Midea Group Empowers To B Transition with Technology, with both Offensive and Defensive Strategies

HONG KONG, Feb 5, 2024 – (ACN Newswire via SeaPRwire.com) – According to Bloomberg Terminal, since the beginning of the year, the capital market of both China and Hong Kong have entered a period of adjustment, with the Shanghai Composite Index falling to 2,724.16 points and the Hang Seng Index falling below 15,000 points. While by comparison, the home appliance sector has outperformed the overall market, leading to an upward trend in the heavy allocation of public funds each quarter. In particular, the white goods sector has seen increases in holdings for four consecutive quarters, while the share price of the leading company Midea Group (000333.SH) has proved resilient.

In fact, since early December last year, Midea Group’s share price has started a new round of rise, as of the close of trading on 23 January, it has accumulated a 17.31% increase from the previous low point, ranking among the top in the sector. In late October 2023, the Company submitted an application for listing in Hong Kong. In the A1 prospectus, Midea Group positioned itself as a “leading global technology company”.

In the past few years of development, Midea Group has adopted a new strategy of transition to To B business by consolidating the foundation of its To C business, and continued to promote the upgrading of business through strategic innovation and technology enhancement. Therefore, what kind of value orientation can we extract from it?

Accelerating the Development of To B Business by Following the General Trend

From the perspective of the life cycle of the industry, the traditional home appliance industry has undoubtedly stepped into the maturity period, and the market is gradually being stabilized, becoming a stock market.

Throughout the development of human society, technology has become the most powerful engine to change the world. Standing on the node of the fifth technological revolution, digital transformation has become the preferred choice of many home appliance enterprises. At the same time, under the context of the “dual carbon” goals, it is also the general trend to actively develop new energy industry and promote green and low-carbon development.

Therefore, Midea Group has resolutely chosen to develop the To B business while adhering to its To C business with a focus on smart home business. Driven by technology, the To C business serves as the “trunk”, which is the base camp where the foundation is located, forming a “defending” position and reinforcing its own moat wall; while the To B business serves as the “branch”, which opens up a breakthrough in the incremental market with unlimited room for imagination, and can be fully developed in order to occupy the commanding heights of industry competition.

Midea Group’s To B business is focused on providing commercial and industrial solutions in four segments, including energy solutions and industrial technology, intelligent building technology, robotics and automation, and innovative businesses. In terms of the timeline of the transition to To B, a multi-line parallel strategy has been adopted.

Back in 2017, Midea Group entered the robotics and automation market through the acquisition of KUKA Group of Germany, which promoted the prelude to our To B transition. In 2020, Midea Group acquired Winone, a manufacturer of freight elevators, which enriched the intelligent building technology product offerings. In 2021, Midea Group completed the acquisition of Wandong Medical and entered the medical imaging market. Later in 2020 and 2023, Midea Group expanded into the energy storage solution business through the successive acquisitions of new energy companies Hiconics and Clou Electronics.

In addition to external acquisitions, in-house incubation is also a major means for Midea Group to develop its To B business. For example, in terms of innovative businesses, focusing on the supply chain and digitalized operations, Midea Group have established high-tech enterprises such as Annto Smart Logistics, Midea Cloud and Midea Lighting.

By combining in-house incubation and external acquisitions, Midea Group has gradually improved the layout of its To B business. In essence, the To B business is an extension of the To C main business, rather than an entirely new replacement. Only with the in-depth development of the core business of smart home business, can commercial and industrial solutions flourish. The two support each other, achieving coordinated development, and closely aligning with the trends of the times, such as digital transformation and new energy development.

For example, the energy solutions and industrial technology business relies on Midea Group’s decades of experience in home appliances and commercial air conditioners. In particular, the residential air conditioning compressor business, which commands over 40% of the global market share, is a typical example of the combination of white goods and new energy. The intelligent building technology business is expanding on the basis of existing products such as commercial air conditioners, elevators, building energy management and building control software.

As the saying goes, things without a foundation will not have long-term development. Midea Group’s To B business complements its To C business and continues to increase the value through its strong technological strength. Revenue from the B-end business is also constantly increasing, making it the second-largest source of growth in results.

Developing Scale Advantages and Continuously Increasing Investment in R&D

R&D, the lifeblood of a technology-based enterprise.

Generally speaking, it is ideal for large enterprises to invest more than 3% of their total annual revenue in R&D. Midea Group has maintained a high level of investment in R&D and talents. From 2020 to 2022, the proportion of R&D expenditure remained at 3.5% and above. In 2022, the Company’s R&D investment exceeded RMB12 billion, with a total R&D expenditure of over RMB50 billion in the past five years. Based on this trend, the R&D investment is expected to exceed RMB13 billion in 2023.

IFI Claims recently released data on the global 250 patent holders, showing that as of 2 January 2024, Midea Group has 64,903 active patent assets worldwide, ranking third in China and eighth in the world, far ahead in the home appliance industry.

Currently, Midea Group has 31 R&D centers and 40 major manufacturing bases in more than 10 countries around the world, and has established a huge scale advantage through the “2+4+N” global R&D network. In terms of technology talents, the Company has more than 22,000 R&D employees, with more than 6,000 industry-leading talents, including doctoral and master’s degree holders, and has introduced more than 500 foreign senior experts. In addition, the Company has established a system of scientists, set up seven academician workstations (rooms), and introduced dozens of strategic cooperation academicians.

By following the trend, Midea Group, through its emphasis on research and development and forward-looking judgment of the development trend of the home appliance industry, has expanded its business from To C to To B, and accelerated its development by flexibly switching from defense to offense.

As the annual results disclosure period is approaching, it would be worthwhile to focus on the latest progress of Midea Group’s To B business and whether it can provide a sustainable source of momentum for the restoration of its valuation.

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