The company's recent situation
We visited Midea's AWE booth; Midea's retail was monitored.
reviews
Strong adaptability, rapid transformation, and strong execution ability are characteristics of the company. The company regards 2019 as a period of major strategic transformation such as 1997 and 2012. The transformation has actually begun in 2018:1) Aiming at consumption stratification in the Chinese market, adopting a brand matrix strategy, high-end COLMO, Beverly (washing machines), AEG (brands introduced in a joint venture with Electrolux, targeting the kitchen appliance market); popular brands Midea, Little Swan; low-end Hualing; targeting Xiaomi, introducing the Internet brand Bugu (released during AWE). 2) Embrace the Internet mentality, boldly use Internet talents, and change the traditional offline sales mindset. Sales channels have been flattened, second-tier distributors have been reduced, and terminal outlets have placed orders directly online through “Meiyun Sales”. 3) Give full play to the advantages of R&D investment (R&D investment of 10 billion yuan in 2018, leading the industry), highlight the product's sense of technology, and achieve product leadership.
We visited AWE and saw: 1) Midea's product design is more simple, and Internet thinking has played a role. 2) The product has a strong sense of technology and has won many AWE AWARD gold awards. 3) COLMO is positioned as an AI technology home appliance. For example, an air conditioner cabinet launched uses aero-turbine technology. 4) The exploration of leading home appliances and smart homes is leading, but in practice, it has been found that the added value of simple intelligence is not high. Emphasizing the combination of technology (improving the basic performance of home appliances) and intelligence is a more precise positioning, which is superior to one-sided emphasis on intelligence.
Important tactical changes: 1) Early sales of air conditioners in the US in late February were earlier than the “Hot March” campaign in previous years, and were also slightly more intense. Due to the large inventory in the Gree channel, dealers did not fight on a large scale, considering purchase costs. 2) In 1Q19, Midea's air conditioning is doing a lot to replenish stocks. The T+3 strategy was implemented in 2018, and air conditioners were out of stock during the peak season. From this, it can be seen that T+3 is suitable for refrigerators, washing machines, etc., but not for air conditioners.
The 315 gala revealed problems with the maintenance services of Xi'an Tenghui Home Appliance Service Company (Little Swan After-sales Service Provider) and Chengjinxi Trading Co., Ltd. (Midea Home Appliance After-sales Service Provider). Furthermore, Chinese consumers often receive advertisements from fake repair outlets, which often cause problems with maintenance services. This type of incident is not expected to have a significant impact on the brand, but the company needs to strengthen management.
Valuation recommendations
It is expected to benefit from a decline in value-added tax, raising the 2019/20 EPS forecast by 2%/2% to 3.47/3.89 yuan. Maintaining the recommended rating, the target price was raised 6% to 59.00 yuan, corresponding to 17/15 times P/E in 2019/20. Compared with the current stock price, there is room for 23% increase. The company's current stock price corresponds to 2018/19 14/12 times P/E.
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Midea Group (000333) Self-transformation, strategic transformation and tactical adjustment (CICC)