Midea Group 杭州桑拿网 (000333): November’s air conditioning price battle with the United States’ flexible response has a significant effect
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: the United States flexibly responded to the air-conditioning price war initiated by Gree in November, and the growth momentum is still strong, and the duopoly monopoly territory of the air-conditioning market is strengthened.  Comment on the US’s first price reduction in 2019 to seize market share: 1) The 2H18 air-conditioning market has ended two years of high growth and entered a recession cycle.In February 2019, the United States took the lead in reducing prices, kicking off the prelude to price competition in the air-conditioning market.2) 深圳桑拿网 Midea’s early price reduction promotion achieved good results.On January 10, 2019, Midea’s online and offline retail sales were changed to + 50% and + 1%, respectively. The performance has gradually changed the industry. Online and offline retail sales have increased by 6.6ppt, 3.4ppt, and the online market successfully suppressed Oaks.3) Thanks to the improvement of the efficiency of the industrial chain and the segmentation of channels, the price reduction of air conditioners has not harmed Midea’s profitability.In 1H19, the operating profit margin of the HVAC division of the United States was 11%, which was flat for many years.  Flexibly respond to Gree’s vigorous promotion in November: 1) Gree increased its promotion efforts in November. During the “Double Eleven” period, it sold three-level energy-efficient air-conditioning products at a price equivalent to Oaks;”11.11 billion yuan profit, “three-level energy-efficient air-conditioning to restore” Double Eleven “prices.2) In the face of Gree’s rapid promotion of three-level energy efficiency products, Midea in 48 weeks (November 25?(December 1st) Choose to introduce special energy efficiency special price for differentiated competition and achieve good results.3) The first-level energy-efficient products used to be high-end models with high premiums.According to data from Zhongyikang, the average retail price of first-class energy-efficient inverter air conditioners in 2018 was 5,227 yuan per unit, which is 32% higher than the overall average price of the industry.As the new energy efficiency standards for air conditioners in 2020 are about to be promoted, the existing first-level energy-efficient products will be replaced by the second-level, and product prices need to be appropriately reduced.  The response effect exceeded market expectations: 1) Stimulated by the price war of air conditioners, the retail demand price elasticity in November was obvious.Accumulated in the last 4 weeks, the online and offline retail volume of the air-conditioning market exceeded + 110% and + 71%, respectively.2) Midea’s rapid response strategy is effective, with online and offline retail sales exceeding + 200% and + 114% respectively, leading the industry and increasing market share.3) Second-tier brands have suffered.Except for Gree, Midea, and Haier, the total online and offline retail volume of other brands in the four weeks was -4.4%, -23%; Oaks gradually replaced 11% of online retail sales.  It is estimated to maintain 2019 / 20e EPS forecast3.48 yuan / 4.01 yuan.Maintain Outperform industry rating and target price of 72.20 yuan, corresponding to 21x / 18x 2019 / 20e P / E, 28% upside compared to the current consensus.It currently supports 16x / 14x 2019 / 20e P / E.  Risk Market demand fluctuation risk; market competition risk.