"It is easy to keep, it is difficult to iterate", and the home appliance giants are still one step away from the ideal valuation

Image source @ Visual China

Wen | to good finance

After the exploration of 2020 and 2021, the entire home appliance industry has gradually found that the road to intelligent transformation of enterprises is not as smooth as imagined, and even the industry giant Haier Zhijia still needs to prove itself to the capital market.

When he went public in Hong Kong, Zhang Ruimin once put forward three goals for Haier's transformation: "Shareholders first become the value of people first, from home appliance brands to ecological brands, from marginal returns to marginal returns." At that time, there was a view that in the face of the capital market, Haier seemed to want to tell a more imaginative "intelligent story".

According to the information of tianyancha APP, in December 2020, Haier Zhijia went public in Hong Kong, and the transaction amount reached 696 million yuan at that time. Now that more than a year has passed, the capital market does not seem to buy the "intelligent story" of home appliance brands.

Home appliance giant "easy to keep, difficult to iterate"

At the end of March this year, Haier Zhijia released its 2021 financial report, during which the company's revenue increased by 8.5% and net profit attributable to listed shareholders increased by 47%. After the release of the earnings report, Credit Suisse, JPMorgan Chase, CMB International and other institutions retained the "buy" and "overweight" ratings, but lowered the target price.

Interestingly, in addition to the institutional assessment, the secondary market also seems to have a flat response to this financial report.

After the release of the 2021 financial report, Haier Zhijia's Hong Kong stock price rose to 25.65 yuan, and as of April 12, Haier Zhijia's stock price was still hovering around 25 yuan. It is worth noting that on March 31, A-share Haier Zhijia issued an announcement that the company intends to repurchase shares for 1.5 billion yuan to 3 billion yuan.

The double good news of earnings growth and share repurchase announcements does not seem to have aroused enough enthusiasm in the secondary market, which may mean that Haier Zhijia's next road of intelligent transformation will be more difficult.

Institutional investors will judge the value of enterprises in a more granular way and will rely more on data analysis results rather than market subjective assumptions.

Judging from the actions of many institutions to maintain ratings but lower the target price of Haier Zhijia, on the one hand, it is an affirmation of the fundamentals of the company. This means that it is not difficult to maintain the existing market share structure and its own advantages, on the other hand, it may also be insufficient expectations for future growth.

In a word: it is easy to keep, it is difficult to iterate.

There are two main lines of the underlying growth logic of the home appliance industry, one is the synchronous growth brought about by macroeconomic growth, and the other is the growth brought about by technological iteration. The former relies on the release of demographic dividends to drive the growth of market demand, while the latter relies on technology + product replacement.

From this point of view, the reasons why the market is pessimistic about the future of home appliance companies may be as follows:

The old cycle down superimposed on the new cycle upside suffered setbacks

The cyclicality of social and economic development is the basic law, and the length of cycles in different industries is different, some take the quarter as the cycle, which is often said to be the off-season peak season, some take the year as the cycle, and some industry cycles take the ten-year span. But fundamentally, it all comes down to two cycles: the demographic dividend cycle and the technology dividend cycle.

For the home appliance industry, whether it is the growth of just demand brought about by the former policy of home appliances going to the countryside, or the iterative growth of products under the previous consumption upgrade, the old cycle of dividend growth has ended.

Haier saw through this and chose intelligent transformation.

Enterprise transformation is to enter a new growth cycle, and the new cycle is a technology dividend cycle, which requires all-round iteration of technology and brand. As a result, we have seen that in the past year, Haier Zhijia has vigorously promoted the three-winged bird brand and shaped the consumer perception of "product intelligence" from many aspects of marketing and products.

From the financial report data, such brand building is a certain effect, the data shows that driven by the three-winged bird brand, the company's set of product sales increased by 62% year-on-year, wisdom complete set of product sales increased by 15%.

There are also hidden concerns under growth.

At the turn of the cycle, it is also the time when the growth momentum of the enterprise is converted, and the old cycle is superimposed on the new cycle upward, and the most feared by the transformation of the enterprise at this time is the external sudden risk.

Unfortunately, such risks may be accumulating. On the one hand, the contraction of demand and the weakening of supply shock expectations are the external risks that home appliance companies led by Haier Zhijia need to face.

Reflected in the data, according to Aowei data, the size of the home appliance retail market last year fell by 7.4% compared with 2019, and the scale of the industry began to shrink when demand weakened.

In addition, the "2021 Review and Outlook of China's Home Appliance Industry" also pointed out that the profit growth rate of the home appliance industry in the past year was significantly lower than that of revenue, the domestic market was relatively flat, the growth of the traditional product market was weak, and multiple factors such as bulk raw materials, shipping, and exchange rates adversely affected corporate profits.

