Original title: 3 billion holdings of Dunan Environment Gree Electric’s foreign investment and another acquisition of diversified logic main line to be clarified
Introduction: Combined with the current diversification measures of Gree Electric Appliances that are not progressing smoothly, in the eyes of many market participants, Gree Electric wants to break the “bottleneck” of a single source of revenue through a diversified layout, and it may take time.
Gree Electric’s diversified layout has once again pushed forward.
On the evening of November 16, Gree Electric issued an outbound investment announcement stating that the company intends to obtain control of Dun’an Environment through the transfer of Dun’an Environmental Shares held by Dun’an Precision and participation in Dun’an Environment’s fixed increase. After the transaction is completed, Gree Electric will hold 410 million shares of Dunan Environment, accounting for 38.78% of the total share capital of Dunan Environment.
This is another major investment in Gree Electric’s diversification road after Sanan Optoelectronics, Wingtech, Highly, Xinjiang Zhonghe, etc.
On the first trading day after the announcement, Gree Electric’s share price opened more than 1% higher and then slowly declined, and finally closed at 36.33 yuan per share, only a slight increase of 0.03%. In the same period, the A-share company Dun’an environment went straight to the daily limit. As of the close, more than 110,000 bids had closed the daily limit.
According to Gree Electric’s public statement, the acquisition of Dunan Environment is optimistic about its industrial value as a leading company in the global refrigeration components industry. It intends to further improve the company’s upstream core components’ competitiveness and supply chain stability through this transaction, while improving The company’s industrial layout of core components for new energy vehicles.
However, it is difficult to see a clear main line for Gree Electric’s foreign investment in recent years. Combining the current diversification measures of Gree Electric that are not progressing smoothly, in the opinion of many market participants, Gree Electric wants to break the “bottleneck” of a single source of revenue through a diversified layout, and it may take time.
Public information shows that Dunan Environment is an air-conditioning accessories company established in December 2001 and listed on the small and medium-sized board in 2004. Its main business includes R&D, production and sales of refrigeration components and refrigeration and air-conditioning equipment.
The main products of the refrigeration accessories business include electronic expansion valves, four-way valves, globe valves, solenoid valves, small pressure vessels, heat exchangers, integrated pipeline components and other products, which are widely used in household air conditioners, commercial air conditioners and other fields.
Gree Electric intends to acquire approximately 270 million shares of Dunan Environment held by Zhejiang Dunan Precision Group, accounting for 29.48% of Dunan Environment’s total share capital, with a transfer price of 8.1 yuan per share and a total transfer price of approximately 2.19 billion yuan; at the same time, Gree Electric intends to subscribe in cash for approximately 139 million shares non-publicly issued by Dun’an Environment, at 5.81 yuan per share, at a subscription price of approximately 810 million yuan.
On the whole, Gree Electric’s total capital cost is 3 billion yuan, and it has obtained about 410 million shares of Dunan Environment, corresponding to a cost per share of about 7.32 yuan per share. As of the close of the evening of November 17th, Dun’an shares stock price was 9.44 yuan per share.
Although the price is not expensive, the fundamentals of Dunan’s environment are not optimistic. In 2020, Dunan Environmental’s revenue was 7.38 billion yuan, and a net profit loss of 1.033 billion yuan; this year, Dunan Environmental’s performance has turned losses into profits, but its debt is high.
In the first three quarters of 2021, Dunan Environmental’s revenue totaled 7.37 billion yuan and net profit was 337 million yuan. As of the end of September 2021, the company’s total assets were 8.05 billion yuan, liabilities were 6.476 billion yuan, and the debt-to-asset ratio was as high as 80.43%. In the same period, although Dunan Environment had monetary funds of 979 million yuan, short-term borrowings reached 1.499 billion yuan; notes and accounts payable reached 2.595 billion yuan; in addition, there were also non-current liabilities of 1.019 billion yuan due within one year.
