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Qingdao Haier

Qingdao Haier

China | Consumer Discretionary

 

Business Overview

 

Corporate Profile

 

Qingdao Haier (Haier, 600690 CH) is listed on the Shanghai Stock Exchange. The company is a leading white goods maker engaged in the R&D and sale of major household electrical appliances. Haier manufactures refrigerators, air-conditioners, washing machines, water heaters and other kitchen appliances with a significant market share in its domestic market, China.

 

As part of its diversification strategy, the group acquired several major international household appliances brands in recent years which further solidify its position as a major player in the industry. The group currently manages seven brands under its portfolio, namely “Haier”, “GE Appliances”, “Fisher & Paykel”, “AQUA”, “Casarte”, “RRS.com” and “Leader”.

 

The group is headquartered in Qingdao, Shandong Province, the PRC and is one of the world’s leading white goods home appliance manufacturers today. Its products are now sold in over 100 countries. In 2017, Haier was again named by Euromonitor International as the number one major appliances brand in the world – the ninth consecutive year that Haier has received the accolade.

 

Brief background

 

·         Transformation in a nutshell -- In 1984, Mr. Zhang Ruimin, together with his leadership team, took the helm at near-bankrupt Qingdao General Refrigerator Factory and transformed the company into today’s leading provider of major household appliances.

 

·         One of China’s most analysed companies -- The group is also one of China’s most analysed companies and has been written up in at least 17 Harvard Business School case studies since 1998, illustrating the group’s success and the desire of people to understand what makes the company tick.

 

·         The development of Haier can be segmented into five phases:

 

1.       Brand building phase (1984-1991)

By focusing only on refrigerators, Haier transformed itself from a loss-making small factor into the number one refrigerator brand in China.

 

2.       Diversification phase (1991-1998)

The group developed multiple product lines and expanded to both brown goods (relatively light consumer durables e.g. TVs, radios) and white goods (heavier consumer durables e.g. air conditioners, stoves).

 

3.       Globalisation phase (1998-2005)

Haier entered international mainstream markets and developed foreign sales channels to deepen market penetration.

 

4.       Global brand building phase (2005-2012)

The group sought to build a local Haier brand in many geographic areas around the world and consolidation resources in R&D, manufacturing, and marketing to create a global brand.

 

5.       Networking phase (2012-present)

 

Traditional economic models are undergoing dramatic changes with the help of technology, and the priority of Haier lies in producing products to meet the personalised demands of customers.

·         Leader in technological capabilities in the white-goods industry - Haier is the leader in industrial standards for major household appliances in China. In 2017, the group received a gold award in the 19th PRC Patent Awards making them the only winner in the home appliances sector, demonstrating the group’s dedication to R&D.

Investment Highlights

 

Dominant market share in key segments of white goods products

 

Haier is a leading white goods manufacturer and commands significant market share in multiple product segments in the industry. Global market shares of its refrigerators, washing machines, freezers and wine cellars accounted for 16.8%/14.4%/21.5%/8.5% of the total market share in FY16 respectively. That year, the group also led the pack in China in terms of sales volumes of refrigerators, washing machines, water heaters, air-conditioners and smart A/C which accounted for 25.1%/26.8%/18.4%/10.1%/34.8% of the total market share respectively in each product category.

 

In FY17, the group accounted for 13.3% (FY16: 10.3%) of global market share in the large home appliances industry, maintaining its top position internationally for nine consecutive years. That year, the group saw an expansion in market share across its products segments. Its smart air-conditioners dominated the interconnected air-conditioners segment of the market accounting for 30.5% of global sales, according to the company. Data from Euromonitor also revealed that Haier’s refrigerators and washing machines were ranked first, accounting for 21.4% and 17.4% of the market share globally in the product segments.

 

In 2017, Haier was ranked first by Euromonitor in terms of market share for major appliances in the industry at 22.4% in China. According to data from China Market Monitor (CMM), the domestic market share for Haier’s refrigerators, washing machines, air-conditioners and water heaters rose 3.4ppt/2.3ppt/0.5ppt/1.3ppt respectively. Its refrigerator and washing machine products continue to dominate the industry in sales where both accounted for 31.8% and 29.9% of market share in the product segments.

 

 

Data from The Stevenson Company revealed that in the US, Haier-owned GE Appliances accounted for 20.4% of the market in 2017 while its kitchenware business had 28.7% of the market, making it the top in this product category. Other product segments like dishwashers, refrigerators and washing machines commanded a significant share of the market at 21.2%/19.8%/15.4% respectively. Recent acquisitions of big name brands such as Fisher & Paykel and Japan’s Sanyo add further synergies to the group’s portfolio, strengthening its product offerings and widening its competitive advantage against peers.

Strong track record of robust earnings

 

Haier has a consistent track record in achieving strong sales. Over the period from FY06 to FY17, revenue has grown from RMB18.0b to RMB159.3b, representing an impressive growth rate of ~22% CAGR over the 12- year period while the group’s net profits grew at a rate of ~27% CAGR over the same period. Over a more recent period, revenue grew from RMB86.6b to RMB159.3b from FY13 – FY17 which represented a robust four-year CAGR of 16.4%. Similarly, net profits also grew at a healthy rate of 13.0% CAGR over the same period to RMB9.1b from RMB5.6b.

 

 

This was primarily driven by strong sales of its air-conditioners (+53.9%), kitchen appliances (+50.2%), washing machines (+31.6%) and refrigerators (+30.0%) in FY17. Top-line growth was further boosted by Casarte and GE Appliances. Similarly, over the same period, ROE averaged 22.0%, while ROE for FY17 was 21.5%, demonstrating management’s consistency in delivering value to shareholders.