Midea Group's Hong Kong Stock Listing
On September 17th, Midea Group (0300.HK) was listed on the Main Board of The Stock Exchange of Hong Kong, becoming an A+H listed company.
Midea Group's global offering consisted of approximately 566 million H shares, with 28.29 million shares (about 5%) offered to the public in Hong Kong and 538 million shares (about 95%) allocated internationally.
The final offering price was set at HKD 54.8 per share, raising a net amount of HKD 30.668 billion from the global offering, making Midea Group the largest IPO project in the Hong Kong stock market since Kuaishou's listing in February 2021.
On September 17th, Midea Group's H shares closed at HKD 58 per share, and A shares closed at CNY 63.51 per share, with a 1.15% increase; on the 19th, Midea Group's H shares closed at HKD 64.25 per share, with an 8.71% increase, and A shares closed at CNY 65.28 per share, with a 0.05% increase.
According to media statistics, Midea Group's first-day increase ranked 19th among the Hong Kong-listed stocks in the year.
Stocks such as Black Sesame Intelligence, Chabaodao, and Didi Chuxing were among the 16 stocks that experienced a price drop on their first day of listing, with a break-even rate of 35.56%.
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Amid the stock competition in the domestic home appliance industry, whether Midea Group's second growth curve can be stable and whether its globalization can drive performance growth are also the focus of external concerns.
01 Completion of "A+H" Listing The prospectus for Midea Group's "A+H" listing (assuming the over-allotment option is not exercised) shows that Midea Holdings and He Xiangjian, as the largest shareholder group, hold a combined 29.1% stake; Fang Hongbo holds 1.5%; other A-share shareholders hold 61.8%; and H-share shareholders hold 7.5%.
It is worth mentioning that on June 14th, Midea Group announced the results of the board of directors' election, and He Jianfeng, the only son of Midea Group's founder He Xiangjian, was not on the list of candidates for the new board of directors.
Data shows that He Jianfeng has been a director of Midea Group for the past 12 years.
Some believe that He Jianfeng's departure from the board, with no direct representative of the He family in Midea, will give the professional management team more space and autonomy, and further confirm He Xiangjian's approach to professional management succession.
In 2012, He Xiangjian stepped down as chairman of Midea Group and later left the group's board of directors, giving power to the professional management team led by Fang Hongbo, with the He family only existing as major shareholders.
The first major event after Fang Hongbo took office as chairman was the completion of Midea Group's overall listing.
In September 2013, Midea Group achieved listing through a share swap and merger with Midea Electronics.
Eleven years later, Midea Group led by Fang Hongbo has completed the "A+H" dual listing.
At the 2023 annual shareholders' meeting held in April this year, Midea responded to the reason for listing in Hong Kong, stating that the listing was not for raising funds.
If it were for raising funds, Midea Group would distribute more than 20 billion yuan in dividends every year, and reducing dividends could solve the funding problem.
The most fundamental reason for listing in Hong Kong is the breakthrough, convenience, and speed of the Hong Kong stock market.
Looking at Midea Group's performance, the company indeed does not lack funds.
From 2021 to 2023, Midea Group's revenue was 341.233 billion yuan, 343.918 billion yuan, and 372.037 billion yuan, respectively, with year-on-year increases of 20.06%, 0.79%, and 8.18%; the net profit attributable to shareholders of the listed company was 28.574 billion yuan, 29.554 billion yuan, and 33.72 billion yuan, respectively, with year-on-year increases of 4.96%, 3.43%, and 14.1%.
In the first half of this year, Midea Group's revenue was 217.274 billion yuan, with a year-on-year increase of 10.3%; the net profit attributable to shareholders of the listed company was 20.804 billion yuan, with a year-on-year increase of 14.11%.
The balance of cash and cash equivalents was 51.501 billion yuan.
Obviously, the listing in Hong Kong is for seeking more growth.
02 Searching for New "Battlefields" The domestic home appliance industry can no longer support the high growth of Midea Group.
According to data from Aowei Yun Network, the retail sales of white goods in the first half of 2024 were 231.9 billion yuan, a year-on-year decline of 7.0%, with a retail volume of 77.74 million units, a year-on-year decline of 3.6%.
Among them, the total channel sales volume of the air conditioning market was 33.15 million units, a year-on-year decline of 11.0%, and the sales volume was 111.4 billion yuan, a year-on-year decline of 14.5%; the total channel retail sales of the refrigerator market were 65.2 billion yuan, a year-on-year increase of 0.4%, with a retail volume of 19.36 million units, a year-on-year increase of 0.8%; the retail sales of the washing and care industry were 49.4 billion yuan, a year-on-year increase of 3.6%, with a retail volume of 20.29 million units, a year-on-year increase of 6.2%.
In 2023, Midea Group's domestic revenue was 221.132 billion yuan, a year-on-year increase of 9.87%; in the first half of this year, Midea Group's domestic revenue was 126.198 billion yuan, a year-on-year increase of 8.37%.
At the 2022 annual shareholders' meeting of Midea Group held in May 2023, Fang Hongbo said that the home appliance business has entered the stage of stock competition, with limited growth space.
"The lesson from the century-old enterprises in Western countries is that to cross the industrial and technological cycles, it is necessary to upgrade the industry and find a new so-called second curve, second engine."
Midea's "second curve" is the To B business.