Gree Electric also stated in the announcement that the target company has a certain amount of debt pressure. In the future, the target company intends to use net operating cash flow and asset disposal funds to repay financial debts. However, the operating conditions of the target company are affected by factors such as the macroeconomic situation and industry cyclical fluctuations, which may further affect the implementation of the financial debt settlement plan.
According to the information disclosed by Gree Electric, the acquisition of Dunan Environment is mainly from the perspective of business collaboration.
Public information shows that Dunan Environment is Gree’s supplier of air-conditioning and refrigeration accessories. Gree’s purchases in 2019 and 2020 are 1.51 billion yuan and 1.206 billion yuan, respectively.
Gree Electric believes that this transaction is an important measure for the company to build a diversified and technologically-oriented global industrial group, ensure the independent control of core components, improve the industrial chain layout, and further consolidate its business competitive advantages. The target company’s air-conditioning and refrigeration components business has deep technical accumulation and good manufacturing capabilities, and a complete matrix of new energy thermal management related products, and has established business cooperation with many well-known domestic enterprises.
However, because the industry sector covered by Dunan Environment is still within the scope of air-conditioning, in the opinion of some market participants, the acquisition of Dunan Environment may not have an impact on Gree’s diversified transformation in the short term.
“DunAn Environment’s more competitive products are central air-conditioning terminal equipment, such as fan coil units, air purification and processing systems, which are supporting some central air-conditioning enterprises and are competitive. The acquisition is more important for Gree Electric’s construction of central air-conditioning. A complete industrial chain is beneficial, and it is not expected to contribute much to Gree’s revenue growth.” said Liu Buchen, a senior observer of home appliance companies.
In fact, although Gree Electric has repeatedly emphasized DunAn Environment’s layout in the field of new energy thermal management devices in the announcement, and pointed out that this move will “improve the company’s new energy vehicle core components industry layout”, but the reporter has checked the announcement and learned that at present DunAn Environment’s revenue from the new energy business is hardly worth mentioning.
In the 2021 semi-annual report of Dunan Environment, it did not disclose the key components of the new energy vehicle thermal management system as a separate operating income category, nor did it disclose how much revenue the new energy-related business brought to the company.
“Compared with household air conditioners, central air conditioners are only a small part of Gree Electric’s industrial supporting layout. The first thing to do with this acquisition of DunAn Environment is to make Gree Electric’s central air conditioner industry chain more complete, but this may lead to Shield An environment has lost the major customer of Midea Group. For Gree Electric, holding Dunan can play a role in hindering other companies from developing central air-conditioning in the upstream. As for the synergy in the field of new energy vehicles, I don’t think it will have that big impact “Liu Buchen added further.
Transformation “following hot spots”
In fact, Gree Electric previously invested in aluminum product manufacturer Xinjiang Zhonghe and compressor leader Highly to ensure the stability of the company’s raw materials and supply chain. The acquisition of Dunan Environment and other upstream and downstream companies in the air-conditioning industry chain is only the current Gree. A part of the transformation of electrical appliances.
In the eyes of market participants, Gree Electric’s top priority is still to get rid of the dependence of a single category (air conditioner).
In the just-released three-quarter report for 2021, Gree Electric has ushered in a new low in performance in the past three years. From January to September 2021, Gree Electric’s revenue was 138.135 billion yuan, a year-on-year increase of 9.73%; the net profit attributable to owners of the parent company was 15.645 billion yuan, a year-on-year increase of 14.21%. But in the third quarter, Gree Electric achieved revenue of 47.083 billion yuan, a year-on-year decrease of 16.50%; net profit attributable to owners of the parent company was 6.188 billion yuan, a year-on-year decrease of 15.66%.
At the same time, the proportion of Gree Electric’s air-conditioning business has not decreased but increased. According to Gree’s 2020 annual report, its air-conditioning business achieved revenue of 117.881 billion yuan, a decrease of 14.99% from the 138.665 billion yuan in 2019, but in total However, the proportion of revenue increased from 2019, reaching 70.08%. In the first half of 2021, Gree Electric’s air-conditioning business revenue further increased to 73.79%.