On the other hand, the rise in global maritime transport, the rise in bulk materials, and the complex international situation may further affect the growth of overseas business. Judging from Haier Zhijia's 2021 financial report, in addition to the Japanese market revenue falling by 3.4% year-on-year, other overseas markets have had different growth in the past year, but under the influence of many superimposed factors, it is still unknown whether the growth trend of some overseas markets can continue.

High-end growth vs. margin disadvantage

High-end has become the consensus of home appliance companies in the past period of time, and Haier is one of the few high-end more successful head home appliance companies, from the 2021 financial report, casarte brand growth of more than 40%.

The growth of premium brands does not seem to have brought much of a comparative advantage in net profit margins. Judging from Haier Zhijia's financial report and market feedback, the valuation logic of net profit is greater than the logic of growth valuation is still the consensus of the home appliance industry.

The data shows that from the perspective of the whole of last year, the net profit margin for the whole year of 2021 is 5.8%. In contrast, in the first three quarters of 2021, the net profit margin of Midea's smart home business group was about 9%, Gree exceeded 10%, and Haier Zhijia was at 6% for many years.

The relative disadvantage of profit margins may be related to higher sales expenses, and the financial report data shows that during the reporting period, the company's sales expenses rose by 8.66% year-on-year to 36.55 billion yuan. In addition, the company's operating costs increased by 6.11% year-on-year.

The uncertainty of increased competition > certainty of strategic transformation.

The biggest difference between the home appliance giants led by Haier Zhijia and the United States and Xiaomi and Huawei players doing smart homes is that for the latter, smart homes are doing "good at things" and are a natural extension of the business. For Haier Zhijia, Midea led by the home appliance companies is more like a "change of lane", although the product is still a home appliance product, but the definition of the product has changed, competition has become a multi-dimensional competition of technology + ecology + users.

Just like the automotive industry is being subverted by new energy, the home appliance industry is in the "lane change" stage, and intelligent technology + ecology is the winner.

Home appliance industry, short-term look at resources, long-term look at technology. Compared with Xiaomi and Huawei, Haier Zhijia may still have deficiencies in interaction and ecology. In fact, in the current home appliance industry, the advantage of resource allocation is >

The advantage of resource allocation is the influence of the industry. Supply chain resources and industry resource accumulation, etc. Long-term value growth actually comes more from the company's own intelligent technical strength.

Compared with Huawei Millet, Haier Zhijia, Midea and other home appliance giants have resource allocation advantages, supply chain advantages, and resource advantages determine short-term growth, so from the perspective of financial reports, the performance growth trend is acceptable. Haier Zhijia financial report data shows that in 2021, the revenue of smart home business will be 120.79 billion yuan, an increase of 22% year-on-year.

Compared with the financial report, another data dimension may more truly reflect the power comparison of intelligent strength.

According to the statistics of Qimai data, in the 12 months at the end of September 2021, the number of downloads of the Mijia APP iOS was 8.58 million times, and the Meiju and Haier Zhijia were only 5.03 million and 4.15 million, respectively; the sum of the Mercure and Haier Zhijia of The Android Duanmei was less than 400 million, less than 10% of the Mijia.

"In the past two years, Haier Zhijia's transformation actions have been recognized by the industry, and the results of the transformation are also available from this financial report, but the giant wheel turn may not be as easy as imagined." Wen Wei (pseudonym), a relevant person in the smart home appliance industry, said: "Large enterprises like Haier, Midea, TCL, as long as the execution is strong enough, strategic transformation may be relatively easier, but it is difficult to change the company's genes, it is difficult to completely transform in the face of the intelligent wave, and it is necessary to completely transform the old organizational structure and the old interest structure. ”

Over the mountain of intelligence, the valuation of home appliance companies has ushered in a change

Two years ago, Li Dongsheng, chairman of TCL Group, once raised such a question at the performance meeting: "Analyze, why is the ratio between TCL and the same industry so much lower, and the PE is only one-third of the same industry?" Today, can we change this question to another question: "The Internet of Everything and smart home have been shouting for several years, why has the valuation logic of home appliance companies still not changed at all?" ”

Before answering this question, it is necessary to clarify a basic point, what is the core of high valuation? Why does Moutai endure for a long time, why is Apple sought after by the capital market, and why does Tesla become the world's largest car company in terms of market capitalization?

Some say it's the long-termism of value investing, while others say it's a solid growth fundamental.

In fact, the core of high valuation is scarce value.

For the smart phone industry, Apple is a vane of innovation, and the core of high valuation is not because Apple produces smart phones, but because of Apple's software, hardware design capabilities, and scientific and technological innovation capabilities. And this is a scarce value.

