Gree Electric (000651): November air conditioner price war Gree gains a lot

Company’s recent situation AVC accumulated retail monitoring data in the last 4 weeks (19W45?
19W48, November 4th?
December 1) reflects the retail situation in November: Gree vigorously promoted sales in November, demand increased, demand increased significantly, and the duopoly structure of the air-conditioning market was strengthened.

  Comments on Gree’s air conditioning promotion in November exceeded expectations: 1H19 Midea has begun aggressive price cuts in the air conditioning market, but due to pressure from the 2H18 channel, stocks pile up and inventory costs are higher than Midea’s implementation of the T + 3 policy, so there is no positive price cut response.
2) In order to maintain the leading position in the air-conditioning market and suppress Oaks, Gree began to reduce prices appropriately in 3Q19, and the trend of decline in retail share has obviously improved.

3) In November, Gree increased its promotion efforts.

“Double Eleven” during Shun Yue Series 1.

The price of 5P three-level energy-efficient fixed-frequency on-hook is replaced by 1599 yuan / unit, 1.

The 5P three-stage energy-efficient frequency conversion on-hook is about 1799 yuan / set, which belongs to the same level as Oaks.

  On November 26, Gree proposed “to raise another 11.”

“11 billion yuan profit”, continue to promote “double eleven” low-price promotion of energy efficiency products.

  The promotion effect is obvious, and the growth advantage in November is leading: 1) The demand for air conditioning has shown obvious flexibility in the price war. Recently, the online and offline retail sales around the industry have increased by + 69% and + 27%, respectively.

2) From January to October 2019, Gree’s online and offline retail sales were twice 上海夜网论坛 + 4% and -15%, respectively, and their performance was weaker than the industry.

Gradually over the past four weeks (representing the retail situation in November), Gree’s online and offline retail sales have increased by + 126% and + 43%, respectively, and retail sales have increased by + 256% and + 123%, which has greatly exceeded the industry.

  Began to develop e-commerce channels: 1) This promotion, Gree’s products are sold online and offline at the same time. The online retail sales of Gree along the line recently jumped to 35%, second only to the United States.

2) Oaks is difficult to resist the leading price reduction offensive. In the 48th week, the price war provoked by Gree, Oaks has no ability to be responded. The price of three-level energy efficiency products exceeds Gree. Midea, the Oaks market in November 杭州夜网 deviated significantly.

3) In order to balance the interests of offline dealers, Gree was relatively backward in its e-commerce channel layout and its market share was relatively low.

This round of Gree promotions also incidentally promoted the online sales platform “Dong Mingzhu’s Shop” (micro-shop), leading to drainage.

  It is estimated to maintain 2019 / 20e EPS forecast4.

74 yuan / 5.

20 yuan.

We maintain our Outperform rating and consider changing valuations for another year. We raise our target price by 10% to 78.

00 yuan, corresponding to 16x / 15×2019 / 20e P / E, there is 25% upside compared to the current consensus.

It currently supports 13x / 12x 2019 / 20e P / E.

  Risk Market demand fluctuation risk; market competition risk.