What kind of hisense did Zhou Houjian leave behind?

Text | City Boundary, author | Lin Xiahuai, Editor, | Li Yue

Since the establishment of Hisense's predecessor "Qingdao Radio No. 2 Factory" in 1969, Hisense has been established for 53 years.

Starting from the TV business, Hisense has built the TV business into the "first in China" while gradually extending to the field of white electricity, expanding its business territory through continuous mergers and acquisitions and the establishment of joint ventures.

As of now, Hisense Group already owns Hisense Video (600060. SH), Hisense Home Appliances (000921. SZ) and Sanden Holdings (6444.T) are three listed companies that operate tv, white goods and automotive air conditioning systems, respectively, of which Sanden Holdings was just acquired by Hisense in 2021.

Zhou Houjian, who has been in the Hisense Group for 40 years and has been in charge for 30 years, recently resigned as the chairman of the group and was replaced by Lin Lan, who came to Hisense with Kelong many years ago.

On March 30, 2022, Hisense Home Appliances, which is mainly engaged in white goods business, handed over the 2021 financial report, and it is worth exploring what kind of Hisense Zhou Houjian handed over to Lin Lan when the new and old managers alternated?

01 Hisense under Zhou Houjian

On March 12, 2022, Zhou Houjian, chairman of Hisense Group, announced his resignation as chairman of Hisense Group Holdings Limited.

In Hisense's 53-year growth process, Zhou Houjian managed it for 30 years, and most of the evaluations related to it were "low-key" and "gengzhi".

Liu Buchen, an analyst in the home appliance industry, believes that as a manager who has experienced most of hisense's development history, Zhou Houjian's mark on Hisense is roughly reflected in the three aspects of heavy technology, diversification and globalization.

After entering the Qingdao TV General Factory, the predecessor of Hisense, in 1982, Zhou Houjian became the director of the factory in 1992 and began reform.

In 2000, Hisense officially established the project and began to carry out research and development of TV chips, and by 2005, the "xinxin" was launched, breaking the monopoly of foreign companies on digital video processing chips, and was an important breakthrough in the domestic color TV industry. Up to now, Hisense is also one of the few domestic TV manufacturers in China that has independently developed chips.

(Hisense official website)

In terms of diversification, in addition to the TV business, Hisense introduced technology in 1996 and was the earliest enterprise involved in inverter air conditioners in China; in 2006, it acquired the two major air-conditioning brands of Kelong and Rongsheng for 680 million yuan; in 2001, it entered the refrigerator industry through strategic cooperation and acquired Beijing Snowflake Refrigerator Factory the following year; in 2008, it formed a joint venture company with Whirlpool, the world's largest white electricity manufacturer, and began to produce washing machines and other products.

In the process of expansion, Hisense home appliances, which are mainly engaged in air conditioners, refrigerators and washing machines, surpassed Hisense Vision, which is mainly based on TV business, for the first time in terms of revenue and net profit in 2017, but the market value of Hisense Vision is still higher, as of April 6, it was 12.869 billion yuan and 14.967 billion yuan, respectively.

In the process of globalization, Hisense established Hisense south Africa in 1996, and then successively set up 54 companies and offices, 18 industrial parks and production bases overseas, and continuously expanded the brand influence of Hisense TV in the world by sponsoring many World Cups.

At the same time, the proportion of hisense vision from overseas operating income from scratch has exceeded 50% by 2020, and the proportion of revenue from overseas of Hisense home appliances (formerly Known as Guangdong Kelong) has remained between 26% and 35% since 2010, but it has gradually changed from OEM (FOUNDRY model) to its own brand model.

Zhou Houjian, who has always been low-key, publicly intimidated Xiaomi in 2015, which can be said to be one of the few "high-profile" statements.

In 2015, Xiaomi and LeTV were busy with a "war of words", and Zhou Houjian was stimulated by Xiaomi's "sales first" and held a special conference to publicly oppose it.

