Author | Wuji

The main text has a total of 4011 words and is expected to take 11 minutes to read.

During the Mid-Autumn Festival holiday, Qingdao in Shandong has become a popular tourist destination.

Qingdao is a famous city in Shandong Province and even in China. Not only does it have beautiful scenery, such as Mount Lao, a famous scenic area, but it is also a major city with a population of over 10 million and a GDP exceeding 1.5 trillion yuan, making it the first priority in Shandong. In 2023, Qingdao's total GDP reached 1,576.034 billion yuan, while Jinan's GDP reached 1,275.742 billion yuan during the same period. Qingdao surpassed Jinan by more than 300 billion yuan.

At the same time, Qingdao has 66 listed companies, ranking 23rd in the country, with well-known companies such as Haier Smarthome, Hisense Visual Technology, and Tsingtao Brewery. In terms of the number of listed companies, Qingdao also surpasses Jinan's 61 companies, ranking first in Shandong.

According to the disclosed annual report data of various listed companies in 2023, there are 10 Qingdao listed companies with annual revenue exceeding 10 billion yuan, and Haier Smarthome has the highest revenue and market capitalization. In 2023, Haier Smarthome once again ranked first in revenue among listed companies in Shandong with a revenue of 261.428 billion yuan. Hisense Visual Technology, Tsingtao Brewery, and Sailun Group achieved revenue breakthroughs of over 20 billion yuan, and 21 listed companies exceeded 5 billion yuan in revenue. This indicates that the overall economy in Qingdao is relatively active.

During this time, A-share listed companies have successively released their mid-year reports for 2024. How did typical listed companies in Qingdao perform in the first half of this year?

The strong Haier Smarthome.

Haier Smart Home is an old listed company. As early as the 1990s, the "Haier Brothers" animation was well-known to the public.

In fact, as early as 1984, Haier was a small factory on the verge of bankruptcy. At that time, Haier's annual sales were 0.38 million, but its debt reached 1.47 million, and even the workers' wages couldn't be paid. The factory was in disrepair with trash everywhere, and three factory managers resigned within a year. At the age of 35, Zhang Ruimin, then the deputy manager of Qingdao Household Electrical Appliance Industrial Company, became the factory manager.

After Zhang Ruimin took office, he introduced the Liebherr refrigerators from Federal Germany. In just one year, over ten thousand electric refrigerators were produced, with a total output value of 13.447 million yuan. The company turned a loss into a profit, earning 1.073 million yuan.

After turning a profit, Haier developed rapidly. In 1986, the total output value was nearly 80 million yuan. In 1988, it won the first national gold medal for refrigerators in China. In 1990, it won the first national quality management award Golden Horses in China's refrigerator industry. In 1991, it was named one of the "Top Ten Famous Brands in China". It was listed in 1993 and renamed Haier Group.

After decades of development, Haier Group has become a leading enterprise in Qingdao and the company with the highest revenue and market cap among 66 listed companies in Qingdao. In 2023, the revenue of Haier Group, now renamed Haier Smart Home, reached 261.4 billion yuan, surpassing Gree Electric Appliances' 205 billion yuan. It is second only to Midea among domestic appliance companies, ranking second.

In 2023, Haier Smart Home's revenue increased by 7.33%, unlike the significant fluctuations in Gree Electric Appliances' revenue. In recent years, Haier has been maintaining a steady growth trend. That year, Haier's net income was 16.6 billion yuan, a 12.81% year-on-year increase. The net income growth rate exceeded the revenue growth rate, benefiting from the improvement in Haier Smart Home's gross margin and net margin. The gross margin increased from 31.33% to 31.51%, and the net margin increased from 6.05% to 6.40%.

In the first two quarters of 2024, Haier Smart Home basically continued the state of 2023, with a slowdown in revenue growth but a significant increase in net income. The revenue in the first quarter was 68.98 billion yuan, an increase of 6.01%, and the net income was 4.773 billion yuan, a 20.16% year-on-year increase. In the second quarter, the revenue was 66.65 billion yuan, with a growth rate dropping to 0.13%, but the net income reached 5.647 billion yuan, a 13.15% year-on-year increase.

In 2018, Gree Electric Appliances' revenue was 200 billion yuan, while Haier Smart Home's revenue was 184.1 billion yuan. From 2018 to 2023, Gree Electric Appliances' revenue increased by 5 billion yuan, while Haier Smart Home's revenue increased by 77.3 billion yuan. Clearly, Haier Smart Home has outperformed Gree Electric Appliances in this period of development.

