On April 29th, Midea Group Co., Ltd. submitted a listing request to the Hong Kong Stock Exchange. This is the second time Midea has submitted a prospectus to the Hong Kong Stock Exchange and plans to go public on “A+H”. According to literature from the Hong Kong Stock Exchange, the co sponsors of this IPO are Bank of America Securities and China International Capital Corporation.
Midea Group, a leading domestic home appliance company, successfully landed on the Shenzhen Stock Exchange’s main board in 2013. In August 2023, the company announced that the board of directors had passed a proposal to encourage the company to study and demonstrate its overseas issuance of securities (H-shares) and listing. Subsequently, Midea began its journey to go public in Hong Kong.
However, Midea’s group stated that this move is not due to a lack of money. At the 2023 Midea Group Shareholders Meeting, Midea Group executives stated that the listing of the Hong Kong stock market is not to raise capital, “the fundamental reason is that the Hong Kong stock market has breakthrough, convenience, and speed.”
According to the latest disclosed prospectus, Midea Group’s expenses from 2021 to 2023 were RMB 343.461 billion, RMB 345.709 billion, and RMB 373.71 billion, respectively; The annual costs were 29.031 billion yuan, 29.812 billion yuan, and 33.747 billion yuan, respectively, with net cost ratios of 8.5%, 8.6%, and 9%. Among them, in 2023, 14.1% of Midea Group’s net cost of returning to the parent company achieved the largest reduction since 2019, and the reduction rate returned to double-digit growth after a 2-year interval.
According to Frost Sullivan, Midea Group is the world’s largest home appliance company based on sales and expenses in 2023.
Among them, Midea cited third-party data, stating that based on sales, the company ranks among the top three globally in the categories of household air conditioners, washing machines, refrigerators, kitchen appliances, and other household appliances, accounting for 23.7%, 14.2%, 10.5%, and 6.0% of mall shares, respectively. During the same period, based on retail sales, Midea Group also ranked among the top three in these four categories, with mall shares of 21.1%, 12.5%, 7.7%, and 4.6%, respectively.
According to the prospectus, Midea’s business is divided into two main sectors: smart home business and trade and industry processing plan.
Among them, the smart home business is an important component of Midea’s business, mainly including a variety of household appliances, including air conditioners, refrigerators, washing machines, kitchen appliances, and other appliances.
Although Midea performed well in 2023 after the end of the epidemic, it is an undeniable reality that the speed of global appliance business deletion has slowed down. From the prospectus, it can be seen that Midea’s air conditioning business has been declining, but in 2022, its spending on washing machines, refrigerators, kitchen appliances, and other household appliances has all decreased. In 2023, the spending on kitchen appliances and other household appliances did not return to the level of 2021. In 2022, Midea’s business development was almost on par with 2021, and its net cost reduction rate also hit a ten-year low.
At the May 2023 event, the CEO of Midea Group, Fang Hongbo, politely stated that the home appliance industry will face an unprecedented winter in the next three years. On the one hand, the general situation has entered the slow growth stage. On the other hand, the home appliance industry has long been a Red Sea shopping mall, and cooperation is extremely fierce. In addition to the conservative three giants of home appliances, there are also new powers such as category segmentation, Internet giants, and smart home appliance brands.
In this regard, Midea is promoting the downgrading of household appliances towards high-end and intelligent products. If not, it will further increase the proportion of overseas expenditure, with a focus on the growth of its own brand business.
In the smart home sector, Midea’s high-end brands mainly include COLMO and Toshiba, while mid-range brands include Midea and Little Swan. A beautiful name. However, the answer to high-end brands by the “all-around” Midea is not clear. COLMO and Toshiba still have certain differences from foreign giants such as Siemens, Samsung, Sony, and even foreign brands such as Haier Casarte.
The weakness of high-end products is also reflected in Midea’s gross profit margin. In 2023, the overall gross profit margin of Midea Group was only 26.49%, lower than Haier Smart Home’s gross profit margin of 31.51% in 2023, and less than 30% behind Gree Electric Appliances.
After considering the trend, the conservative home appliance giants have begun to plan for transformation. Fang Hongbo also exaggerated that the home appliance business has entered the stage of stock cooperation, and the growth space is limited. Midea Group must explore a second engine.
Enterprise side business is a key location for Midea to explore volume reduction. In the trade and industrial planning sector, Midea mainly provides new power and industrial skills, intelligent building technology, robotics and automation, and other businesses. Among them, in 2016, Qumei launched multiple large-scale mergers and acquisitions with over 40 billion yuan invested domestically and internationally, in order to structure this business sector.
From 2021 to 2023, the compound growth rate of Midea’s trade and industry processing plan expenditures reached 15.4%, and its total expenditure proportion increased from 21.4% in 2021 to 26.2% in 2023. Looking ahead, Midea believes that trade and industrial management plans will become important engines for growth. Kelu Electronics’ energy storage business is focused on growing overseas shopping malls. In 2023, Kelu USA Company was established and expanded to energy storage shopping malls in Asia, Africa, and South America.
The KUKA Group, which was purchased by Midea Group in 2017, has become one of the four major industrial robot companies in the world. In 2023, the sales and expenses of heavy-duty robots ranked second, with market shares of 18.6% and 17.9%, respectively.
Although the mall has strong momentum, Midea’s corporate operations are still in the early stages of structure, currently accounting for only 26% of total expenses. From a gross profit margin perspective, the gross profit margin of home appliance operations can reach over 25%, but the gross profit margin of B-end operations is still only around 20%.
Midea’s other businesses include Ande Zhilian, Meiyun Zhishu, Meizhi Optoelectronics, and Wandong Conditioning.
In terms of shareholders, founder He Xiangjian holds 30.9% of the shares through Midea Holdings, Fang Hongbo holds 1.7%, and other A-share shareholders hold 66.90%.
At present, Midea’s overseas expenses account for 40% of the company’s total expenses, and its products are sold to more than 200 countries and regions around the world.
According to the prospectus, Midea Group’s IPO in the Hong Kong stock market aims to raise capital for global technology research and development; Continuous repair of intelligent production systems and downgrading of supply chain governance; Perfect global sales channels and distribution channels, as well as improve overseas sales of proprietary brands; Delete and supplement operating capital and general company purposes, etc.
Looking ahead, the winter of the home appliance industry has not yet passed, and Midea still needs to explore new strengths and break through the situation. In a recent shareholder inquiry, Midea Group has launched four answers to itself: “How can Midea fulfill its deletion in the context of global low deletion? How can Midea create new cooperation talents under the impact of the wave of skills and huge changes in trade forms? In the face of numerous overseas provocations, how can we further accelerate the global business structure? In the anxiety and confusion of economic structure and integration of deletion forms, how can we break through the shuttle cycle?”