Zhou Houjian said, "Xiaomi and LeTV are peers, I don't comment much, but Lei Jun said on Weibo that Xiaomi smart TV sales are the first, and I feel very uncomfortable." Xiaomi's rhetoric is considered by Zhou Houjian to be "nonsense marketing, shut up without this skill."

(In September 2013, Lei Jun released a Xiaomi smart TV of 2999 yuan)

But after that, Xiaomi continued to "stand out" in the TV field, and sales did bring continuous pressure on traditional home appliance brands.

In the 2018 annual report, Hisense changed the expression of "domestic retail sales ranked first" in previous years, and no longer emphasized the sales volume of the current period, starting in 2019, Hisense changed the expression to "the overall retail sales share ranked first" in the annual report.

Looking at the domestic home appliance industry, analyst Liu Buchen believes that Hisense's various business sectors rank roughly fourth in general, followed by Midea, Haier and Gree. However, if you look at it by sector, the status of Hisense's black electricity business and white electricity business is very different.

In the field of television (black electricity), Hisense ranks first in sales in the domestic market, compared with Xiaomi's advantages in sales, Hisense TV's overall brand power and technical level are higher, which can support a higher premium; in the field of white electricity, because Hisense mostly relies on mergers and acquisitions, joint ventures to cut into related fields, it is still unable to form outstanding highlights and strong technical support.

Overall, Hisense is still an "excellent but not the most outstanding" home appliance company, and this description also applies to the annual financial report handed over by Hisense home appliances in 2021.

02 Gross profit margin needs to be improved

According to the latest annual report data, Hisense home appliances will have a revenue of 67.563 billion yuan in 2021, an increase of 39.61% year-on-year, which is not only the highest value since its inception, but also the largest year-on-year growth in the past decade.

Founded in 1984, Hisense Home Appliances produces and sells products including air conditioners, refrigerators, washing machines, freezers, etc., and currently covers eight major brands such as Rongsheng, Kelong, Hitachi, and Hisense.

By product, the growth in 2021 is mainly driven by a 30% increase in the air conditioning business and a 23.03% increase in the ice washing business, which will be 30.403 billion yuan and 23.018 billion yuan in 2021, accounting for 45% and 34% of the total revenue, respectively.

At the same time as revenue growth, the net profit of Hisense home appliances is not optimistic, the net profit of 2.343 billion yuan for the whole year, down 17.68% year-on-year, according to the annual report, this is mainly affected by the operating loss of household air conditioners.

In the operating cost of Hisense home appliances, more than 90% are raw materials, which are capital-intensive industries, and raw material fluctuations have a significant impact on profitability. While hisense home appliances revenue increased by 39% in 2021, the cost of raw materials increased by 48.9% year-on-year, directly resulting in a sharp decline in gross profit margin from 24.05% in the previous year to 19.7%.

This is undoubtedly worse for Hisense, whose gross profit margin is already at a low level in the same industry.

From the perspective of air conditioning business, the gross profit margin of Hisense home appliances in recent years is between 20% and 30%, midea is between 24% and 32%, and Gree is between 34% and 40%, although there is a catch-up trend, but there is still a more obvious gap.

In terms of ice washing business, the gross profit margin of Hisense home appliances is between 16% and 24%, and Haier's washing machine business is between 32% and 35%, and the gap is also obvious.

From the perspective of cash flow, we can better see the overall situation of Hisense home appliances in 2021.

The year-on-year decline in net cash from operating activities indicates that although revenue increases in 2021, the decline in profitability has led to less money finally earned.

The net cash from negative to positive financing activities indicates that the rising cost of raw materials and the acquisition of Japan's Sanden Company during the year require more capital reserves, resulting in the first net financing demand for Hisense home appliances since 2015, with a new interest-bearing debt of 3 billion yuan in the whole year, and mainly short-term borrowings.

Although the amount of borrowing is not high, in the previous decade, hisense home appliances with interest-bearing debt never exceeded 300 million yuan, and most of the time did not exceed 100 million yuan.

In addition, the amount of foreign investment that continues to grow is also due to more book funds circulating to purchase wealth management products.

