Incident: The company announced the third phase of the employee stock ownership plan and the cancellation and reduction of the company's registered capital. The capital size of the employee stock holding plan does not exceed 1.614 billion yuan. The share holding plan comes from some of the shares already repurchased in the fourth phase of the company's special repurchase account. The stock size is no more than 79,462,095 shares, accounting for about 1.41% of the company's total share capital. The price of the employee's shareholding plan to buy back shares of the company is 20.31 yuan/share. The employee stock ownership plan lasts for 3 years, and the lockdown period is 12 months. The scope of holders of this employee stock ownership plan includes the company's directors (excluding independent directors), supervisors, senior management, and middle-level cadres and core employees of the company and holding subsidiaries who play an important role in the company's overall performance and medium- to long-term development. The total number of employees who intend to participate in this employee stock ownership plan is no more than 12,000. The final number and list of participants will be determined based on the employees' actual contributions. The performance assessment period set by the company: 2024-2025, the return on net assets will not be less than 20.00%.
The company changed the purpose of repurchasing a total of 30 million shares stored in the special securities account for repurchase, from the original plan “to implement the company's share incentives or employee stock ownership plan” to “use to cancel and reduce registered capital accordingly”, and cancelled 30 million shares and reduced the corresponding registered capital. The cancellation portion accounted for 0.5% of the total share capital. After the cancellation is completed, the total share capital of the company will be reduced from 5.631 billion shares to 5.601 billion shares, and the registered capital will be reduced from 5.631 billion yuan to 5.601 billion yuan.
Shareholding plans are normalized, and the company's dividend rate level is high. Compared with the previous employee stock ownership plan, the size of the staff distributed this time is basically the same as the second time, and the scope of incentives is larger; the performance assessment goal is only to assess return on net assets; there are no restrictions on net profit or dividends; the unlocking conditions are more forgiving, and the main purpose is to motivate employees. The dividend rate is high in the company's history, and many repurchases and cancellations of shares have boosted shareholders' income. The company's corresponding dividend ratio is at a high level.
Domestic sales of air conditioners were gradually restored after channel reform, and overseas markets were vigorously expanded. After channel reform, the company gradually recovered its core air conditioning business revenue scale and profit margin in 23 years. At the same time, it actively expanded its own overseas brands, and the overseas revenue scale and profit margin increased significantly. With the recovery of revenue performance in recent years, the company's net operating cash flow situation has improved markedly, and the level of cash flow in '23 far exceeded the net profit scale.
Profit “reservoirs” are abundant, and the combined trade-in policy for home appliances is expected to underpin performance growth. Currently, all white electric faucets have formed a relatively abundant “reservoir” of revenue and profit. We believe that in the future, we can expect smooth performance fluctuations in the coming years and improving overall business stability. Among them, Gree and Midea's profit “reservoirs” are deeper, and their ability to stabilize operating standards is stronger. Combined, the trade-in policy favors white electricity, and strong central support has strengthened the stability of Gree's domestic sales growth.
The diversified layout of the ice washing category at the Air Conditioner Going Overseas + Expansion Exhibition will be the company's future development direction. Over the past decade, emerging markets have gradually grown into growth engines for the global home appliance market. Emerging markets still have low white power supplies, large populations, and large future market space and potential. Considering the relatively low concentration of the local industry, Gree is expected to further expand its market share. In Gree Electric's diversified transformation strategy, the ice washing business has become an important development direction.
Ice washing products achieve technological innovation+multi-SKU layout to provide consumers with a better product experience.
Investment proposal: The company is a leading enterprise in the field of air conditioning. The new employee stock ownership plan normalizes employee incentives, while canceling some shares to further enhance shareholder returns. The company's net profit for 24-26 is estimated to be 31.3/33.2/35.2 billion yuan, respectively, and the corresponding PE is 7.3x/6.9x/6.5x, maintaining a “buy” rating.
Risk warning: macroeconomic growth is slowing; real estate recovery falls short of expectations; risk of fluctuations in raw material prices; risk of company operation.