The air conditioning industry of China in 2019 is in recession. While the overall industry demand has declined, the competition among enterprises has increased. There has been competition over the channels of online and offline sales, and the hype of intelligent air conditioning concepts.
As the leading companies in China's home appliances, Gree and Midea have always received much attention. The competition of air-conditioning business between them is even more intense.
Gree and Midea's semiannual reports 2019 were announced in the last few hours. According to these reports of the two companies, Coolwor.com has summarized two tables to systematically analyze the achievements of Gree and Midea's operation and development.
1. Great revenue in the first half of 2019
Gree and Midea's semiannual revenue reached respectively 97.298 billion and 153.77 billion, which achieved respectively 6.95% and 7.82% year-on-year growth. In the situation of a decline in market demand, they both have made great achievement, which shows that the concentration of the industry has been further strengthened.
In comparison, both the revenue and increase over the previous year of Midea are higher than those of Gree. The revenue gap this year was 56.472 billion; the gap in 2018 was 51.648 billion. It shows clearly that the gap was expanding year-on-year.
But the increase of both companies has declined. While Midea and Gree reached respectively 31.5% and 14.6% increase over the previous year in the first half of 2018, they reached respectively only 6.95% and 7.82% increase in the first half of 2019, with a decrease of 24.55% and 6.78%.
2. Increase of net profit over the previous year
Gree and Midea's semiannual net profit reached respectively 13.75 billion and 15.187 billion, which achieved respectively an increase of 6.95% and 7.82%. Midea exceeded Gree 1.437 billion in net profit, compared with only 133 million last year.
However, the rate of increase plummeted. Midea and Gree reached respectively 7.37% and 17.39% increase over the previous year in the first half of 2019, while in the first half of 2018, they reached respectively an increase 35.48% and 19.66%.
3. Increase of net profit after irregular items over the previous year
Gree and Midea’s net profits after irregular items were 13.393 billion and 14.456 billion in the first half of 2019, with respectively an increase of 6.03% and 16.44%. For the first time, Midea exceeded Gree 1.163 billion in that. In the year of 2018, Gree even surpassed Midea 132 million. Midea’s rate of increase over the previous year was also higher than Gree.
1. In the first half of the year, the main business of air-conditioning maintained a good growth. Gree's position as leadership in air-conditioning was threatened.
Gree and Midea's air-conditioning business revenues were 79.324 billion and 71.439 billion, with an increase of 4.62% and 11.84% over the previous year. Gree reached 7.885 billion more revenue than Midea, compared with 11.946 billion in the first half of 2018. The gap between the two becomes smaller. Midea's increase rate of air-conditioning business revenue was even 7.22% higher than Gree. It is expected that this year Midea will exceed Gree in air-conditioning business.
Although the market competition increased, the gross profit rate of air-conditioning business increased year-on-year. The gross profit rates of Gree and Midea were respectively 36.02% and 32.08%, with a year-on-year growth of 1.65% and 1.83%.
2. Achievements of diversified development are very different
The proportion of Gree's air-conditioning business in total and manufacturing revenue was 81.53% and 95.19% respectively.
Midea's air-conditioning business accounted for 46.46% and 50.38% of total and manufacturing revenue, respectively.
The diversification development of Midea started earlier and is now a big success. The air-conditioning business accounted for 46.46% of total revenue.
Although Gree's diversification develops rapidly, due to the late start, the air-conditioning business accounts still for 81.53% of the total revenue, which is over-reliant. This year, the decreasing market demand for air-conditioning, the intense competition and the bottleneck of industry development will affect Gree's further expansion of revenue. In recent years, Gree has been rapidly developing its diversification, such as the intensive investment in mobile phones, small appliances, chips, new energy and other fields.
3. Different degrees of internationalization
Gree's revenue in domestic sales was 69.464 billion, accounting for 83.36%, and the revenue in export sale was 13.869 billion, accounting for 16.64%.
The revenue in domestic sales of Midea was 91.664 billion, with a proportion of 59.6%, and the revenue in export sales was 62.106 billion, accounting for 40.39%.
Midea has a higher degree of internationalization and a stronger ability to resist risks. Its export sales proportion is based on total revenue, if it were calculated by the manufacturing revenue, the proportion would be much higher. This is due to the fact that Midea has been frequently investing and acquiring in the international market in recent years.
In contrast, Gree's internationalization's degree is not high and the domestic market accounts for a large proportion, which means it can be easily affected by domestic market demand, and its anti-risk ability is relatively weak.
4. Different gross profit rates in domestic and export sales
Gree's gross profit rate in domestic sales was 40.43%, and the gross profit rate in export sales was 10.14%.
The gross profit margin in domestic sales of Midea was 31.58%, and the gross profit margin in export was 26.38%.
The gross profit rates of Midea’s domestic and export sales were relatively close, while the gross profit margin of Gree's domestic and export sales was a great difference. In particular, Gree's gross profit margin in domestic sales reached 40.43%, which was incredibly even higher than Apple's (38%) in the same period.
With the intense industry competition, the innovation of sales model, the threats of dark horse Xiaomi and "price butcher" Oaks, as well as the limited innovation in traditional industries, it will be an inevitable trend to reduce profits in order to obtain the market.