Text: Ning Chengqian
Source: Bowang Finance
Midea Group has made another big capital move.
Recently, Midea Group submitted listing documents to the Hong Kong Stock Exchange to be listed on the main board of Hong Kong, with CICC and BofA Securities as joint sponsors. According to the previous announcement of Midea Group, the company intends to issue no more than 10% of the shares in H shares, and the value of 10% of Midea Group's equity is around 50 billion yuan based on the current market value of 501.4 billion yuan.
It is worth noting that this IPO attempt is not the first time for Midea Group. On October 24 last year, Midea tried to list on the Hong Kong Stock Exchange, but was unsuccessful. As a company that has been listed on the A-share market, why does Midea seek to list on the Hong Kong stock market again?
While actively seeking capital expansion, Midea Group is also facing challenges such as the slowdown in the growth momentum of the smart home business, the large proportion of overseas OEM business, the low level of gross profit margin, and the fact that business transformation has not yet achieved obvious results.
At its peak in 2021, Midea's total market value was as high as 753.996 billion yuan, but now it is only a little more than 500 billion yuan, which also reflects the capital market's cautious attitude towards Midea Group's diversification strategy.
01
What happened to Midea's B-end business?
This second visit to Hong Kong, Midea Group handed over a brilliant financial report.
In the first quarter of 2024, Midea achieved revenue of 106.1 billion yuan, a year-on-year increase of 10.22%; The net profit attributable to the parent company was 9 billion yuan, a year-on-year increase of 11.91%. Previously, the 2023 annual report released by Midea Group showed that its annual revenue reached 373.7 billion yuan, a year-on-year increase of 8%, and the net profit attributable to the parent company was 33.7 billion yuan, a year-on-year increase of 14%.
From the perspective of business segments, Midea's business is divided into two major segments: smart home business (To C home appliances) and commercial and industrial solutions (To B).
Among them, the smart home business mainly includes air conditioners, refrigerators, washing machines, kitchen appliances and other home appliances, while the commercial and industrial solutions mainly include new energy and industrial technology, smart building technology, robotics and automation, and other businesses.
As we all know, Midea Group has always wanted to get rid of the label of a home appliance company and transform into a comprehensive technology giant, so Midea has been working hard to transform to the B-end over the years. To this end, Midea Group has been buying and buying for several years, and has successively acquired Toshiba of Japan, Kuka, a German robot company, Clevo, Eureka, Gaochuang of Israel, Lingwang Elevator and many other companies, and merged them into the To B business segment.
So how is Midea's B-end business doing?
According to the 2023 financial report, Midea's To B business has a total revenue of 84.9 billion yuan, accounting for 26.2 of the total revenue, which is still a small proportion compared with the main business of home appliances.
Among them, the revenue of new energy and industrial technology business was 27.9 billion yuan, with a growth rate of 29%; Robotics and automation achieved revenue of 31.1 billion yuan, a year-on-year increase of 12%; Intelligent building technology achieved revenue of 25.9 billion yuan, a year-on-year increase of 14%.
The revenue growth rate of these three businesses is more than double digits, it seems okay, right? However, the performance of these new To B businesses is also not stable enough.
In the latest quarterly report, the revenue growth rate of these three major businesses began to slow down or decline year-on-year. In the first quarter of 2024, excluding new energy and industrial technology business revenue, 7.7 billion yuan, a year-on-year increase of 23%; The revenue of intelligent building technology business was 8.2 billion yuan, an increase of only 6% year-on-year; The revenue of robotics and automation business was 6.7 billion yuan, a year-on-year decrease of 12%.
Midea Group said, "The revenue growth rate of smart building technology slowed down in the reporting period, mainly affected by the changes in heat pump subsidy policies in some countries and the decline in natural gas prices in Europe; The year-on-year decline in revenue from robotics and automation in the reporting period was mainly due to the suspension of the new capacity expansion plan of domestic automakers and the adjustment of product strategies of overseas automakers. ”
It can be seen that Midea's To B business is still in the early stage, and Midea wants to prove to capital that it is a global technology company, and its confidence is obviously not enough. In addition, the B-end track is still fiercely competitive, with brands such as Gree, Haier, Hisense, and TCL entering the game one after another, and the competitiveness of Midea Group is not strong.
02
"Home appliances" are still the main business, but the growth rate has slowed down
From the perspective of revenue structure, smart home (To C home appliances) is the company's main business. In 2023, the revenue of Midea Group's smart home business will exceed 240 billion yuan, accounting for 65.9% of the revenue.
According to Frost & Sullivan data, in terms of sales volume and revenue in 2023, Midea Group is the world's largest home appliance company, accounting for about 7.9% of the world's sales. The sales volume of the company's household air conditioners, washing machines and refrigerators all rank among the top three in the world.
However, behind the revenue of 100 billion yuan, the revenue growth rate of Midea's "basic disk" home appliance business has begun to slow down. According to the latest prospectus submitted by the United States, the growth rate of the above businesses in the past three years has been 13%, -1% and 5% respectively, which has been lower than the overall growth of 20%, 1% and 8% for three consecutive years.
