Gree's 7.6 Billion Increases Infighting Future Air Conditioning Market

The two major white goods giants, Midea and Gree, are sharpening their teeth for the future.

Gree Electric Appliances (000651.SZ) will hold a general meeting of shareholders on September 20 to consider public offerings of A-shares; and Midea (000527.SZ) will preemptively hold a general meeting of shareholders on September 17 to consider non-public offering of A-shares. Program.

A proposed private placement of 4.36 billion yuan, a plan to publicly issue 3.26 billion yuan, the intention of the two companies to increase is: Inverter air conditioners and central air-conditioning capacity expansion.

Now, it is to see who will vote for investors. The company’s current performance in the air-conditioning sector and the prospects for the expansion of production capacity will become the focus of attention before voting.

Subsidy performance confusion

Gree Electric, focused on producing air conditioners. In the first half of 2010, the operating income from air-conditioning and accessories accounted for 92% of the total revenue. Midea’s products include white goods such as air conditioners, refrigerators, and washing machines. However, air conditioning is also its main product. In the first half of 2010, Midea’s operating income from air-conditioning and accessories accounted for approximately 66% of total revenue.

The two white giants have been extremely fierce competition in the air conditioning field. After the release of the 2010 interim report, it seems that the United States has caught up with Gree Electric Appliances.

In the first half of 2010, Midea Air-Conditioning and its parts and components realized revenue of approximately 25.9 billion yuan, an increase of 40% year-on-year; Gree's air-conditioning and accessories revenue in the first half of 2010 was approximately 23 billion yuan, an increase of 25%. Midea's operating revenue and growth rate in air-conditioning exceeded for the first time Gree Electric Appliances, which has been sitting in the air-conditioning dominance for 10 years.

In this regard, Gree's Office of the Secretary for the Office of the Secretary declared "do not explain, meaningless," and said "this is a short-term, not a long-term, this year there are six months, can make money to shareholders only useful."

Gree's net profit for the first half of 2010 was 1.573 billion yuan, an increase of 27.68%, which exceeded the growth rate of the main business income by 25%. It also exceeded the net profit growth rate of 22.65% in the same period of last year. The net profit realized by Midea's air conditioners was not disclosed, but the total net profit of all products disclosed was 1.789 billion yuan.

Wang Xiaoying, an analyst of Guojin Securities, believes that the reasons for Midea’s first-half revenue exceeding Gree are numerous, including energy-saving subsidies. There are discrepancies in the sales methods and billing methods of the United States and Gree in the first quarter; Gree’s channel sales in the fourth quarter of last year were relatively large and This year has a big bottleneck in production capacity; Gree generally sells better than the US in the off-season in the second half of the year.

Among the many reasons, energy-saving subsidies are the most noticeable. As for the promotion of energy-efficient air-conditioning, the state allocates subsidies for energy-saving benefits to enterprises, enterprises give profits to users, the gross profit rate is reduced, and the subsidies received by enterprises from the country are also recorded as non-operating income, so the subsidized enterprises The operating income, compared with the past growth in the end, the first subsidy can be added back to operating income in order to compare with history.

However, since energy-saving subsidies are mainly for air-conditioning products and do not benefit refrigerator washing machines, the amount of energy-saving subsidies can reflect the performance of the two companies in air-conditioning.

Although in the first quarter, the United States and Gree had different ways of subsidizing the bookkeeping, from the mid-year report, both companies have adopted the payment and receipt system. That is to say, the two companies should all be deterministic cash income as disclosed in the Interim Report energy-saving subsidies.

According to the report, Midea’s net profit for the first half of 2010 was RMB 726 million. Energy subsidies were RMB 626 million; compared with Gree’s main air-conditioning products, energy subsidies amounted to RMB 1.04 billion, accounting for a net profit of RMB 15.73. 66% of the yuan, 66% higher than the United States 662 million yuan in subsidies for electrical appliances. From this point of view, Gree's air-conditioning performance seems to be better than the US's air-conditioning performance.

In addition, after accounting for subsidies in accordance with the payment system, both companies have subsidy that has been reported but not yet received. According to a recent report released by Guojin Securities, the US energy-saving subsidies estimate that there are still about 1 billion yuan that have been declared unclaimed. According to a recent report released by China National Securities Corporation, the actual amount of subsidies for Gree's first half of the company exceeded RMB 2 billion, which means that there are still 10 billion RMB in reports that have not been received. The two companies are basically equivalent.

However, Midea’s air-conditioning energy-saving subsidies were identified as problems. On the evening of September 14, according to Xinhuanet Xinhua Finance reported that the United States was fraudulently subsidizing state subsidies.

The report said that the Ministry of Finance and the National Development and Reform Commission recently entrusted energy conservation associations at all levels to verify whether the information provided by the air conditioner manufacturers through distributors is true and whether there is any false sales. The verification results show that some manufacturers' fraudulent actions have been unscrupulous.

“The problems in the United States are most serious. A spot check of 7,928 units can only confirm 150 units.” The report quoted the conclusion of Foshan City under its “Special Inspection Report on the Promotion of Energy-Efficient Air-Conditioning and Air Conditioning”: “The verified number is only 4.98 of the reported quantity. %, up to 95.02% of the information is false or unverifiable."

If such a beautiful electrical appliance has already declared a subsidy that has not been received, it is very likely that difficulties will arise in the collection, and the net profit reflected in the second half of the year will also be greatly reduced. Affected by this, on September 15th, the stock price of Midea fell 2.06% to close at 15.2 yuan. On September 16, the stock price continued to fall. Gree Electric also fell 3.45% on September 15, closing at 14.27 yuan.

