On the evening of August 18th, Gree finally announced the acquisition of a specific proposal for Zhuhai Yinlong. It plans to acquire 100% equity of Zhuhai Yinlong by issuing shares at a transaction price of 13 billion yuan. After the acquisition is completed, Zhuhai Yinlong will become a wholly-owned subsidiary of Gree Electric Appliances and will be included in the scope of Gree Electric's consolidated statements.
Regarding the acquisition of Zhuhai Yinlong, Gree Electric's chairman Dong Mingzhu responded in March this year, saying, “We will further integrate some of our environmental-friendly energy technologies into new areas. Later, we may not only build an environmentally friendly energy source. Cars, but also to make the cooperation and cooperation between the two to do better." However, after seeing Gree and the United States compete for GE, with Lei Jun's 1 billion betting agreement, the outside world is obviously not satisfied with this answer.
As to why Gree acquired Yinlong and what the two parties could get in this transaction, Dingyi Capital Industry Analyst Liu Siyao analyzed the reasons for this to Lei Fengnet.
1. Why did Gree acquire Yinlong?
Liu Siyao said that Gree’s revenue was close to 40 billion in 2014 and only 16 billion in 2015. From Gree Electric's revenue growth chart for the past six years, it can be clearly seen that Gree’s performance has suffered a cliff-type decline in 2015. Although the 2016 semi-annual report data rebounded, the general consensus of the industry as a whole was that the traditional household electrical appliance enterprises had passed the spring and it was difficult to re-emerge ten years ago. Therefore, it is difficult to maintain high performance in the long run.
There is a set of data: In 2015, the air-conditioning industry will still face an increase in decline, and the ceiling is approaching. According to industry online statistics, in March 2015, the market share of sales in the air-conditioning industry accounted for 30.4% of Gree, which was a decrease of 2.4 percentage points from the previous year. To achieve the five-year goal of RMB 200 billion, it is urgent for Gree to find growth beyond the core business of air-conditioning.
Liu Siyao said that the downturn is a high probability event, so traditional home appliance companies have opened up new lines of business. From the U.S. acquisition of KUKA, Haier announced the U+ smart ecology to Gree’s acquisition of Zhuhai Yinlong, which is a case of traditional home appliance companies seeking new students.
According to public information, Zhuhai Yinlong is a company with qualification for new energy vehicles. It claims to have the capacity to produce 33,000 pure electric buses and 100,000 sports multi-function electric vehicles; its battery capacity also reaches 620 million ampere-hours of batteries, 5,000 tons of lithium titanate battery raw materials, and 800 megawatts of storage capacity. In 2015, the sales orders for new energy vehicles were 7,000, and the output value reached 10 billion yuan, of which 3189 were pure electric buses. The market share exceeded 3%, and the sales volume ranked seventh in the country.
Liu Siyao said that from the perspective of market share and sales volume, Yinlong is a company that has more than enough margins. However, it has better technology on lithium titanate batteries, and it may have a good look in the public transportation field in the future. In the technology of lithium titanate batteries, Yinlong should be one of the best in China.
In the sales of new energy vehicles in the past two years, the public transport system was the main attacking fortress of new energy vehicles. The life of a passenger car is usually about 10 years, but the life of a traditional lithium iron phosphate battery is about 3 to 5 years. The state only provides one-time subsidies for the bus companies' purchase behavior. Therefore, bus companies need to consider the needs of the entire 10-year life cycle when purchasing buses. The lithium titanate battery life can be 8 to 10 years, it is suitable for use as a battery in the public transportation field.
With current Gree sales volume of RMB 40 billion and market value of RMB 100 billion, Liu Siyao said that Gree needs more considerations in the acquisition process. First of all, traditional industry Gree will definitely not follow, followed by new energy vehicles. Now. The U.S. acquisition of KUKA, Haier released U+, the consideration at this level is the same: it is such a large body, and then go to the traditional industry does not help.
2. What does this acquisition mean to Yinlong?
Liu Siyao stated that Gree's channel power and market share are one of the best. In the process of continuous development of the energy storage market, Yinlong can use Gree's advantages to actively bring its own energy storage technology to the market. In addition, building a car or building a battery is also a very expensive thing.
Yin Long has said that in the next five years, billions of dollars will be spent on batteries and cars. Where does Ten billion come from? Gree is a good "thigh." Therefore, Gree provided Yinlong with something simple and complex—channels and funds, as well as the manufacturing advantages, policy orientation, and government resources provided by Gree after being acquired will be greatly enhanced.
3, Gree bought 13 million silver dragon, expensive?
Liu Siyao told Lei Feng that judging whether the secondary market is expensive for a company has a simple valuation method: the price-earnings ratio. Yinlong’s promised 2016 net profit of 720 million acquisitions of 13 billion yuan corresponds to a P/E ratio of 18.06 times.
In the stock market, the price-earnings ratio in the vehicle sector is now around 45 times, and lithium batteries are also more than 100 times normal. Although there is a difference between the primary market and the secondary market, at this point in time, if Yinlong can achieve its performance commitment, then Gree did not buy expensive.
4. After buying Yinlong, what does Gree want to do?The acquisition of Zhuhai Yinlong was not to consider entering the passenger vehicle sector. Regarding this point, Dong Mingzhu explained at the previous shareholders’ meeting: "Geli's desire to acquire Zhuhai Yinlong New Energy is not due to rumors that it is necessary to build a car."
Gree sees the advantages of silver lithium titanate power batteries and energy storage batteries . Liu Siyao pointed out that Yinlong's existing lithium battery technology is not applicable to passenger vehicles. This is why Yinlong is also focusing on the sales data of buses when it is publicizing. Whether it will develop new batteries for passenger cars in the future? Not sure.
The commonness between Yinlong and Gree can naturally think of energy storage. In fact, Dong Mingzhu earlier commented on the acquisition of Zhuhai Yinlong in an interview with the media. “A lot of people say that we are a cross-border acquisition. In fact, we are a collaborative development. After the acquisition is successful, we intend to integrate all new energy technologies. As one, it can solve the energy problem of a family or even a building."
5. Gree's diversification was questioned
In recent years, Gree’s diversification has been questioned by the outside world. Liu Siyao said that new energy vehicles and air-conditioning are interlaced as if separated by mountains. Before Gree's loyalty in the mobile phone field and the bleakness of reality are still vivid, Dong Mingzhu must be treated with caution this time.
The Gree acquisition of new energy car companies in Zhuhai Yinlong also encountered the same doubts, but compared with mobile phones, the new energy vehicle market is still in its infancy, Gree might have more room for future development. However, how to coordinate with the main business is still a problem facing Gree.
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