Gree Electric (000651): Stressful but confident
The company’s recent situation The company held a shareholders meeting on June 26 and exchanged views.
Comments on the degree of improvement: 1) Gree Group, a major shareholder, was involved.
The “Replacement of Controlling Shareholders ‘Application for Termination of Residual Equity Incentive Scheme Replacement” and “Signing with the Controlling Shareholders” in the current shareholders’ meeting were passed before the mixed reform process can continue.
2) In 2005, the shareholding reform reform, Gree Group allocated some shares for the initial distribution incentive of Gree Electric Appliances, and the remaining 5 million shares (then shares) applied for termination.
The remaining shares have been unable to implement equity incentives due to changes in national policies and long-term sole shareholders for joint incentives.
3) Gree Group will retain the remaining shares after transferring 15% of its shares, and promises to support Gree’s core backbone in the future for new equity incentives.
Market demand and market competition: Low summer temperatures will inevitably affect air-conditioning sales.
Since its establishment, Gree has experienced financial crisis, cool summer, actual macro-scale events and other events. Gree has the ability to do a good job in the process of changes in the external environment.
At the shareholders meeting, Ms. Dong Mingzhu, the chairman of the board, attended the meeting. The company responded briefly, but from this we can see that: 1) Hybrid improvement has been steadily advancing. We expect Gree Electric Appliance to complete the hybrid reform is a high probability event, which will lead to the improvement of the company’s future governance structure.
2) The current market demand is not good and the company is under pressure, but the company is confident to respond.
We expect that the air-conditioning industry will enter a destocking cycle similar to 2015, but the intensity will be significantly weaker than in 2015.
The destocking cycle of the air-conditioning industry is the market demand cycle, and the fluctuation of the channel inventory cycle is not a trend.
After 2015, investors have a better understanding of the inheritance of the industry.
Considering destocking, we expect Gree’s 1H19 revenue and net profit will fluctuate slightly.
It is recommended to take into consideration the cool summer and the market demand exceeds expectations, and lower the 2019/20 EPS forecast by 5% / 5% to 4.
Considering that the mixed reform is conducive to improving governance, we maintain an outperform rating and maintain a target price of 68.
70 yuan, corresponding to 15x / 13x 2019 / 20e P / E, compared with the current breakthrough breakthrough space of 25%.
The company currently expects 12x /深圳spa会所 11x 2019 / 20e P / E.
Risk Market demand fluctuation risk; market competition risk.