Beauty change: ignite the B-end, smart home still needs to be more "outstanding"

Fang Hongbo, chairman and president of Midea Group. Image source: Midea Group WeChat public account

Midea continues to increase the "second engine" for the B-side.

"In the face of vagaries and accelerated markets, step-by-step means mediocrity and the danger of death. Whether it is business model or technological innovation, it is necessary to continue to change, so as to maintain the vitality of the mechanism and maintain market competitiveness. On January 12, Fang Hongbo, chairman and president of Midea Group, delivered a speech to all employees.

In recent years, Midea Group has continued to change, continue to merge and expand, forming five major business sectors, and also making Midea Group's stock price once reach a new high. How to do a big B-end business is becoming a problem that Midea Group needs to think about. Fang Hongbo proposed that while focusing on the "number one strategy" of the ToC business, Midea firmly ignited the second engine, transformed to ToB, and created a new situation.

A few days ago, Midea Group revealed that it will start mass production of MCU control chips in 2021, with an annual output of about 10 million. In the future, it will enter other home appliance-related chip products such as power and power supply. Midea is constantly extending to the upstream industrial chain and core scientific and technological fields.

To build a technology group, Midea still needs to further strengthen basic research and technology research and development. Looking at the C-end market, Midea needs to enhance the competitive advantage of home appliances such as air conditioners and ice washing, products need to be more "outstanding", and smart home ecological construction also needs to invest more energy.

Midea's power B-end, the growth rate will continue to be higher than the ToC side

At the end of the year and the beginning of the year, midea group carried out a new round of organizational structure adjustment. On December 30, 2021, Fu Yongjun, vice president of Midea Group and president of Midea's industrial technology, announced that "Midea Electromechanical" was officially renamed "Midea's industrial technology", challenging the goal of 100 billion yuan in revenue. Midea Group believes that this name change means that Midea's industrial technology has entered the 2.0 stage, which reflects midea's determination to accelerate the layout of To B's business, and is also an important embodiment of midea's group's technological transformation.

The Beijing News shell financial reporter noted that since the end of 2020, the To B business layout of the United States has accelerated. On December 30, 2020, Midea Group's overall business structure was changed from four major segments of consumer appliances, HVAC, robotics and automation systems, and innovative business to five major business segments: Smart Home Business Group, Mechanical and Electrical Business Group, HVAC and Building Division, Robot and Automation Division, and Digital Innovation Business.

In order to cooperate with the strategic adjustment, Midea Group made a number of mergers and acquisitions in 2020. In March of that year, Midea acquired 18.73% of the shares of Hekang Xinneng for 743 million yuan and obtained a controlling stake; in November of that year, Midea acquired Foshan Lingwang Elevator Company, entering the field of building system and intelligent control for the first time; in December of that year, Midea acquired Hitachi compressors in Thailand and incorporated it into the unified management of the group's mechanical and electrical business group.

Entering 2021, Midea Group is still continuously optimizing its layout. In February of that year, Midea acquired 29.09% of the shares of Wandong Medical for 2.297 billion yuan, becoming the new controlling shareholder; in September of that year, Midea Group HVAC and Building Division was officially upgraded to "Midea Building Technology Division". In November of that year, Midea decided to take a full-scale acquisition and privatization of KUKA, which already held a 94.55% stake.

Diversified mergers and acquisitions have indeed improved the revenue level of Midea Group, increased net profit, and strengthened Midea's anti-risk ability. Midea Group achieved revenue of 261.342 billion yuan in the first three quarters of 2021, an increase of 20.57% year-on-year; net profit attributable to shareholders of listed companies was 23.455 billion yuan, an increase of 6.53% year-on-year. The performance level is beyond Gree Electric Appliances and Haier Zhijia, ranking first among the three giants of home appliances.

This series of changes has also made the outside world re-examine the beauty. Northeast Securities believes that the development of B-end business is an important area for Midea to build a technology group and achieve future profitable growth. Three strategic directions open up growth space, relying on central air conditioning + Lingwang elevator + US control wisdom, to achieve building energy saving and emission reduction and intelligent management; relying on Meiyun Zhishu + KUKA + Ande Logistics, cut into the industrial SaaS and large logistics market; GMCC and Welling Motors to cut into the electric vehicle thermal management market has great potential.