In the 2023 annual report, Midea Group mentioned that the revenue of commercial and industrial solutions business accounted for more than 26% of the total revenue in 2023, up from 18.5% in 2020, and the revenue approached 100 billion yuan in 2023, making commercial and industrial solutions one of the main engines for the continuous growth of Midea's business.
This business includes new energy and industrial technology business, smart building technology business, and robot and automation system business.
In the first half of this year, To C's smart home business increased by 11% to 147.6 billion yuan; while To B's new energy and industrial technology business, smart building technology business, and robot and automation system business revenue were 17.1 billion yuan, 15.7 billion yuan, and 13.9 billion yuan, respectively, with year-on-year increases of 26%, 6%, and -9%.
In the 2023 annual report, Midea Group published a letter to shareholders, stating that it would continue to promote the balanced development of To C and To B businesses.
The development of B-side business requires a longer cycle and time, maintaining strategic patience and determination, continuous investment, and gradually building Midea's ability to cross the cycle in the long term.
At the same time, globalization is becoming more and more important to Midea Group.
The letter mentioned that the focus of Midea's operations in 2024 is the efficiency improvement of the entire value chain operation and structural growth upgrade.
Global breakthrough is one of the core strategies at present, and the essence of internationalization is localization, internationalizing the headquarters, turning foreign countries into hometowns, and continuing to increase the construction of overseas after-sales service, logistics, brand, and other infrastructure.
The prospectus for the Hong Kong listing of Midea Group shows that about 20% (HKD 5.194 billion) of the net proceeds from the listing will be used for global R&D investment; about 35% (HKD 9.09 billion) will be used for the continuous investment in the upgrade of the intelligent manufacturing system and supply chain management; about 35% (HKD 9.09 billion) will be used to improve the global distribution channels and sales network, as well as to increase the overseas sales of its own brand; about 10% (HKD 2.597 billion) will be used for operating funds and general corporate purposes.
It can be seen that globalization plays an important role in the development of Midea Group.
In the first half of 2024, Midea Group's foreign revenue was 91.076 billion yuan, a year-on-year increase of 13.09%, accounting for 41.92% of the total revenue.
Compared with the domestic growth rate of 8.37%, the foreign market has a higher growth rate.
It is worth mentioning that at the annual shareholders' meeting in 2023, Midea Group said that except for the Chinese market, the overall scale of the overseas home appliance market is close to 400 billion US dollars.
However, there are only a few global players.
Currently, there are only Electrolux and Bosch Siemens in Europe, Whirlpool in the United States, LG and Samsung in South Korea, and three in China, Haier, Hisense, and Midea.
Therefore, the space for the international market is infinitely large.
In 2023, the company's overseas business did more than 150 billion yuan, of which home appliances accounted for more than 120 billion yuan.
However, this only accounts for a little more than 4% of the total share in the overseas home appliance market.
03 Whose Second Curve is More Stable?
As the home appliance industry enters the state of stock competition, while Midea Group is focusing on B-side business and going overseas, Gree Electric Appliances, Haier Smart Home, and others are also laying out the second growth curve.
In order to develop B-side business, Midea Group has successively acquired the controlling rights of Hekang New Energy, Lingwang Elevator, Wandong Medical, Kelu Electronics, etc.
In terms of globalization, Midea Group has successively acquired Japan's Toshiba white goods business, Germany's robot company Kuka, Italy's central air conditioning company Clivet, and Electrolux's vacuum cleaner brand Eureka.
These acquisitions have also promoted the transformation of Midea Group.
The semi-annual report for 2024 shows that Midea's overseas own-brand (OBM) business is growing rapidly, and the OBM business revenue in 2023 has reached more than 40% of the overseas smart home business revenue, mainly based on Toshiba, Midea, and Comfee brands.
Gree Electric Appliances stated in the semi-annual report for 2024 that the company continues to exert efforts in the fields of intelligent equipment, renewable resources, refrigeration accessories, and pre-cooked food equipment, providing diversified growth momentum for performance.
However, from the performance, air conditioning products are still the main source of revenue for Gree Electric Appliances.
In the first half of 2024, Gree's air conditioning revenue was 77.961 billion yuan, accounting for 78.14% of the total revenue.
In terms of going overseas, foreign sales contributed 14.86% of the revenue.
Haier Smart Home, on the other hand, is focusing on high-end and globalization.
In the semi-annual report for 2024, Haier Smart Home stated that the company has formed seven brand clusters through independent development and mergers and acquisitions, including Haier, Casarte, Leader, GE Appliances, Candy, Fisher & Paykel, and AQUA.
Its products cover air conditioners, refrigerators, kitchen appliances, water appliances, washing machines, etc.Haier Smart Home adopts a user-centered differentiated multi-brand strategy in different regions to achieve user coverage.
In the Chinese market, it covers high-end, mainstream, and niche market segments through the brands Casarte, Haier, and Leader; in the US market, it covers through six major brands: Monogram, Café, GE Profile, GE, Haier, and Hotpoint.
In the first half of 2024, Haier Smart Home achieved revenue of 135.623 billion yuan, a year-on-year increase of 3.0%; of which overseas market revenue was 70.824 billion yuan, a year-on-year increase of 3.7%.
In the search for a second growth curve, the progress of the three major home appliance leaders varies.
Under the "involution" of the domestic home appliance industry, whoever has a more stable second growth curve will win more future increment and higher market status.
Under the leadership of Fang Hongbo, Midea Group has transformed from an A-share listed company to an "A+H" listed company.
Will Midea Group, with more funds, win this "race"?