Gree Electric (000651): The powerful counterattack of June’s sales leader
Company NewsCompany StatusGree 618 E-commerce Festival promotion, air-conditioning prices began to fall.
Comment 618 promotion is a normal price adjustment, not a price war; it is an adjustment to the high prices from January to May; it is a market response to the decline in retail shares; the price adjustment is within a reasonable range, and does not exceed changes in costs and alternative tax rates.
We expect Gree will regain market share.
Price reduction promotions are reasonable: 1) Since 2019, Gree has had few promotions, the average retail price has continued to increase, and its share has declined.
From January to May 2019, Gree’s offline and online sales increased the average retail price by + 6% and + 8% respectively; however, the cumulative retail sales share was -2.
2) We expect that Gree’s average transaction price will return in June, and will remain flat or decrease slightly in one year.
3) The 5% internal drop in retail price of air conditioners is reasonable.
Because the price of raw materials fell in 1Q19, we estimate that the cost of air conditioning will fall by 4% to 5% in 2018; at the same time, the expected decline is 4ppt.
Gree’s counterattack was a combination of punches: 1) On June 10, Gree reported the false standard energy efficiency of a number of products sold by Oaks.
On June 13, the National Development and Reform Commission, the Ministry of Finance and other seven departments jointly issued a “Green and High-efficient Refrigeration Action Plan”, stating that severe crackdowns on product energy efficiency standards were severely cracked down.
2) Beginning in June, Gree’s online and offline products began to experience price reductions. Especially during the 618 e-commerce festival, some of Gree’s online products were degraded by deviations, and some of the hot-selling products’ 618 promotional prices were reduced by more than 10% in May.
Market background, poor demand for air conditioners and increased share of cost-effective products: 1) The air conditioner market entered a recession cycle in July 2018. Although demand picked up in March 2019, it was not sustainable.
From May to June 2018, the air-conditioning retail sales exceeded expectations, and this year is facing a high starting point.
In addition, the average south of the Yangtze River since May this year is not hot, which is not conducive to air-conditioning sales.
2) Oaks has the highest pricing, and its online retail market share has increased rapidly, reaching 29% in 2018, ranking first.
Midea began to reduce prices in February 2019 next month, and the total online promotion increased rapidly.
It is estimated to maintain EPS forecast for 2019/204.
Although the company’s fundamentals are not good for the time being, considering the significance of mixed reform of state-owned enterprises, 南京桑拿网 the recommendation and target price are maintained at 68.
70 yuan, corresponding to 14x / 13x 2019 / 20e P / E, 35% increase space.
The company currently corresponds to 10x / 9×2019 / 20e P / E.
Risk market demand continues to reduce risks; market competition intensifies risks.