Article | Huang An
Source | Mantis Finance (ID: TanglangFin)
A year-on-year decline of 70% -77%, does this mean for an industry giant to finish playing?
Gree is experiencing such an "accident".
Recently, Gree Electric released the performance report for 2019 and the first quarter of 2020. The company's net profit from its mother in 2019 was 24.672 billion yuan, a year-on-year decrease of 5.84%; of which, in the fourth quarter of 2019, it achieved revenue of 43.832 billion yuan, a year-on-year decline of 12.29%; net profit of the mother company reached 2.555 billion yuan, a year-on-year decline of 49.76%. In the first quarter of 2020, the company is expected to achieve a total operating revenue of 207.29 billion yuan, a year-on-year decline of 44% -50%, and is expected to achieve a net profit of 1.33 billion yuan to 1.17 billion yuan, a year-on-year decline of 70% -77%.
——Source: Oriental Fortune Gree Electric Appliance
It can be seen from Gree's performance report in recent years that in the fourth quarter of 2017, it also achieved a good result of a single quarter profit growth of 63.91%. In the past two years alone, the profit in the first quarter of this year has dropped by 70% to 77% year-on-year , The chain has also dropped by more than 70%.
One heaven, one underground. This is a terrifying number for a leading company in the industry.
What does this data mean?
Poor environment, how do we view Gree's valuation?
Highly shares, which are closely related to Gree Electric, show in their 2019 annual report: in 2019, China's air-conditioning compressor output was nearly 192 million units, an increase of 1.84% year-on-year, while in 2018, China's air-conditioning compressor output was 188 million units, a year-on-year increase 4.83%. Compared with the two years, the growth rate is obviously reduced. The compressor is the silhouette of the air conditioner. From this data, we can see that the air conditioner industry has shown a clear downward trend since last year.
Aowei cloud data shows that the online and offline retail sales of the air-conditioning industry in the first quarter of 2020 were -43.6% and -62.9% respectively year-on-year, which was the largest decline among the monitored home appliance categories, mainly due to the on-site installation attributes of air conditioning It is difficult to complete the epidemic period, and the winter is the low season for air conditioning, so that the demand is pushed back by the impact of the epidemic.
——The picture comes from the public network
Whether it is from the slowdown in the growth rate of the air-conditioning industry last year, or the massive decline in performance caused by the epidemic in the first quarter of this year, various signs seem to imply one thing: the air-conditioning industry is not good, Gree is not good. At this time, people are thinking about it. Does Gree still have room for growth?
For a while, the controversy came out, the unpopular crowd increased rapidly, and the previous people's doubts also regained their heads: "the market expansion of leading enterprises is weak", "single business, difficult performance growth" and so on.
——Source: Oriental Fortune Gree Post
It is undeniable that in 2019, as the growth rate of the real estate industry slows, the air-conditioning industry is facing greater pressure, but there is still a new growth point in the pipeline. Last year, the state ’s policy on fine decoration of real estate continued to be tilted, and the proportion of fine decoration was rapidly increased. The total scale of the real estate fine decoration market in 2019 was 3.193 million sets, a year-on-year increase of 26.2%. Among them, the scale of air-conditioning facilities reached 1.183 million sets, a year-on-year increase of 40.4%.
Real estate developers' demand for partial back-end decoration is gradually increasing, and the matching rate of air conditioners has reached 29.9%, which is an increase of 3.5 percentage points compared with 2018, and the demand for supporting equipment has steadily increased. Among the air-conditioning supporting participants, the head brand (Meidi, Gree, Hitachi) has a stable competition pattern. The three brands together account for nearly 70%. Especially with the active layout of domestic brands, the share of domestic brands has shown an upward trend year by year. In the context of consumption upgrades, Gree, as the industry leader, has more initiative in this new contest. The bargaining power of the brand and the cost advantages of the supply chain can be amplified.
——The picture comes from the public network
The decline in performance in the first quarter was caused by accidental epidemics and seasonal fluctuations throughout the year. It doesn't matter much for valuation. When people generally accept the impact of the epidemic, they will naturally have a higher tolerance for Gree's performance "Waterloo".
Now that we have talked about performance and valuation, we have to talk about a more important topic-the transformation of industry standards. On January 6, 2020, the official website of the National Standardization Administration showed that the new national air-conditioning energy efficiency standard approved by the State Administration of Market Supervision and Administration was released on December 31, 2019. The new standard will be officially implemented on July 1, 2020, and air-conditioning manufacturers can no longer produce or import air-conditioning products that do not meet the new standard. After July 1, 2021, inventory air conditioners that do not meet the new standard will also not be allowed to be sold. According to industry experts' prediction, the new standard will make the current fixed frequency and frequency conversion market elimination rate reach 45%.
