Focus Analysis | What can save you, Midea's share price?

Maybe Midea's stock price doesn't need anyone to save.

This is a farce that happened in early spring. On February 18th, investors holding Midea stocks had just experienced a carnival on the previous trading day: After nearly a year of rising, Midea’s stock price rose from the lowest of 43.10 yuan to 106.4 yuan, the highest price in history. But when the market opened that day, the sense of happiness was broken: the stock price fell like a waterfall, and the closing price fell 8.35%. After the close, the data showed that Shenzhen Stock Exchange sold a net 1 billion yuan.

The big rout began. As of July 7, Midea's stock price had fallen by 35%, and its market value had evaporated by more than 260 billion.

In fact, Midea has been saving herself. In addition to the routine annual repurchase plan, Midea has already spent more than 15 billion this year and repurchased three shares at high prices. On February 24, after experiencing the second big drop, Midea announced a large repurchase capped at 14 billion yuan, setting a new record for A-share repurchase. Only 3 months later, on May 9, Midea Group announced the repurchase plan again, intending to repurchase the company's shares for no more than 5 billion yuan and no less than 2.5 billion yuan.

He Xiangjian, the founder of Midea Group, also put out a large amount of real money. On the evening of June 23, Midea Group announced that He Xiangjian completed his plan to increase his stake in Midea Group by 800 million yuan.

However, He Xiangjian's increase in holdings failed to save the decline, and Midea's stock price continued to decline. On the evening of July 1, Midea Group announced again that as of June 30, 2021, it had repurchased approximately 10.45 million shares, with a total amount of approximately 781 million yuan.

What's wrong with Midea?

Gree Electric, which is often used as a benchmark against Midea, has also been slumping since the beginning of this year. But what is interesting is that Midea is more diversified and profitable than Gree, which has a more singular business. At its highest market value, it is 1.7 times that of Gree, and Gree has fallen by less than 30% this year.

Tell a story

The money lost on the books is testing the beliefs of value investors time and time again.

If you only look at the financial report, Midea is a pretty good company, a standard white horse. Under the impact of the 2020 epidemic, its revenue was 284.221 billion, and its net profit was 27.323 billion, a year-on-year increase of 12.44%. Midea’s air-conditioning business revenue surpassed Gree for the first time last year and took first place. However, after the release of the financial report, Midea's stock price fell by 3.91%.

In a sense, the stock prices of Midea and other home appliance companies have fallen this year with a certain degree of error correction. In 2020, when revenue and profits did not rise sharply, Midea's stock price doubled, and its market value once exceeded 700 billion.

This kind of stock price increase is in fact almost synchronized with the rise in commodity prices since last year. Generally speaking, the general raw materials will rise for half a year and fall for half a year. This time, "the large increase and the length of the cycle are rare." Liu Buchen, who has been observing the home appliance industry for many years Tells 36 krypton.

In fact, this already has a strong bubble flavor, but the volume of the storytelling by the organization is louder, and the wealth is rich, and the expansion of the market value seems to be justified.

But for them, foam cannot become dry food. The rise in bulk commodities will directly lead to an increase in the price of Midea's upstream raw materials. Midea's production and sales use the "T+3" model. Customers place orders, prepare materials, manufacture finished products, and finally ship. Each link takes only 3 days, and delivery is completed within 12 days. This has the advantage of keeping material inventory to a minimum and realizing the fastest cycle of funds. Once the price of the material rises, it will be quickly passed on to the end product without any buffer. As the home appliance price war intensifies, this will even swallow the gains from the rapid turnover of funds.

Shenzhen Stock Connect’s net sale of 1 billion yuan on that day was actually a sign of “holding a group” and letting go. The rise in raw material costs and thinning of profits are only the fuse. Midea, including Gree’s stock price, is ultimately due to this story. Can't tell the stimulating plot.

The downturn in the white goods industry has lasted for many years, with a single-digit growth rate as early as 2015. Of course, even if the track becomes narrower, as an oligarch, Midea is still a profitable company, but the capital market is more interested in growth rather than current cash flow. In the highlight moment of 2017, Midea's revenue growth rate once reached 51.35%. This number has fallen year after year, and by 2019 it was only 7.14%-Midea's growth has stalled visible to the naked eye.

