Haier Zhijia (600690): Exploring the structure of privatized Haier Electric + governance improvement on the agenda

Haier Zhijia announced on the evening of December 12 that the company is currently initially discussing a plan to privatize Haier Electric. These possible privatization arrangements will be carried out through a share swap. The consideration shares are H shares listed on the main board of the Hong Kong Stock Exchange.

If the transaction is completed, Haier Electric will be terminated from listing on the main board of the Hong Kong Stock Exchange. On the date of the announcement, the company has not yet proposed any privatization arrangements to Haier Electric, and has not reached any agreement, commitment or other firm opinion on these privatization arrangements (Such as the share swap ratio and the privatization schedule), there are still significant uncertainties in these privatization arrangements.

  Comment: Haier Electric is a H-share subsidiary of Haier Zhijia, including domestic washing machine / water heater manufacturing and domestic sales channel distribution business.

Haier Electric holds 45 shares for Haier Zhijia.

64% (as of mid-year 19 report) of H-share subsidiaries.

The main business of Haier Electric includes the manufacturing of domestic washing machines, water heaters, and channel distribution in the domestic market, while the manufacturing of domestic refrigerators / air conditioners and overseas home appliances industries belong to Haier Zhijia.

  Haier Electric realized revenue of 85.3 billion yuan in 2018, and net profit attributable to its mother was 3.8 billion yuan.

As of the close of December 12, its total market value was about 55 billion yuan.

  If it is successfully implemented, the increase in profit will be attributed to the size of the mother’s profit, and the increase or decrease in EPS will depend on the share premium.

After the company successfully converts shares and absorbs minority shares in subsidiaries, the overall net profit attributable to the parent company will increase.

Reaching the upper limit of EPS, although Haier Zhijia ‘s estimated level is slightly higher than Haier Electric, but because there may be a certain premium in subsequent share swaps, EPS may be basically flat or slightly decreased after the merger.

  The establishment of a complex equity structure has led to Haier’s consistency in previous operations being restricted, and the operation / benefits consistency after the merger of the platform is stronger.

  In our opinion, compared with the small changes in short-term EPS, the company’s medium- and long-term logic behind share swaps and discussions is more worthy of attention.

  Due to historical reasons, Haier has two A / H listed company platforms and their respective businesses are different. In the past, there were governance issues: 1) Haier’s Zhijia shareholders could not fully share the profit and cash flow rewards of some high-quality assets of washing machines and water heaters (2018The scale of Haier’s Zhijia minority shareholders’ equity reached USD 2.3 billion in 2014).

2) There is a serious and complicated internal transaction settlement between the two platforms.

For example, KA sales are financed by Haier Zhijia, Haier Electric is responsible for its own channels (specialized stores), and its logistics business is owned by Haier Electric.

Therefore, the company needs to balance the shareholders’ interests of various platforms, and there are some interest-related phenomena.

  3) The two platforms have their own management teams. In the past, there were some problems of overlapping management or conflict of permissions.

  If the company successfully passes the privatization plan this time and unifies it into a business / listing platform, it will solve many shortcomings of the previous corporate governance standards and maximize shareholder benefits from multiple perspectives.

  In the early stage of Haier Zhijia, due to the excessive cash flow of the property right structure, equity financing was divergent and affected the dividend rate.

Based on the 2019 interim data, excluding Haier’s consolidated accounts, Haier Zhijia’s book cash and equivalents (cash + net bills + wealth management) are approximately 15 billion U.S. dollars, and interest-bearing liabilities reach 36.4 billion; Haier Electric owns cash21.5 billion without interest.

As a result, Haier Zhijia had several 佛山桑拿网 equity financings in 2018, including convertible bonds and D-share issuance, resulting in diluted shareholders’ interests.

  At the same time, the dividend rate of Haier Zhijia in the past five years has been only 30%, which is significantly lower than Midea Group and Gree Electric Appliances, which is inconsistent with the high ROE capability and high cash flow capability of home appliance leaders.

If the privatization event is completed, the company will have full control of Haier’s book cash assets and the cash flow situation is expected to improve significantly.

  Earnings forecast, estimation and rating companies are in the process of initial privatization of Haier Appliance, marking the start of improving property rights structure and corporate governance issues.

If the subsequent implementation is successful, 南京桑拿网 the Haier Department’s previous property rights structure will be complicated, and the problem of connected transaction substitution will be significantly improved. At the same time, Haier Zhijia ‘s cash flow will also be significantly optimized. The company’s synergy and profitability will continue to improve.may.

Considering that the company currently estimates that the three major white goods have the lowest value and the market value also lags behind Greemei’s overlap, there may be contradictory investment opportunities in the future. Investors are advised to pay close attention to the progress of the event.

We maintain our forecast for the company’s EPS for 1-21.

46/1.

42/1.

57 yuan, corresponding to 12/12/11 times the PE, maintain “Buy” rating.

  Risk reminder: the plan has not been successfully implemented, the stock exchange has been attracted and the premium is too high.