Does high sales expenses affect the net income?

From the perspective of revenue, Haier Smart Home has indeed surpassed Gree Electric Appliances by a large margin. In 2023, Haier Smart Home's revenue was 261.4 billion yuan, while Gree Electric Appliances' revenue was 205 billion yuan, placing Haier Smart Home ahead of Gree Electric Appliances by 56.4 billion yuan. However, in 2023, Gree Electric Appliances' net income was 29.02 billion yuan, while Haier Smart Home's net income was only 16.6 billion yuan, lagging behind Gree Electric Appliances by 12.42 billion yuan.

Another major home appliance giant, Midea, had a high revenue of 373.7 billion yuan, making it difficult for Haier Smart Home to surpass. In terms of net income, Midea's 2023 net income of 33.72 billion yuan is more than double that of Haier Smart Home, and Haier Smart Home's net income growth of 12.81% also lags behind Midea's net income growth of 14%.

From the perspective of net income, Haier Smart Home ranks last among the three major home appliance giants, mainly due to its high sales expenses which erode net income.

In terms of the price of individual products, Haier Smart Home has a significant advantage in the high-end product sector. In its financial report, Haier Smart Home disclosed that in 2023, Casarte ranked first in the high-end market in multiple categories: the offline market share of refrigerators priced above 15,000 yuan was 50%, the offline market share of washing machines priced above 10,000 yuan was 84%, and the offline market share of air conditioners priced above 15,000 yuan was 28%. This indicates that Haier Smart Home has a high market share of high-end products, which means that these high-end products have a higher profit margin. In 2023, Haier Smart Home's air conditioner gross margin was 29.37%, while Midea's HVAC air conditioner gross margin for the same period was only 25.57%. However, it still lags behind Gree's air conditioner gross margin of 37% for the same period.

According to the financial report, the gross margin is higher than Midea's, but the 6.40% net margin is lower than Midea's 9.07%, directly causing Haier Smart Home's profit scale to lag behind its competitors. The main reason for this is that its sales expenses are high. The financial report shows that in 2023, Haier Smart Home's sales expenses were 40.978 billion yuan, accounting for 15.67% of total revenue. In comparison, during the same period, Midea's sales expenses were only 34.881 billion yuan, accounting for only 9.33% of total revenue. Gree Electric Appliances' sales expenses were 17.13 billion yuan, with sales expenses accounting for only 8.36% of total revenue, and Haier Smart Home had the highest sales expenses ratio among the three companies.

According to the financial report, in the first half of 2024, Haier Smart Home's sales expenses were 18.69 billion yuan, accounting for 14% of the total revenue of 135.6 billion yuan, slightly decreasing. However, the daily average sales expenses exceeded 0.1 billion yuan, ranking first in sales expenses ratio among the top three home appliance companies. During the same period, Midea's sales expenses ratio was 9.8%, while Gree Electric Appliances' sales expenses ratio was 8.1%.

This may indicate that one reason Haier Smart Home's high-end products can have such a high market share is the huge sales expenses supporting it. This may be one of the reasons why Haier Smart Home's net margin ranks last among the top three home appliance giants, leading to revenue hundreds of billions higher than Gree Electric Appliances, but with a net income far behind Gree Electric Appliances.

Perhaps looking at it in a different way, the current high-end products of Haier Smart Home are selling well. In addition to product strength or brand effect, marketing has eroded the company's profits, resulting in the current situation of high revenue but low profits for Haier Smart Home.

There are uncertainties in the overseas market.

Haier Smart Home's journey overseas is commendable, currently having the highest proportion of overseas revenue among the top three major home appliances companies. In 2021, Haier Smart Home's overseas business accounted for half of its revenue, gradually increasing to 2022 and 2023. According to Haier Smart Home's financial reports, from 2021 to 2023, Haier Smart Home's overseas business revenue was 113.73 billion yuan, 125.424 billion yuan, and 135.678 billion yuan respectively, accounting for 49.98%, 51.51%, and 51.9% of total revenue. In 2023, Gree Electric Appliances, Inc. of Zhuhai's overseas business revenue only accounted for 12.21% of its total revenue, and Midea's overseas business share was only 44%, both lagging behind Haier Smart Home. Especially Gree, which once dominated the home appliance industry for many years, has a relatively low proportion of overseas business. In terms of going global, it significantly lags behind Haier Smart Home.