——The picture comes from the public network
The "new energy efficiency standard" has also raised the threshold for research and development. In recent years, some third-tier brands have adopted the OEM assembly model and adopted the e-commerce platform to create a virtual standard for energy efficiency and rely on low prices to grab the market. After the introduction of new energy-efficiency standards for air conditioners, air-conditioning companies that have no ability to upgrade air-conditioning technology and will only fight price wars and marketing routines will face elimination. Previously Gree reported that the "Aux Energy Efficiency False Standard Incident" has a great impact, and the regulatory agencies will also tighten the investigation and punishment of air conditioning energy efficiency virtual standards. And this is a good thing for those air-conditioning companies that have already carried out new energy efficiency technology research and development in advance and have a large number of technical reserves.
In the face of the new national standard for air-conditioning energy efficiency, Gree said that the new energy efficiency standard is not technically difficult, and a full series of products that meet the new energy efficiency standard are ready to be launched in 2020. The reason for being so confident is that as early as May of last year, Gree and the TC143 / SC4 National HVAC Standards Committee hosted the ISO / TC86 / SC6 International Conference on Air Conditioning and Heat Pumps.
Professor Cao Yang of the National HVAC Standards Committee, Liu Hua, deputy chief engineer of Gree Electric Appliances, and Chen Jin, deputy director of the Standards Management Department, attended the meeting as experts. At the meeting, many of Gree's opinions were adopted by the committee. Although Gree does not directly formulate new national energy efficiency standards, it can be inferred that the new national energy efficiency standards will still draw on international standards to a large extent. When anyone can become a standard setter, anyone can grasp the future development trend.
Great drop in performance, no drop in salary, stronger confidence in expanding repurchase
Just now we discussed the impact of Gree ’s first-quarter performance decline from the perspective of valuation. Next, let ’s look at how this decline in performance will affect the salary of employees.
"Mantis Finance" Huang An collected news from major media on the Internet and searched from the company's announcement, but did not find any Gree salary cuts due to the epidemic. In addition, the reply from the offline flagship store manager's verification is that the salary will be paid as usual.
In the context of the sharp decline in performance in the first quarter, Gree Electric has recruited 5,000 new employees against the trend. This not only reflects Gree Electric's responsibility and responsibility as a large enterprise, but also makes the market full of confidence in the company's next development. After all, only if the enterprise develops further and becomes bigger and stronger can it accommodate the newly recruited 5,000 employees.
In addition to the operation of salary increase, Gree even started the repurchase operation. On the evening of April 12, Gree issued an announcement that it plans to use its own funds to implement a share repurchase of 3 to 6 billion yuan. The repurchase price will not exceed 70 yuan per share. The repurchased shares will all be used for employee stock ownership plans or equity incentives. .
——The picture comes from the public network
Despite the severe test of the epidemic, Gree launched billions of large share repurchase operations based on a high degree of recognition of the company's future development and value, which fully demonstrated its confidence in the company's development. Moreover, the share repurchase will continue to be used to implement the equity incentive / employee shareholding plan, and deeply bind the interests of shareholders and key employees to boost the enthusiasm of the company's employees.
It is important to know that this repurchase is the first repurchase in the history of Gree Electric, and the highest repurchase price is about 30% higher than the closing price on April 10, 2020. The repurchased funds come from the company ’s own funds and do not have a significant impact on the company ’s operations. As of September 30, 2019, Gree's total assets were approximately 291.836 billion yuan, and it held approximately 136.233 billion yuan in monetary funds. Based on the repurchase ceiling of 6 billion yuan, it accounts for about 2.06% of the company's total assets and about 4.40% of the company's monetary funds.
We know that in this epidemic, many companies have adopted layoffs, pay cuts, and even pay cuts, and Gree can insist on normal salary payouts in the case of a sharp decline in performance, expand recruitment against the trend, and buy back large shares to reward the middle Employees, as can be seen from here, the basic disk inside Gree has not been damaged.
Gree Appliances loves feathers
Finally, we have to discuss how the decline in the first quarter's performance will affect Gree's supply chain. Here I can ask everyone a question, can Gree's supply chain last a quarter?