On the whole, the information conveyed by the annual report is that the scale continues to expand, but due to factors such as the price increase of upstream raw materials, the profitability is not good.

With the resignation of Zhou Houjian, his multi-faceted pressure came to the successor Lin Lan.

02 After the "veteran" Lin Lan took over the baton

According to public information, Lin Lan graduated from the Department of Mechanical Engineering of Naxi University of Science and Technology in the United States in his early years, obtained a doctorate, and then was responsible for the internationalization-related business of Kelong, and after Kelong was acquired by Hisense in 2006, Lin Lan joined Hisense and was responsible for his international business.

During his tenure, Hisense's internationalization process has included the acquisition of Toshiba of Japan, the European electrocution company Gorenje, the Japanese Sanden Holdings and other progress, and the establishment of Hisense production bases in Mexico, Eastern Europe and other places.

In the book "History of Hisense", it is mentioned that Lin Lan was a classmate of Gu Yanjun in his early years, and was invited to join Kelong as a vice president, and after Gu Yanjun was arrested, he relied on several overseas major customers to maintain the company's operation. This kind of coming forward was highly appreciated by Zhou Houjian, who described him as a "real man".

When he acquired Kelong in 2006, Zhou Houjian wanted Lin Lan to join Hisense together, lin Lan asked Zhou Houjian what the conditions were, and Zhou Houjian replied, "The condition is that your salary is too high, and you have to give you a salary reduction." At the same time, Zhou Houjian may give Lin Lan a bigger platform and a higher position - vice president of Hisense Group, the number one in international business.

From 8:00 a.m. to 3:00 p.m., Zhou Houjian finally gained the franchise of Lin Lan, and Lin Lan did bring positive changes to Hisense's overseas business development.

As the domestic real estate industry enters the second half, the popularity of home appliances gradually increases, the growth space of the domestic home appliance industry is limited, and "big head overseas" has become the internationalization goal of Hisense Group, and going to sea is also the main development direction of many home appliance companies in recent years.

This time Zhou Houjian chose Lin Lan to take over the baton, and many people in the industry believe that it is precisely because of Lin Lan's international business background.

(Zhou Houjian, former chairman of Hisense Group, first from the left in the picture above)

So from the data point of view, how has Hisense's current internationalization goals been accomplished?

In terms of business, Hisense Vision, which is mainly engaged in TV business, increased its sales share outside Chinese mainland from 18.27% in 2006 to 60.06% in 2020, and Hisense home appliances, which are mainly engaged in white goods business, have only slightly increased from 30.69% to 34.28% in 2021.

Compared with the growth of export business volume, Hisense home appliances have been more important in recent years, from the OEM model of OEM for overseas home appliance companies to the export of independent brands.

According to the development law of the globalization of home appliance enterprises, it can usually be divided into three stages, which are product output (OEM), capital output (factory construction, production of independent brands) and brand and standard output, on the whole, most Of China's home appliance companies are currently working towards the second stage.

However, from the perspective of overseas business scale and gross profit margin, Hisense has yet to complete the final key leap.

Compared with itself, the gross profit margin of Hisense home appliances overseas business has also remained between 6.8% and 9.3% since 2017, without significant improvement, and there will be a decline in 2021 due to environmental impact.

After the veteran Lin Lan took over, whether it was black or white, domestic or foreign, Hisense obviously had a lot of homework to do.

In terms of television business, Hisense Video has been in the first position of sales in China for more than ten consecutive years, but it has lost the throne of the first domestic sales, and overseas is facing strong enemies Samsung, LG and TCL, how to strengthen online marketing capabilities, how to obtain recognition from overseas markets, are all problems.

In terms of white electricity business, the financial data of Hisense home appliances with high income and low gross profit reflects the challenge of "big but not strong". For enterprises that cross from black electricity to white electricity business, the inherent innate factor of "transmission on the starting line" also needs to be rapidly improved in the later stage of development.

For Lin Lan, these are long-term problems to be solved.