As China's real estate industry enters a downward cycle, home appliance sales have also been greatly affected. According to Frost & Sullivan data, the sales volume of the global home appliance market will increase from 2.886 billion units in 2017 to 3.067 billion units in 2023, with a compound annual growth rate of only 1.0%, and the growth rate is slightly declining.
While the home appliance market is gradually entering the era of stock, the competition in the industry is extremely fierce. In addition to traditional home appliance manufacturers such as Gree and Haier, Chinese home appliances have also ushered in a wave of new players.
There are not only new forces such as Ecovacs and Roborock that focus on subdividing home appliance categories, but also technology or Internet giants such as Huawei and Xiaomi that specialize in incubating smart home appliance brands.
It is worth mentioning that Midea Group is not listed for money. As of the end of 2023, the balance of monetary funds held by it is about 81.674 billion yuan, accounting for 16.80% of total assets. The balance of the company's short-term borrowings is about 8.819 billion yuan, and the balance of non-current liabilities due within one year is 14.458 billion yuan.
As for the purpose of raising funds, Midea Group said that "it will be used for global technology research and development, smart home, commercial and industrial solutions, etc." "Although there is no shortage of money on the domestic books, for Midea Group, the Hong Kong stock market has a high degree of internationalization and a wider range of investors participate in equity investment, which may provide more opportunities and resource support for Midea.
03
The crux of Midea's "big but not strong" is obvious: high-end, intelligent and backward
For a long time, Midea Group's brand image has often been regarded as "big but not strong", lacking a clear brand label. Compared with Gree's air conditioner and Haier's refrigerator, Midea has no obvious representative products.
In the rising period of the home appliance industry, there is no problem for Midea to rely on the "volume" and "comprehensive" strategies, but as the industry turns to the stock market, intelligence and high-end have become the key way to avoid involution. Unfortunately, Midea is lagging behind in both areas.
In terms of high-end, Midea has two high-end brands, Toshiba Home Appliances and COLMO, Toshiba Home Appliances was acquired from Japan's Toshiba Group in 2016, with a slight sense of existence, but the performance is not outstanding, and there is a big gap with Bosch, Siemens, Panasonic and other foreign home appliance brands. COLMO IS EVEN LESS WELL KNOWN.
Taking the local brand Haier as a comparison, Haier's high-end brand Casarte has become a representative of local high-end home appliance brands. Casarte has been the TOP1 of high-end home appliances for 8 consecutive years, and the average unit price, high-end share, and compound growth rate are the first in the industry.
The high-end route did not go through, resulting in Midea being at the bottom of the gross profit margin. According to Wind data, Midea Group ranked last with 24.12% in terms of gross profit margins of Samsung, Sony, Panasonic, Haier, Hisense and Midea Group. The gross profit margin of the other five giants of similar size ranged from 24.24% to 41.08%.
In the field of smart home appliances, Midea Group has not yet made significant achievements. Although Midea established an IoT company in 2019 and upgraded it to an IoT division in 2020, it launches smart home appliances or whole-home smart products and solutions every year, but it has not achieved outstanding market performance.
In contrast, Haier Group has made more significant achievements in smart home appliances. As early as 2012, Haier put forward the strategy of upgrading home appliances to "net devices", and Haier's smart home solution three-winged bird brand achieved an astonishing 84% year-on-year increase in store retail sales in 2023.
Today, Haier continues to keep up with the development of generative AI, and at AWE in 2024, it showcased home intelligent thinking products that deeply integrate the capabilities of AI large models, such as HomeGPT, active intelligent services, and AI refrigerators.
And Midea's overseas business, which has always boasted, is actually still dominated by OEM. According to the prospectus, at present, Midea Group's smart home business includes both OEM/ODM foundry business and its own brand going overseas. In 2023, the proportion of the company's OEM products will still reach 61.59%, and the proportion of its own brands will be less than 40%. In contrast, as early as 2019, Haier Smart Home announced that its own brands accounted for nearly 100% of its overseas business.
Fang Hongbo once said, "The home appliance business has entered the stock stage, and if it wants to go through the cycle, it is necessary to carry out industrial upgrading and find the second growth curve." However, for so many years, Midea has been expanding its business territory by "buying, buying, buying", but it has never been able to explore a second growth curve that can go hand in hand with the home appliance business.
And a lot of this money comes from the capital market. Since its listing, Midea has obtained a lot of funds through direct financing. Flush data shows that from 2013 to 2022, including IPO fundraising, the company's cumulative direct financing (equity financing and debt financing) totaled 84 billion yuan.
At the same time, in the past two years, Midea has continued to spin off its subsidiaries and go public. In April last year, Midea's subsidiary, Meizhi Optoelectronics, submitted the form to the Shenzhen Stock Exchange again; In July of the same year, Midea spun off Ander Zhilian Supply Chain Technology Co., Ltd. to be listed on the Shenzhen Stock Exchange.
Midea Group has become a high-tech company, in the final analysis, it must have hard power, real ability, can not be too addicted to capital games, compared with the disorderly "buy, buy, buy", Midea still has to spend more time on the main home appliance business, lest the steps are too big to pull themselves, follow in the footsteps of General Electric.