In recent years, Gree, as the big brother in the industry, has been very outstanding in performance. Due to the deep-rooted air-conditioning market all year round, one person has won the favor, whether it is an upstream supplier or a downstream distributor. With the advantages of the entire industry chain in the manufacturing, research and development of core components and the downstream self-built distribution system, Gree has long been a leader in China's air-conditioning industry, with a market share of about 40%.
From the perspective of channel structure, Gree adopts the in vitro sales model of the national general generation (Beijing Shengshi Hengxing). The delivery volume of the Shengshi system accounts for 80-90% of Gree's revenue. Gree binds dealers through effective channel policies such as rebates. Maintain a stable channel structure and ensure the efficient operation of channels.
Originally, this model of "forcing" dealers to hoard goods in advance would cause dealers to face greater financial pressure in the epidemic. However, Gree is doing a good job to help dealers get through the difficulties.
In order to cope with the industry's competitive situation and demand for inventory release, Gree made major adjustments on the sales side in the second quarter of 2019. In November 2019, the company successively launched "3 billion" and "10 billion" profit-making activities, giving dealers a premium policy to promote the company's sales and clearing of low-end machine inventory. As a result, the company's new energy-efficiency eliminated models have been effectively cleared during the promotional activities, the distributors' financial pressure was partially released, and the company's market share was significantly boosted in the fourth quarter.
——The picture comes from the public network
In addition, the high proportion of rebate policies in the channel profit system is one of the key factors for Gree to control the channel, and the first quarter is when Gree rebates its suppliers the most. The news shows that during the opening of the new cold year in 2020, Gree has made great efforts to increase the rebate and supplementary strength of dealers, slightly reduced the terminal retail price, and alleviated the pressure on dealers to ship and fund.
In recent years, e-commerce channels have risen rapidly, and the impact of online shopping models on offline physical stores is obvious to everyone. Gree started a little late in this e-commerce competition, and its leading position has also suffered a certain impact, especially some low-end Brands have taken a lot of market share with the help of e-commerce advantages. Although Gree established an e-commerce team in 2014, for the protection of the interests of offline distributors, its development process in e-commerce channels is not as good as that of other home appliance manufacturers.
Gree did not establish a wholly-owned e-commerce subsidiary until 2019. As a rising star, last year's Double Eleven started a price war with Dong Mingzhu's store as its position, and the results were remarkable. Although it is online, Gree ’s real intention is to actively build a sales system of 10,000 stores and 10,000 warehouses, that is, based on Dong Mingzhu ’s store, including more than 20 sales companies and more than 40,000 dealer outlets in Dong Mingzhu ’s store. System. Consumers place an order at Dong Mingzhu ’s store, and the product is issued by the nearest sales company warehouse or dealer warehouse. The dealer enjoys a 3-5% installation subsidy.
Whether it is in the rebate policy or the e-commerce operation mode, Gree insists on maintaining its offline distribution chain. Why is Dong Zhang so persistent?
What is certain is that under the current circumstances, Gree must spare no effort to maintain this sales chain. The reason why Gree has become a leader is closely related to this line. Gree will never easily smash the business model that helps itself reach the summit. Gree's unique in-vitro sales system model makes it unnecessary to invest too much in the construction of infrastructure such as information logistics. In the past 20 years of Gree's rapid development, the regional logistics networks are mostly built by local sales companies and agents. If the flow entrance is the kinetic energy for long-term profit, then the channel efficiency is the guarantee of profit. Compared with the channel reform experience of Midea and Haier, although Gree is based on the difference between in vitro and in vivo sales models, the possibility of complete replication is not strong, but efficiency improvement is the eternal goal of the sales network.
Of course, who can know the changes in future life patterns? Online is not necessarily omnipotent, otherwise Ali and JD.com will not expand from online to offline. Seen in this way, the Wandian Wancang experience mode that Dong Zhangmen is exploring is just skipping the step of e-commerce and directly entering the most cutting-edge online and offline combined mode. The future has come, focusing on consumer experience will become the mainstream of people's life consumption.
to sum up
Since the epidemic situation has weakened since April, the production end has basically resumed production and production. At the same time, according to Gree dealer feedback, terminal sales have improved week by week, and it is expected to return to normal levels around May 1 Golden Week.
In summary, we can see that the current Gree basic plate has not much damage, but "Golden no feet and no people are perfect", Gree is not always perfect, its diversified journeys and successors and other issues Still haunting the company's development. Even if it is just a "false alarm" this time, what about five or ten years later?
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