Gree Electric (000651): Investing in semiconductors from multiple related perspectives

Gree Electric (000651): Investing in semiconductors from multiple related perspectives

Company dynamics keep outperforming industry companies 1) Strategic investment in Sanan Optoelectronics: On November 11, Sanan Optoelectronics announced that the non-public offering will not exceed 7 billion yuan, Gree will subscribe for 2 billion of them and account for Sanan Optoelectronics 4 after the investment.

76% stake.

2) Gree has significantly reduced prices during the “Double Eleven” period, one of which is a 1P three-stage energy-efficient fixed-frequency air conditioner as low as 1399 yuan per unit, and a 1P three-stage energy-efficient variable-frequency air conditioner as low as 1599 yuan per unit.Available on the platform and offline stores.

3) The signing date of Gree’s controlling shareholder, Gree Group, and Zhuhai Mingjun Share Transfer Agreement has been postponed.

  Comment on Gree’s investment in semiconductors from the perspective of related diversification: 1) In May 2018, Ms. Dong Mingzhu, chairman of the board, said that she would invest heavily in the semiconductor industry in the next three years.

2) Gree established a semiconductor design team in 2015.

In August 2018, Gree invested USD 1 billion to establish an air-conditioning chip design company.

3) In October 2018, Gree made a strategic investment of US $ 3 billion for Wingtech to acquire Nexperia Holding B.

V.

(Anshi Group) project, Gree holds Wingtech 12 after investment.

33% stake.

Anshi Group is a global leader in analog semiconductors.

4) Sanan Optoelectronics is a leader in LED chips (not related to air conditioning). The company believes that strategic cooperation will help Gree’s central air conditioning, intelligent equipment, precision molds, photovoltaics and energy storage equipment enter the semiconductor manufacturing industry.

Gree looks forward to cooperating with Sanan Optoelectronics in research and development, and has the first-mover advantage in the field of silicon carbide (SiC) semiconductors to improve the performance of air-conditioning chips.

  Although the market has certain benefits for Gree’s investment in the 北京SPA会所 semiconductor industry, we believe that Gree’s investment in the semiconductor industry is related to the industrial chain and there is no blind investment in unrelated directions such as wafers, panels, and memory.

  Gree’s “Double Eleven” product price reduction on the same day, exceeding market expectations, led to a significant adjustment in the air-conditioning sector.

China’s air-conditioning market has continued to fluctuate slightly since 3Q18, and Gree has continued to use the inventory pressure model, which has led to excessive channel inventory.

In the third quarter of 19th, Gree continued to reduce prices online and offline to improve air-conditioning retail.

Gree’s behavior led to increased competition in the air-conditioning market, but it did strengthen the role of the market duopoly pattern when the industry was in a downturn.

For example, Oaks was hit by Gree, and the total online retail sales continued to decrease rapidly. The proportion of retail sales in 1H19 / July / August / September was 28% / 21% / 18% / 16% respectively.

  Estimates suggest that we expect the market to interpret all three news biases.

However, based on long-term investment, maintain 2019 / 20e EPS forecast4.

74 yuan / 5.

20 yuan.

Maintain Outperform rating and 71.

00 yuan target price, corresponding to 15.

0 times 2019 P / E ratio and 13.

6 times 2020 P / E ratio, 16% upside compared to the same period last year.

Currently corresponds to December 2019/2020.

9 times / 11.

8 times price-earnings ratio.

  Risk Market demand fluctuates; State-owned enterprise mixes improve more than expected risks.