This is the pain point of the entire industry in the capital market. "After 30 years of development, the home appliance industry has now entered the era of competition in the stock market." The more grim reality is that the real estate boom is coming to an end, "the home appliance industry will inevitably be affected."

If like Haier, Hisense, and TCL, rely on its own brands to sell overseas, perhaps Midea can still speak out some bright spots. However, Midea's export sales are still the OEM route, and most of its overseas income comes from acquired overseas companies. No matter how you dig, it's hard to find excitement in Midea. "The main force's judgment on home appliance stocks has changed. They are not high-growth stocks, but traditional value stocks." Liu Buchen said to 36Kr.

In the retail A-share market, it is also expected that Midea, which has lost its popularity, will fall from a height. What's even more disturbing is that the average P/E ratio of the A-share home appliance industry is 24.54, while Midea is only 18.7. It is not yet clear where the bottom of the decline is.

Beauty Breakthrough

Compared with Gree's insistence on air conditioning as the core, Midea has been making breakthroughs in diversification, and the movement is not small.

Midea’s air-conditioning business is naturally the big head. In 2020, its revenue will account for 47.22% of the overall revenue, but consumer appliances have already accounted for 44.37%. Compared with Gree air-conditioning, which accounts for more than 70% of revenue, Midea is no longer an air-conditioning company. As early as 2004, Midea spent 230 million to acquire Valin, which is known for its refrigerator business. In 2016, Midea spent 500 million to buy Toshiba's white power business. In 2018, it paid a high price of 14.3 billion to complete Little Swan's revenue. Since then, Midea has covered the business of air conditioners, refrigerators, and washing machines.

But Midea is unwilling to carry the label of "home appliance enterprise". Externally, it defines itself as a "global technology group", so Midea is always looking for new "technology" tipping points.

"Industrial robots" seem to be the "core" of the technology group recognized by Midea. In 2015, Midea and Japan's Yaskawa Electric established a joint venture company to manufacture nursing and rehabilitation robots. The honeymoon period with Yaskawa is not over yet, and Midea turned its attention to industrial robots. At the beginning of 2017, they spent 29.2 billion to complete the acquisition of the German industrial robot company KUKA. In the same year, Midea announced the acquisition of Gaochuang, an Israeli robotics company that specializes in motion control and servo motors.

Among the world’s four largest robotics companies, ABB in Sweden, KUKA in Germany, FANUC and Yaskawa in Japan, Midea accounted for a quarter, and deep cooperation with the other quarter. It is also considered a heavyweight in the industry. Midea strikes while the iron is hot. Put forward an ambitious strategy, "a new generation of man and machine."

Unfortunately, after three years, this new generation has become more and more ambiguous.

Kuka was struggling in the mud. One year after the acquisition, all the financial indicators that KUKA produced were very ugly: order revenue and revenue declined, and profits fell by 80%. Their explanation is: the decline in demand from the global automotive and electronics industries has caused the company's revenue to shrink.

Since then, KUKA has been devastated. At the 2019 Annual Meeting of Shareholders, CEO Peter Moen told everyone: The company is now like a ship encountering rough seas on the open sea. The stormy sea turned into a tsunami in 2020, and KUKA directly lost 800 million in that year.

As for the joint venture project with Yaskawa Electric, it will quietly end in 2020.

The temporary frustration of the robot did not weaken the transformational heart of the United States. At the end of 2020, Midea Group reintegrated the four major sectors of consumer electronics, HVAC, robotics and automation systems, and innovative business into the smart home business group, the electromechanical business group, the HVAC and building business unit, and the robotics and automation business group. Weakened the color of home appliance companies.

It can also be seen from the name of the business group that Midea roughly believes that the future direction is B-end and industrialization. When the path is blurred, it can only attack in multiple ways: On February 2 this year, Midea received a 29.09% stake in Wandong Medical and will become the company's new controlling shareholder. This company is mainly engaged in imaging medical devices and imaging diagnostic services. After Internet companies entered the market one after another to build cars, Midea also announced that its Welling will enter the new energy smart car industry to provide auto parts. Previously, Welling mainly made compressors.

It seems that all roads lead to the future, and every road still has a story to tell. From this point of view, Midea’s stock price will bottom out sooner or later. In the A-share market where the wind is raining, the stock price of Midea may still dance after the wind. Back to the highlight moment.

Perhaps what saves Midea's share price will be tuyere and patience.

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