Scaling for expansion

In the air-conditioning market, especially in the context of inverter air conditioners and central air-conditioning markets, Midea Electric and Gree Electric Appliances Co., Ltd. basically launched additional offerings. A fund to be raised is 4.36 billion yuan, and a fund to be raised is 3.26 billion yuan. Fundraising targets are basically around the capacity expansion of inverter air conditioners and central air conditioners. Only one directional issuance and one public issuance.

Some investors questioned why Gree adopted the public issuance method, and whether the agency was not optimistic about it. Gree Electric's Office Secretaries of the Office clarified that "public issuance is more strict than the private placement audit, requires higher, have better profitability and management level, the audit can be passed, and institutions do not look good, and finally sell the stock It's impossible for retail investors to buy, most of them are for institutions to undertake."

Investors also have many doubts as to whether Gree’s issuance is due to lack of money or lack of money. There are investors who compare Greco’s and Gree’s currency funds and question Gree’s “not bad money”.

According to the report, Gree Electric's monetary capital was 23.4 billion yuan, and Midea's electrical equipment was only 8.5 billion yuan. The two companies have contrasting funds. However, Gree’s current liabilities were as high as 37.9 billion yuan, the current ratio was 1.01, and the quick ratio after deducting inventory was only 0.85. That is, Gree Electric Appliances needed to retain so much monetary funds to be able to pay short-term loans. Debt, a liquidity ratio of not less than one, is generally the bottom line for financial analysts to be patient with corporate risk. In contrast, the current ratio of Midea's electrical appliances is 1.11. The current assets retained by Midea Electric are more than current liabilities.

In addition, there is a difference between "cash stock" in the balance sheet and "cash flow" in the cash flow statement. The cash flow statement can better reflect the cash flow of the company. In the first half of the year, Gree Electric had only 1.9 billion yuan in net cash flow from operating activities, which was a 90% decrease from the same period of the previous year. However, the US, on the contrary, had 5.2 billion yuan, and the operating cash flow increased by 112%.

A source from the Securities Affairs Department of Gree Electric told Investor that "90% reduction in cash flow from operating activities was due to discounted bills." In the Gree's semi-annual report, the increase in the payment due acceptance of bills payable increased, resulting in an increase of 12.5 billion in cash for purchases of goods and other items, an increase of 464% over the same period of last year. However, in the first half of the year, Gree, which affected cash inflows from operating activities, also increased, which was an increase of 111% compared to the beginning of the year. In the case of Midea Electric Appliances, accounts receivable increased by 78% as compared with the beginning of the year.

Gree Electric's explanation was that export revenues increased significantly and that outstanding receivables have risen. However, Midea’s electronics company said it was mainly affected by the increase in marketing scale.

However, Gree's indicator of accounts receivable turnover has always been better than that of the United States. In the first half of this year, Gree's account receivable turnover rate was 13.8, and the United States only had 5.47.

The warming of the export market and the growth of the domestic marketing scale have allowed the two companies to relax the conditions for credit transactions and at the same time allow the two companies to have confidence in the future expansion of the air-conditioning market.

In fact, the real reason why the two companies are rushing to issue additional funds is probably for the sake of the future in the air-conditioning market, where there will be chips for technology and capacity.

Future air-conditioning market dispute

Midea Electric and Gree Electric Appliances intend to increase their investment in fundraising, which are all focused on projects related to central air-conditioning, compressors, and inverter air conditioners.

Midea and Gree agreed that in the future, central air-conditioning still has high growth potential. It needs to occupy more market share in the central air-conditioning sector and provide technical and production support for the rapid expansion of business scale.

Midea’s market share in the central air-conditioning market has increased year by year, and its market share in 2009 has exceeded 10%. Gree's commercial air-conditioning (mainly central air-conditioning) business is also growing at an average annual rate of about 40%.

Midea’s planned investment in central air-conditioning is 1.3 billion yuan. After the project is expected to reach production, the after-tax financial internal rate of return will be 29.2%, and the investment recovery period (including the construction period) will be 5.4 years. Gree Electric Co., Ltd. revolves around central air-conditioner headquarters technical reform and Wuhan two projects. The planned raised funds are 600 million yuan and 500 million yuan respectively. After the project is expected to reach production, the internal rate of return after tax will be 32.81% and 32.50%, and the payback period will be respectively. For 4.96 and 4.68.

Gree’s internal rate of return is expected to be higher than that of the United States, and the investment recovery period is even shorter. In response, Gree Electric’s director general explained: “Geli’s commercial air-conditioning technology content is high, and the brand is already relatively good, so the expected internal rate of return is Higher than the United States is normal."

"Investor" tried to consult the United States on the issue of the Secretary General's Office, but the telephone no answer.

In the compressor project, both companies have an annual output of 6 million units. The US plans to invest a total of 900 million yuan, raise funds to invest 800 million yuan, and after the project is expected to reach production, the after-tax financial internal rate of return will be 25.4%. The investment recovery period (including the construction period) is 6.7 years. Gree plans to invest a total of 1.18 billion yuan, of which 900 million yuan to raise funds, the internal rate of return is predicted to be 18.85%, and the payback period is 6.25 years.

On the compressor project, Gree’s internal rate of return was lower than that of the United States. In response, Gree Electric's directorate explained that "Geli's compressors are self-produced and sold internally, so the yield is lower, and the US compressors are not only for their own use but also for external sales. Gree is here The total investment in the project is higher than that of the United States because of Gree's plans for high-efficiency compressors. The equipment is different and the specific conditions are different."