Event: GuangDong Midea Electric Appliances entered into refrigerator and washing machine businesses with large scale since 2006 and constantly enlarged capacities by acquisition of Rongshida and Hualing. As shown in its interim report, the two sectors performed quite well; refrigerator and washing machine rose 58.95% and 182.36% respectively. In order to know development prospective, we carried through survey in basement of Hefei province.
Our analysis and estimation: With increasing capacities, the company became one of the industrial leaders; especially after acquiring of Rongshida and Hualing, refrigerator capacities reached 6.5mn set by the end of 2008 and are expected to reach 9mn and 13mn in coming two years.
Multiple brands were operated under different levels. For refrigerator, Midea was a nationwide brand with distribution of whole series while Rongshida, Hualing and Little Swan were regional brands. For washing machine business, most of Midea and Rongshida produced in Hefei were for exports; Midea produced mid-high end products while Rongshida for mid-low end customers. Operation under different levels ensured market occupations in specific regions. Meantime, it built up brand image and drove sales of whole series products.
Low centralization of refrigerator market left large space for industrial integration. Besides, strong corporation culture and composite market system ensured sales growth.
Earnings forecast and rating: Refrigerator and washing machine businesses gradually became new profit driving forces and competitiveness of the company further consolidated. We forecast the company will continue fast growth and high profitability, and 2008-2010E EPS to be Rmb0.93, Rmb1.35 and Rmb1.88, representing PE of 9.69X, 6.67X and 4.79X, giving “Recommended” rating.