For the liquor industry, Moutai is the first representative of the sauce and aroma category, synonymous with China's high-end liquor brand, the core of high valuation is not because Moutai is delicious, but because people recognize the national liquor brand, this brand value is also a scarce value.

For Tesla, self-driving chips, self-driving technology and even Musk himself are a scarce value, who dares to say that Musk is not one of the factors of Tesla's high valuation?

For the current home appliance industry, scientific and technological innovation is a scarce value, because new technology can bring new consumption.

Therefore, even if the high-end brand of Haier Zhijia behind the financial report grows and the results of intelligent transformation begin to appear, the capital market response is not enthusiastic, which may be because in the eyes of investors, whether it is the three-winged bird brand or other smart home products of Haier Zhijia, there is not enough scarce value.

In other words, in the lowest valuation logic, the market still uses the logic of industrial valuation to make value judgments on home appliance brands such as Haier Zhijia and Midea, rather than the home appliance manufacturers themselves want to price with the logic of technological valuation.

The so-called industrial valuation is actually the basis for the capital market to evaluate whether a home appliance giant is strong in the past, mainly relying on market share, core revenue, profit, asset yield, industry CR value, etc. to consider the overall value level of the head enterprise, which is a typical industrial valuation logic.

The so-called technology valuation, in fact, emphasizes that the technical barriers are not strong, the application scenarios are not broad, and how big the future realization market is. For example, Tesla's high valuation is not based on how much market share Model3 occupies, but on the optimistic expectation of future market growth under the general trend of global new energy vehicle market growth.

For the home appliance industry, the core of achieving high valuation is actually on top of the industrial value, and it is more than its own scientific and technological value. Therefore, the head home appliance enterprise needs to enter a stage of value reconstruction: from industrial valuation to the transformation of the logic of technology valuation.

As the first batch of home appliance giants with intelligent transformation, why can't Haier Zhijia use more technology valuation logic to price the secondary market?

There may be two reasons for this: one is the lack of technical content of the valuation itself, and the other is the hedging of the valuation of new and old players in the industry.

Traditional brands may be easy to fall into a misunderstanding, that is, as long as the product is sold more, then the capital market will give a positive response. In fact, for home appliance giants, it is not to say that manufacturing and selling smart home appliances is enough, but to become a technology company from the bone.

Taking Haier Zhijia as an example, from the financial report, Haier Zhijia may still not be a technology-driven enterprise, and the company's R& D investment will account for only 3.94% of operating income in 2021. In other words, as a representative of traditional manufacturing enterprises, even if the industry gradually enters the era of intelligence, its own scientific and technological content may still be insufficient, which may mean that it is difficult to obtain technical advantages in the face of competition from technology companies in the future.

In addition, the hedging of the valuation of new and old players in the industry may also affect the pricing of old players in the capital market by the secondary market.

With the downturn of the real estate industry, the future home appliance market, for a long time, may be a stock market, compared with the automotive industry, the stock market, the rise in the valuation of new players, more accompanied by the retracement of the valuation space of old players.

For example, tesla Wei Xiaoli's valuation has risen, corresponding to the weakening of the valuation of traditional brands, which has come further, because of a value substitution of new players to old players.

From this point of view, it may not be difficult to understand the deep reason why Haier Zhijia has such a deep performance in the capital market. When Huawei, Xiaomi and other mobile phone manufacturers gradually occupy more market share in the field of smart home, even if the former is successfully transformed, the future valuation space may be further compressed.

So, for Haier Zhijia and TCL, how can we cross this intelligent mountain and how to support the future valuation space?

In the long run, the key lies in two points, one is software strength, and the other is the strength of the information industry.

Software strength is actually to make up for shortcomings.

Nowadays, the daily use of smart phones makes people subconsciously think that software technology is not a core competitiveness, in fact, on the contrary, for traditional enterprises, software technology capabilities need to spend a lot of effort to accumulate, which can accumulate comparative advantages for the transformation of other traditional brands.

On the industrial side, semiconductors, AI technology, big data technology and other fields in the upstream of the entry may not form a large plus for the time being, but there may be a reduction of points if it does not enter the market.

Finally, the bottom card is the accumulation of core technologies in the upstream supply chain, such as the design ability of control chips, which is generally difficult to see from the outside world, but once faced with the economic cycle and the market environment of cruel competition, the value of the supply chain of core technologies will immediately surface.

Whether it is Haier Zhijia or other traditional home appliance companies, intelligent transformation is not an easy task, but over this mountain, the underlying valuation logic may usher in a transmutation.

Risks and opportunities coexist, and the road to corporate transformation is also full of dangers. However, in the long run, industrial value upgrading is the only way, and for the increasingly inward home appliance industry, no matter what, change is a good thing after all.