Ma Wangjie, an analyst at CITIC Construction Investment, believes that the B-side of the United States has reached 25% of the business, and the ToB-side is in a big track with huge growth potential, and the growth rate continues to be higher than that of the ToC side, and it is expected that the proportion will be 35%-40% in 2025. There will be an opportunity to transform Midea from a C-end company to a global technology company, and its benchmarking companies will change from the original Haier and Gree to integrated industrial groups such as Siemens, Philips and General Electric.

Major General Ding, an observer of the home appliance industry, mentioned that midea's group has been working on the B-end business for some time, and "home appliances" are only the dominant labels of the outside world's perception of beauty. The B-end business will come naturally for midea. On the one hand, the layout of domestic home appliance companies at both ends of the home appliance business B and C is the norm; on the other hand, the home appliance sector has not been ideal in recent years, and it is expected to explore new business and seek new growth.

"At present, the business growth rate of home appliance companies is getting slower and slower, and the home appliance market is very saturated and fiercely competitive; Midea Group must open up new areas to further significantly grow." At present, Midea Group is similar to the previous development path of Japanese and Korean enterprises, gradually diluting or compressing the proportion of home appliance business, and making efforts to develop B2B business, such as elevators, medical treatment, industrial robots, etc. This is the strategy that Midea Group is promoting. Home appliance industry analyst Liang Zhenpeng said.

Air conditioners are small profits and quick sales, and smart homes still have constraints

The weakness of the home appliance sector and the growth of performance are indeed a major factor in the diversified transformation of many home appliance companies. Although Midea Group has developed its B-end business, it has not given up the competition for market share of home appliances. In recent years, Midea Group has increased the layout of smart homes and continuously strengthened the competitiveness of air conditioners, small household appliances, ice washing and other categories.

Since 2020, in order to gain more market share, Midea Group has launched multiple rounds of price concession activities, and the gross profit margin of the air conditioning business has declined significantly. Specifically, gree electric appliances in 2020 air conditioning business revenue of 117.882 billion yuan, down 14.99% year-on-year; gross profit margin of 34.32%, a year-on-year decrease of 2.80%. Midea Group's HVAC revenue was 121.215 billion yuan, an increase of 1.34% year-on-year; gross profit margin was 24.16%, down 7.59% year-on-year.

This trend also continued until 2021, midea group in the first half of 2021 HVAC revenue of 76.408 billion yuan, an increase of 19.33% year-on-year; gross profit margin of 20.85%, a year-on-year decrease of 3.35%. In the same period, the revenue of Gree electrical and air-conditioning products was 67.194 billion yuan, an increase of 62.57% year-on-year; the gross profit margin was 29.79%, a year-on-year decrease of 2.26%.

Recently, the marketer of Midea's air conditioner in North China told the Beijing News Shell Financial Reporter that in 2021, the market share of Midea's air conditioner has increased a lot. For the situation of small profits and high sales, he said that in 2022, the main axis of Midea's air-conditioning marketing is to "grow internally and improve the structure" and to force high-end products.

At the beginning of the new year, the air conditioning marketing competition in 2022 re-emerged, and under the influence of the rise of raw materials, the Midea Group began a new round of price increases. Youmei's sales staff told the Beijing News shell financial reporter that the price of the teller machine and the hang-up machine increased by 100 yuan to 200 yuan.

In this regard, the relevant person in charge of the air conditioner of the United States explained to the Beijing News shell financial reporter that this time is not a simple price increase, and the structure behind the price corresponds. From the perspective of business operation, the pursuit of high-quality, sustainable and structural endogenous growth goals; from the user experience level, to provide users with higher quality, better experience, more cost-effective products.

Midea Group has also begun multi-brand operations, launching high-end brand COLMO, brand Hualing aimed at the young market, and cuckoo brand for the Internet. On January 10, Midea Group Announced in China that according to the development trend of the meta-universe scene and the needs of user experience interaction, the virtual character Liangran was appointed as the manager of Hualing brand digital intelligence experience, and the virtual character Nuanqin was appointed as the director of Hualing brand trend design.

Major General Ding, an observer of the home appliance industry, believes that for a considerable period of time, the home appliance business will still be the business growth pole of the United States. Small profits and high sales are midea's phased operational strategies, and there may not be no changes in the follow-up. As for the decline in gross profit margin, it is not unrelated to the operation of the entire home appliance market. Of course, Midea also needs to make more efforts on the high-end path.