In recent years, Gree Electric, which has been criticized for a single product category, has continuously tried diversified development to break through the bottleneck of the downturn in the white goods industry. However, reporters from the 21st Century Business Herald found that Gree Electric’s diversified business was not smooth. The transformation was not only slow, but also lacked a clear main line logic.
According to the reporter’s incomplete statistics, since 2016, Gree’s “diversification” direction, in addition to other home appliances (such as washing machines, refrigerators, rice cookers, etc.), also spans mobile phones, new energy vehicles, medical equipment, and semiconductors. And many other fields. However, despite the numerous investment projects, the results in various fields have not been significant.
In 2016, when Dong Mingzhu tried his best to invest in Yinlong New Energy, it also coincided with the time when new energy vehicles were attracting attention. At that time, new energy vehicles rose to the national strategy.Wei LaiNew car-building forces such as Singularity, Singularity, and Xiaopeng are beginning to show their strength.
But then Yinlong New Energy broke out a series of risk accidents. Even after it officially became a holding subsidiary of Gree Electric in 2021, there was no interruption in doubts about it.
At present, Yinlong New Energy has officially changed its name to Gree Titanium. Data shows that the company has been at a loss. In 2020, Gree Titanium has a revenue of 4.325 billion yuan and a net profit loss of 688 million yuan. Since the beginning of this year, Yinlong New Energy’s revenue has fallen sharply, and its loss has further expanded. From January to July this year, the company’s revenue was 1.058 billion yuan, and its net profit was a loss of 763 million yuan.
Since then, the Sino-US trade friction and domestic substitution trend that broke out in 2018 have made semiconductor investment also a hot topic. Subsequently, Gree Electric also continued to increase its size in the semiconductor field. In 2018 and 2020, it has invested in Wingtech Technology and Sanan Optoelectronics. These investments have achieved higher investment returns, but the synergy effect in the industry is not significant.
In December 2018, Wingtech released a major asset restructuring acquisition plan (revised draft), which disclosed that the company joined Gree Electric, Guolian Group and other investors to acquire Anshi Group, and Gree Electric has invested a total of 3 billion yuan. This investment has allowed Gree Electric to achieve more than four times the book value of more than 12 billion yuan. Data show that as of September 30, 2021, Gree Electric and Zhuhai Ronglin held 35.86 million shares and 92.42 million shares of Wingtech Technology, with a total market value of more than 15.2 billion yuan.
In June 2020, Sanan Optoelectronics disclosed the non-public issuance of shares. According to the results of the fixed increase, Gree Electric subscribed for 2 billion yuan. As of now, the book market value of Gree Electric’s shareholding in San’an Optoelectronics has exceeded 4 billion yuan, more than double the floating profit.
During the period, shortly after the outbreak of the new crown epidemic, Gree Electric also announced its cross-border entry into the medical industry, and successively established medical equipment-related companies in Zhuhai, Chengdu, Tianjin and other cities. It is reported that Gree Electric will invest 1 billion yuan in the field of medical equipment to develop high-end medical equipment. However, in Gree Electric’s 2021 mid-year report, there are still few results on the medical equipment business.
“The main reason why Gree has not been able to diversify in recent years is that it always feels unreasonable. In addition, the layout is too late and should be more forward-looking.” Liu Buchen said.
Liang Zhenpeng, an analyst in the home appliance industry, also pointed out that “Gree Electric’s diversification is relatively late. At present, small home appliances and kitchen appliances are marginalized small brands, and Gree mobile phones are not available in the market.”
In Liang Zhenpeng’s view, Gree should set up a separate business unit, carry out a clear division of powers and responsibilities, and set up strict assessment and incentive mechanisms. Otherwise, other product lines are just “vassals” of air conditioners.
(Author: Yang Ping Editor: Zhu Yimin)