\u3000\u3000 Midea Group Co.Ltd(000333) (000333)
Midea has a perfect incentive mechanism and is good at seizing opportunities: investors often believe that Midea’s past excellent performance comes from price advantages and extensive channel network, and does not pay enough attention to the company’s operation adjustment ability, which is mainly due to the perfect incentive mechanism. Since 2014, Midea has launched 24 incentive plans, more than comparable companies, and in various forms (8-phase equity incentive, 5-phase restricted stock incentive, 7-phase global partner plan and 4-phase business partner plan). From the development process of fupanmei, we can see that its product change and channel change are inseparable from the incentive mechanism, and this advantage will also bring more than expected possibilities for the future development of the company.
The home appliance industry is changing and the fittest survives: from product upgrading (roller replaces wave wheel), channel adjustment (flattening) to covid-19 epidemic in 2020, the home appliance industry is changing in recent years, which puts forward a test for the company’s operation ability. We believe that uncertainty will increase in the future development of the home appliance industry, which is good for companies that are good at adjustment.
Integrate the industrial chain and master the key links of production: Midea not only has downstream channels, but also arranges upstream key parts (compressors and motors), which can affect product technology iteration, reliability and other indicators. Taking the air-conditioning compressor as an example, Midea cooperated with Toshiba carrier to lay out the field of air-conditioning compressor earlier (1995), with the first share of shipment in the industry (according to the industry online, the sales share of Meizhi compressor in 2019 is 37%), which is also the barrier faced by other brands entering the air-conditioning industry.
Complete categories and leading mid-range market share: the company’s products are targeted at mass consumers, and the market share of each category is leading. We believe that although the operating costs of various channels are rising at present, Midea has a complete range of household appliances, high brand recognition, easier supporting sales of products and lower unit marketing costs.
Layout of overseas market: the company began to layout export sales in the 1980s and gradually opened the market through cooperation with overseas enterprises. At present, Midea’s production bases are distributed all over the world. In 2020, the company’s overseas independent brand revenue accounted for 30% of its export sales; The gross profit margin of export sales also increased from 11.7% in 2010 to 25.5% in 2020. We believe that compared with the OEM business, the overseas independent brand business has stronger controllability and high risk resistance. At present, under the influence of the epidemic, overseas orders are transferred to China, which provides an opportunity for the company to implement the globalization strategy.
Midea has strong “pressure resistance”: under the impact of the epidemic, Midea’s business has recovered rapidly. According to the announcement, the revenue growth rate of 2020q1 ~ Q4 companies is – 22.7% / + 3.2% / + 15.7% / + 18.0% respectively. We believe that pressure tests competitiveness. During the boom and fluctuation period of the industry, the company’s operation may continue to be better than market expectations.
Investment suggestion: as the leader of household appliance manufacturing, Midea Group Co.Ltd(000333) has a clear organizational structure, perfect incentive system and efficient channel system. At present, it has entered the stage of industrial diversification. The company is good at responding to changes in demand and adjusting its business strategy in time. We are optimistic about the long-term development of the company. Midea has advanced management mechanism, part of the industry, and the sales market share of various categories is leading. It is estimated that the company’s EPS from 2021 to 2022 will be 4.11/4.78 yuan, and the six-month target price will be 95.60 yuan, corresponding to 20 times PE in 2022, maintaining the investment rating of buy-a.
Risk tip: due to the impact of covid-19 epidemic, the export business is less than expected, and the price of raw materials has increased sharply
