
From the perspective of cooperation model, Midea has invested in all places and has invested in about 211 companies at present; while Gree mainly establishes subsidiaries and does everything himself. For example, in terms of the layout of medical devices, Midea acquired 0,000 Medical , mainly producing imaging medical devices. Gree established Chengdu Gree Xinhui Medical Equipment Co., Ltd., which has a complete range of everything from the research and development, production of medical devices and laboratory equipment to technical consultation. While making big moves, the primary and secondary logic seems to be not clear enough.
Acquisition of Kuka is a wonderful move by Midea, and it is the embodiment of Midea's balanced and stable success and breakthrough. Kuka's main business includes welding equipment, robot body and system integration. These businesses themselves are in line with and complementary to Midea's own digital manufacturing, and have high synergy. These technologies have been accumulated to help Midea’s “smart manufacturing” develop. With the help of Kuka robot , Midea refrigerator Jingzhou factory and washing machine Hefei factory were selected as the "Lighthouse Factory" in 2021. At the same time, Midea can also help Kuka lay out industrial robots and expand medical, warehousing and logistics automation businesses.
Looking at the path of the three companies looking for the second growth curve, Midea's businesses are complete and coordinated, and the software and hardware are both online, and they have found a balance in maintaining success and breakthroughs.
Of course, it is undeniable that Midea's hard-core manufacturing capabilities are not as good as Gree in industrial parts such as motors and capacitors. Gree focuses on unique patents, such as optical storage and magnetic levitation technology, which is not as beautiful as it is. But a single championship does not mean an all-rounder, nor does it mean a final victory.
expands around its core business, and Midea's business on the to B-side has been steadily and matured gradually, and even formed a network, supporting each other, forming the effect of "the whole is greater than the sum of the parts".
In the era of balanced
changes in centralization and decentralization, the flexible management system further highlights its value.
With the resignation of Midea founder He Xiangjian in 2012, and Fang Hongbo took over as chairman of the group, the older generation of Midea management slowly withdrew from the stage, Midea also transitioned from family management to group operation, and management efficiency was greatly improved.
1997 Midea introduced the business unit system. Each business unit is a relatively independent profit center. The advantage of this system is that each business unit operates independently and has clear responsibilities, which is conducive to the development and growth of each business. The disadvantage is that each department calculates profits independently, so the business units may only focus on their own interests, which is higher than the collective strategy.
After years of exploration, Midea has found a balance between "centralization and local decentralization". "Centralization" refers to strategic concentration, while "decentralization" refers to the independent development of the business of each business unit. In 2015, Midea focused on the dual intelligence strategy of " smart home , smart manufacturing" on the three main axes of "product leadership, efficiency-driven, and global operation", and accelerated the pace of moving from home appliance companies to technology groups.
On December 30, 2020, the company replanned its business structure and changed the original four major sectors of consumer appliances, HVAC , robots and automation systems, and innovation business into five major business segments: smart home business group, electromechanical business group, HVAC and building business department, robots and automation business department and digital innovation business.These five major business segments closely revolve around the dual intelligence strategy of "smart home and intelligent manufacturing", with clear logic.
At the same time, each business line has achieved its own efficiency. Take the HVAC and Building Business Department as an example. On this year's 618, Midea released its first digital passenger elevator - "Yunhang" machine-free room, "Yunling" machine-room series new products, and iBUILDING smart elevator management platform. This is just one and a half years after Midea acquired Lingwang Elevator. Compared with Gree, which also has a smart building layout, Midea can be regarded as "decisive and decisive".
However, in terms of organizational flexibility, Midea is still a bit worse than Haier. " person single-in-one " is a highlight of Haier's incentive mechanism transformation. Under this model, enterprises have changed from traditional bureaucratic organizations to a platform for creating and win-win, while employees have become makers and dynamic partners. Haier has transformed into an open entrepreneurial incubation platform. By promoting Renren Makers and providing entrepreneurial opportunities and platforms for employees and entrepreneurs in society, more than 2,000 makers and micro makers have been incubated on the Haier platform.
If the Internet and "manufacturing" are placed at both ends of the horizontal axis, then Haier is more inclined to the Internet side, and Midea cannot make management so flat. The form of bureaucracy is still adopted within each business unit. Considering the different transformation ideas of the two companies - Haier is transforming into a service provider while Midea is committed to building a high-end technology group, this kind of difference at the management level is not difficult to understand.
. Gree, which has a similar transformation idea to Midea, is much more bulky in management. The company's governance structure is single, and there are no signs of optimizing the traditional bureaucracy. Dong Mingzhu is still elected as chairman of Gree Electric Appliances in 2022. Gree cannot be considered a complete professional manager. Considering that Dong Mingzhu inevitably has blind spots in knowledge and thinking inertia, this has caused Gree to be highly professional in its main business, but it lacks diversified layout and iteration. This may also be the fundamental reason why Gree has lost to Midea in several rounds in recent years.
Valuation:
Since Midea Group's business is relatively complex, this article uses the SOTP valuation method to divide Midea's business into electrical appliances (including HVAC and consumer appliances), robots and automation, and others (mainly intelligent supply chain and material sales), and compare it with peers to obtain a relative valuation. Because Midea is expected to continue to make efforts on the to B-end, the proportion of robots, automation and other businesses has been appropriately increased on the basis of Midea's business share in 2022.
We believe that if you want to invest in white appliance industry stocks, Midea is the first choice. Midea's performance in each individual item is not outstanding, but based on our above analysis, its future development space exceeds that of Haier and Gree. As the domestic temporarily weak consumer industry gradually recovers, we expect the gross profit margins of HVAC and air conditioning business and other consumer appliance businesses to rebound within 1-2 years, and the gross profit margin is expected to be 24%/26%/28% in 2022/2023/2024. At the same time, the new round of replacement of home appliances in the countryside has brought about a recovery in demand for HVAC and other white-white appliances. Assuming that the revenue growth rate of HVAC and other consumer appliances business will be 9.85%/9.35%/8.75% respectively in 2022/2023/2024.
At the same time, Midea will continue to make efforts on the to B-end, and the proportion of robot and automation business will continue to expand from 7.99% to 20%, which is expected to contribute to the second curve of the company's performance. In particular, the performance of KUKA business will further improve after turning losses into profits in 2021. The revenue growth rate of robot and automation business in 2022/2023/2024 was 32%/24%/16%, and the gross profit margin was 22%/24%/26%, respectively.
In summary, the EPS of Midea Group in 2022/2023/2024 was 3.96/5.18/6.56 respectively. Referring to the valuation of comparable companies in the same industry, and based on the business share weight, the weighted average PE of 2022/2023/2024 was 18.45/14.82/12.28 respectively, corresponding to the stock price in 2022 was 73.06 yuan/share.
Conclusion
Looking back from 2022, Midea has indeed achieved a good balance in product and brand diversification and internationalization, business transformation and management optimization.
As competition becomes increasingly complex, a single-dimensional breakthrough is far from enough. Multi-dimensional balance has become the code for the long-term development of beauty.At present, market sentiment is generally not optimistic. With the home appliance industry being unanimously undervalued, Midea's valuation has fallen to its lowest point in nearly five years, and there has been a relatively ideal entry opportunity. Once this cold winter passes, the beauty of balanced layout will still appear.
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