However, the midea group layout of smart homes is still restricted. Home appliance industry analyst Liang Zhenpeng believes that midea group has not yet laid out mobile phones, computers, TVs and other consumer electronics fields, smart homes lack control display screens; nor can Huawei develop a Hongmeng operating system, which has an impact on its want to create a seamless smart home ecology.

Basic research and technological research and development still need to be strengthened

At the end of 2020, Midea's group business structure "changed from four to five", making Midea's group share price reach a new high at the beginning of 2021, and the stock price at the beginning of that year broke through 100 yuan, with a market value of more than 700 billion yuan. However, after the Spring Festival of the Year of the Ox, the market once fluctuated downward, and the stock price of midea group also fluctuated downward. Midea Group began a new round of share repurchases.

In February 2021, Midea Group launched a share repurchase program of no more than 14 billion yuan. Before the Qingming Festival, Midea Group completed the repurchase program for 8.664 billion yuan. The thunder and rain are small, and the Midea Group repurchases shares at a low level, causing market agitation and the stock price of the United States to decline. In order to boost the stock price, in May 2021, Midea Group once again launched a share repurchase program of no more than 5 billion yuan.

At the same time, due to the 2020 Midea Group's actual controller He Xiangjian reduced his holdings of the company's shares to cash out 5.6 billion yuan, triggering market sentiment. He Xiangjian decided to increase his stake in the company in May 2021, and by the end of 2021, He Xiangjian held 0.46% of the group equity of Midea. Midea's group stock price began to fluctuate at 70 yuan per share since July of that year. Since 2022, it has been hovering at 70 yuan / share - 80 yuan / share.

"Since the restructuring of the U.S. plate at the end of 2020 and the establishment of five major business groups, the B-end business has become an important direction for midea to move from a consumer giant to a technology comprehensive giant and achieve future scale expansion." Due to the lack of relevant research data, the market has long lacked awareness of the current situation and future of midea's B-end business. Ma Wangjie, an analyst at CITIC Construction Investment, believes.

Some people in the home appliance industry also pointed out that "Midea Electromechanical" was officially renamed "Midea Industrial Technology" and became a solution provider in the fields of consumer appliances, industrial automation, intelligent transportation, and green energy. Keeping up with hot spots such as new energy and intelligent driving also provides growth momentum for the stagnant stock price.

However, home appliance industry analyst Liang Zhenpeng believes that there are still deficiencies in Midea Group compared with South Korea's Samsung and LG global large home appliance companies, and the above two Japanese and Korean companies have their own supporting industries such as compressors, panels, and chips. This part of the Midea Group is lacking, and the high-end chips still need to be mined, so there is still room for catching up in the upstream industrial chain, core technology research and development, and product innovation.

Recently, some investors asked midea groups whether midea groups have plans to enter the chip semiconductor industry in 2022. In this regard, midea group replied that in the second half of 2018, midea entered the chip field and began mass production in 2021, and the main chip type put into production was MCU control chips, with an annual output of about 10 million. In the future, it will continue to increase chip production and enter other home appliance-related chip products such as power and power supply.

Chips are indeed the core technology, in recent years, Gree, Galanz, Konka, Hisense and other companies have also laid out the chip field. Some chip industry insiders told the Beijing News Shell financial reporter that the layout of the midea chip business, the main smart home appliance products on the MCU control chip demand, before the high-end MCU control chip mainly rely on supply.

"Midea Group accelerates business development through the strategy of continuous acquisition and expansion, midea's acquisition of Hualing Electrical Appliances, Little Swan Washing Machine, German KUKA Robot, Lingwang Elevator, etc., through the acquisition of new industries, this is a typical epitaxial expansion strategy, can continue to expand the company's business scale and diversified development." Liang Zhenpeng believes that facts have proved that good technology needs to rely on independent research and development, and Midea still needs to accumulate in the field of technology.

On January 12, 2022, Fang Hongbo, chairman and president of Midea Group, also delivered a keynote speech, "Midea's competitiveness in the global market needs to be further strengthened, there is a 'card neck' phenomenon in basic research and technology research and development, the innovation and reform of systems and business models are not resolute enough, and it is imperative to solve the mental problems of self-sufficiency and blind self-confidence." ”

Beijing News shell financial reporter Chen Weicheng Editor Xu Chao Proofreader Guo Li