青岛海尔(600690)

Leading market share; growth in kitchen and EU; SmartHome and execution

Following the recent company announcement regarding an IPO in the Germanmarket, we have prepared this report to help investors better understand thecompany and the industry. In this report we analyse Qingdao Haier’scompetitive positioning, with a focus on (1) peer comparison; (2) kitchen andEU growth opportunities; and (3) Haier’s strategies to grow Smart Homesolutions while improving execution. Please note we are restricted on thestock.

Balanced product portfolio and strong brand presence globally

Compared with its major Chinese competitors in the white goods segment,Midea and Gree, Qingdao Haier commands a more balanced revenue mixbetween washing machine, refrigerator and air conditioner (Figure 2).Haier also focuses on branded revenue (minimal contract manufacturing;Figure 3) and has one of the strongest track records in acquiring andbuilding brands (Figure 4).

Haier’s business focus has secured a leading market presence globally(Figs. 7-9 China, Figs. 22-39 global), with expanding market share. Wenote that Haier is the only white goods company to command top-fivemarket share positions in China, the US, SEA and North Asia.

Financially, Qingdao Haier’s revenue growth profile has been more stablethan those of Midea and Gree (Figure 13), with a strong gross margin. Yet,Qingdao Haier’s opex-to-sales ratio is materially higher than peers’ due toits different business structure (discussed below).

Growth opportunities: kitchen and Europe market share expansion

Qingdao Haier plans to expand its share in global kitchen appliancesmarkets, leveraging its premium brands (Casarte and Fisher & Paykel).Kitchen appliances are already a significant market when compared totraditional white goods. Euromonitor estimates China’s kitchen appliancesmarket is even bigger than washing machine (Figure 41).

Qingdao Haier has announced a target of attaining a top-five market sharein Europe by 2022 (vs. currently ninth place with a 2.3% share, Figure 42).In our view, the EU is a more scattered market than China or the US, whileQingdao Haier’s multi-brand strategy will help its expansion.

Smart Home strategy and improving execution

By selling a solution in a bundle to consumers (vs. previously selling singleitems), Qingdao Haier aims to achieve market share gains and improvedconsumer loyalty. It is crucial to drive consumers’ return purchases asreplacement demand continues to rise against slowing new home sales.

Haier conducts its business through both Qingdao Haier and HaierElectronics, forming a different business structure (Figure 50). Haier hasbeen aligning the two entities’ business goals to enhance execution.