Haier Smart Home is shifting its focus overseas, either out of necessity or strategic decision. Currently, the domestic home appliance market has reached its peak, with increasing competition. Besides Midea and Gree, Xiaomi has also entered the competition. Haier, in seeking growth, can only look to the overseas market to open up space for growth. From the current perspective, Haier Smart Home's overseas business is undoubtedly relatively successful.

The success of Haier Smart Home's overseas business is mainly attributed to its growth strategy of high-end products and brand, the promotion of its localized integrated strategy, and continuous product innovation and leading technology. The fundamental logic behind the high growth in the overseas market lies in the growth of high-end products and the enhancement of brand influence. Haier Smart Home's products have increased profit margins, strengthened brand premium capability, and gradually laid the foundation for the development of the overseas market. For example, the all-in-one washer and dryer can disrupt user's laundry challenges by offering innovative solutions. Despite its higher price, it has a high growth rate similar to popular high-end products, driving the rapid development of Haier Smart Home's overseas business.

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Haier Smart Home's focus is not only on developed markets like the USA and Europe but also expanding into regions such as Southeast Asia, South Asia, and South America. Its green, smart, eco-friendly, and energy-saving concepts have become the technological core. With a stable domestic market, efforts to expand the overseas market have been key to Haier Smart Home's stable growth in recent years.

However, the overseas market also faces the issue of slowing growth rates similar to the domestic market. Financial reports show that, from 2021 to 2023, Haier Smart Home's overseas business revenue grew by 13%, 10.3%, and 7.6% respectively year-on-year, with a declining growth rate trend. In order to expand the overseas market, Haier Smart Home has chosen to offer concessions. For example, from 2021 to 2023, Haier Smart Home's domestic market gross profit margin has remained above 30%, but the gross profit margin for the overseas market during the same period was 28.21%, 26.92%, and 26.77%, lower than the domestic market, and showing a gradual downward trend in gross profit margin.

At the same time, haier smarthome, in order to expand overseas markets, continues to acquire overseas companies, such as haier smarthome previously spent 10 billion yen to acquire sanyo electric machine, entering the markets in japan and southeast asia. Subsequently, the appliances business of american general electric company, new zealand's Fisher & Paykel company, italy's Candy company, and others were successively acquired by haier smarthome. In December 2023, haier smarthome acquired 100% equity of carrier global's commercial refrigeration business under carrier commercial refrigeration for 0.64 billion US dollars (approximately 4.559 billion yuan). In July of this year, haier smarthome collaborated with Sweden's Electrolux group, spending nearly 1 billion yuan to acquire 100% equity of Electrolux's ESA business engaged in water heater business in the South African market. Similar acquisitions have amounted to a dozen or so, which has also contributed to the rapid development of haier smarthome's overseas business.

This kind of development, relying on rapid expansion through acquisitions, has resulted in a significant goodwill scale. According to financial reports, from 2021 to 2023, haier smarthome's goodwill reached 21.827 billion yuan, 23.644 billion yuan, and 242.9 billion yuan respectively. However, the growth and profit margins of haier smarthome's overseas business in recent years have been narrowing, affecting the impairment of goodwill. This may also be one of the reasons for the stock price falling from 33.75 at the beginning of 2021 to 24.90 on September 12, 26.2% decline.

The consequence of goodwill impairment is insufficient growth. In a situation where the domestic home appliance industry's dividend has peaked, reliance on marketing will inevitably lower its own net income. Due to the existence of a large number of acquisitions, supporting a high level of goodwill for haier smarthome's overseas business is more challenging.

Looking at the Return on Equity (ROE) (weighted) indicators, haier smarthome has the lowest among the top three companies. Midea has remained stable at around 22% in the past three years, while gree has increased from 21.34% to 26.53% in 2023. For haier smarthome, this data has been 17.29%, 16.81%, and 16.85% respectively in the past three years, showing a overall downward trend. At the same time, in terms of cash flow, haier smarthome also has the lowest cash flow among the top three.

With haier smarthome's revenue growth slowing down and its overseas business relying on acquisitions, qingdao, the highest-revenue and market cap listed company, will also face certain challenges.